-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, L3KuCwdEuoA8XF6+mySyUOYYWjFQeH31mTyumRVEUAyCgkKr68zOxw2JR7rs5Xf5 RB2TB0afkVUElm6803Xz5Q== 0000893220-94-000177.txt : 19940328 0000893220-94-000177.hdr.sgml : 19940328 ACCESSION NUMBER: 0000893220-94-000177 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 27 CONFORMED PERIOD OF REPORT: 19931231 FILED AS OF DATE: 19940325 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CIGNA CORP CENTRAL INDEX KEY: 0000701221 STANDARD INDUSTRIAL CLASSIFICATION: 6331 IRS NUMBER: 061059331 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 34 SEC FILE NUMBER: 001-08323 FILM NUMBER: 94518075 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 FORM 10-K FOR THE PERIOD ENDING DECEMBER 31,1993 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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, 1993 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER 1-8323 CIGNA CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 06-1059331 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) ONE LIBERTY PLACE, PHILADELPHIA, PENNSYLVANIA 19192-1550 (Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (215) 761-1000 SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE ON TITLE OF EACH CLASS WHICH REGISTERED - ------------------------------- ---------------------------------- Common Stock, Par Value $1; New York Stock Exchange, Inc. Preferred Stock Pacific Stock Exchange, Inc. Purchase Rights; Philadelphia Stock Exchange, Inc. and 8.20% Convertible Subordinated New York Stock Exchange, Inc. Debentures due July 10, 2010
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X . No . Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. / / The aggregate market value of the voting stock held by non-affiliates of the registrant as of March 14, 1994, was approximately $4.4 billion. As of March 14, 1994, 72,359,080 shares of the registrant's Common Stock were outstanding. Parts I and II of this Form 10-K incorporate by reference information from the registrant's annual report to shareholders for the year ended December 31, 1993 (the "1993 Annual Report"). Part III of this Form 10-K incorporates by reference information from the registrant's proxy statement dated March 21, 1994. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 TABLE OF CONTENTS
PAGE ----- PART I Item 1. Business.................................................................. 1 A. Description of Business............................................... 1 B. Financial Information about Industry Segments......................... 2 C. Employee Life and Health Benefits..................................... 3 D. Employee Retirement and Savings Benefits.............................. 6 E. Individual Financial Services......................................... 9 F. Property and Casualty................................................. 13 G. Investments and Investment Income..................................... 27 H. Regulation............................................................ 32 I. Miscellaneous........................................................ 34 Item 2. Properties................................................................ 34 Item 3. Legal Proceedings......................................................... 35 Item 4. Submission of Matters to a Vote of Security Holders....................... 35 PART II Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters................................................................... 36 Item 6. Selected Financial Data................................................... 36 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations................................................................ 36 Item 8. Financial Statements and Supplementary Data............................... 36 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure................................................................ 36 PART III Item 10. Directors and Executive Officers of the Registrant........................ 36 A. Directors of the Registrant........................................... 36 B. Executive Officers of the Registrant.................................. 36 C. Compliance with Section 16(a) of the Securities Exchange Act.......... 37 Item 11. Executive Compensation.................................................... 37 Item 12. Security Ownership of Certain Beneficial Owners and Management............ 37 Item 13. Certain Relationships and Related Transactions............................ 37 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.......... 38 Signatures............................................................................ 39 Index to Financial Statement Schedules................................................ FS-1 Index to Exhibits..................................................................... E-1
i 3 PART I Item 1. BUSINESS A. Description of Business With shareholders' equity of $6.6 billion, revenues of $18.4 billion and assets of $85.0 billion as of December 31, 1993, CIGNA Corporation and its subsidiaries constitute one of the largest investor-owned insurance organizations in the United States and one of the principal United States companies in the financial services industry. Unless the context otherwise indicates, the terms "CIGNA" and the "Company," when used herein, refer to one or more of CIGNA Corporation and its consolidated subsidiaries. Although CIGNA Corporation is not an insurance company, its subsidiaries are major providers of group life and health insurance, managed care products and services, retirement products and services, individual financial services, and property and casualty insurance. CIGNA is one of the largest international insurance organizations based in the United States, measured by international revenues, and the largest investor-owned health maintenance organization ("HMO") in the United States, measured by number of enrollees. CIGNA's major insurance subsidiaries, Connecticut General Life Insurance Company ("CG Life") and Insurance Company of North America ("ICNA"), are among the oldest insurance companies in the United States, with ICNA tracing its origins to 1792 and CG Life to 1865. CIGNA Corporation was incorporated in the State of Delaware in 1981. CIGNA's revenues are derived principally from premiums and fees and investment income. CIGNA conducts its business through the following operating divisions, the financial results of which are reported in the following segments: Employee Life and Health Benefits Segment (beginning on page 3) CIGNA HealthCare CIGNA Group Insurance - Life-Accident-Disability(1) Employee Retirement and Savings Benefits Segment (beginning on page 6) CIGNA Retirement & Investment Services Individual Financial Services Segment (beginning on page 9) CIGNA Individual Insurance CIGNA Reinsurance - Life-Accident-Health Property and Casualty Segment (beginning on page 13) CIGNA Property & Casualty CIGNA International CIGNA Reinsurance - Property & Casualty - --------------- (1) Portions of this division are reported in the Individual Financial Services and Property and Casualty Segments. Investment results produced by CIGNA Investment Management on behalf of CIGNA's insurance operations are reported in each segment's results or in Other Operations. The other businesses of CIGNA Investment Management are described on page 32 and financial results for these businesses are reported in Other Operations. 1 4 CIGNA and its major insurance subsidiaries are rated by nationally recognized rating agencies. Insurance company ratings represent the opinions of the rating agencies of the financial strength of the Company and its capacity to meet the obligations of insurance policies. Corporate credit ratings are assessments of the likelihood that a borrower will make timely payments of principal and interest. As of March 25, 1994, the principal ratings obtained through a contractual relationship with the agencies were as follows:
RATING AGENCIES -------------------------------------------- MOODY'S A. M. DUFF & INVESTORS STANDARD BEST PHELPS SERVICES & POOR'S --------- ------ --------- -------- Insurance Company Ratings CG Life............................................ A+ AAA Aa3 AA+ Life Insurance Company of North America............ A+ * * * Property & Casualty Domestic Pool Group(1)......... A- * A2 * Corporate Credit Ratings Senior Debt........................................ * * A2 A Subordinated Debt.................................. * * A3 A Commercial Paper................................... * * P-1 A-1
- --------------- * Not rated. (1) A group of subsidiaries rated on a combined basis. Rating agencies generally assign ratings to insurance companies along a scale. While the significance of individual ratings varies from agency to agency, companies assigned ratings at the top end of the scale have, in the opinion of the rating agency, the strongest capacity for repayment of debt or payment of claims, while companies at the bottom end of the scale have the weakest capacity. Insurance company rating scales of the principal agencies that rate the Company's insurance subsidiaries are characterized as follows: A.M. Best Company, Inc. ("A.M. Best"), A++ to F ("Superior" to "In Liquidation"); Duff & Phelps, AAA ("Highest") to Substantial Risk; Moody's Investor Services ("Moody's"), Aaa to C ("Exceptional" to "Lowest"); and Standard & Poor's ("S&P"), AAA to R ("Superior" to "Regulatory Action"). The scales of corporate credit ratings of the principal agencies that rate CIGNA are characterized as follows: Moody's, Aaa to C ("Best" to "Lowest"); and S&P, AAA to D ("Extremely Strong" to "Default"). Commercial paper ratings for Moody's range from Prime 1 to Not Prime ("Superior" to "Speculative"). S&P's commercial paper ratings run from A-1+ to D ("Highest" to "Default"). The ratings of CG Life are characterized as "superior", "highest" or "excellent" and the property and casualty ratings as "excellent" or "good" by the rating agencies. The corporate credit ratings are characterized as "upper medium" or "strong" by the rating agencies, and allow CIGNA ready access to the capital markets. The ratings are reviewed routinely by the rating agencies and may be changed at their discretion. In February 1994, Moody's informed CIGNA that it is reviewing for possible downgrade the credit ratings of CIGNA Corporation and the insurance company ratings of CG Life and the Property & Casualty Domestic Pool Group. The outcome of this review is not expected to have a material adverse effect on CIGNA's financial condition. B. Financial Information about Industry Segments All financial information in the tables that follow is presented in conformity with generally accepted accounting principles ("GAAP"), unless otherwise indicated. Certain reclassifications have been made to 1992 and 1991 financial information to conform with the 1993 presentation. Industry rankings and percentages set forth below are for the year ended December 31, 1992, unless otherwise indicated. Unless otherwise noted, statements set forth in this document concerning CIGNA's rank or position in an industry or particular line of business have been developed internally based on publicly available information. Revenues; income (loss) before income taxes, extraordinary item and cumulative effect of accounting changes; and identifiable assets attributable to each of CIGNA's business segments, other operations and foreign operations are set forth in Notes 12 and 13 to CIGNA's 1993 Financial Statements and are incorporated by reference from pages 45 and 46 of CIGNA's 1993 Annual Report. 2 5 C. Employee Life and Health Benefits Principal Products and Markets CIGNA's Employee Life and Health Benefits operations offer a wide range of traditional indemnity insurance products and are a leading provider of managed care and cost containment products and services. The following table sets forth the principal products of this segment and their related net earned premiums and fees.
YEAR ENDED DECEMBER 31, ---------------------------------- 1993 1992 1991 ------ ------ ------ (IN MILLIONS) Indemnity: Medical................................................... $1,983 $1,946 $2,148 Life...................................................... 1,627 1,580 1,384 Long-term Disability...................................... 427 435 475 Dental.................................................... 324 329 375 Accidental Death and Dismemberment........................ 260 243 233 Short-term Disability..................................... 91 100 112 Other..................................................... 18 13 11 ------ ------ ------ Total................................................... 4,730 4,646 4,738 Prepaid Health and Dental Care.............................. 2,708 2,528 2,399 ------ ------ ------ Total Premiums and Fees..................................... $7,438 $7,174 $7,137 ------ ------ ------ ------ ------ ------
------------------- Amounts in table do not include "premium equivalents," which are the industry's measure of the additional premiums that would have been earned under minimum premium and ASO contracts (described below under "Principal Products and Markets") if they had been written as traditional indemnity or health maintenance organization ("HMO") programs. CIGNA's Employee Life and Health Benefits customers range in size from some of the largest United States corporations to small enterprises, and include employers, multiple employer groups, unions, professional and other associations, and other groups. Products are marketed in all 50 states, the District of Columbia and Puerto Rico. Most of the indemnity products listed in the above table are sold on an experience-rated basis and all are provided through traditional insurance arrangements, in which CIGNA assumes the full insurance risk for a set premium. Certain group indemnity coverages, primarily medical and dental, also are provided through alternative funding programs under which the customer assumes all or a portion of the responsibility for funding claims, with CIGNA providing combinations of administrative and claim services and insurance for a fee or premium charge. These alternative funding programs, primarily consisting of "minimum premium" arrangements and administrative services only ("ASO") plans, constituted 57% of business volume (premiums and fees plus premium equivalents) in 1993. In minimum premium business, the policyholder funds claims up to a predetermined aggregate amount and CIGNA funds claims exceeding that amount. Under ASO plans, the policyholder is responsible for funding all claims and CIGNA provides administrative services for a fee; CIGNA may also provide stop-loss insurance for claims in excess of a predetermined amount. Alternative funding programs and their effect on CIGNA's results are more fully described on page 16 of the Management's Discussion and Analysis ("MD&A") section of CIGNA's 1993 Annual Report. CIGNA markets various disability products, including long-term and short-term disability, in all states and statutorily required disability plans in certain states. These products generally provide a fixed level of income to replace a portion of earned income lost because of disability. Personal accident coverages, which consist primarily of accidental death and dismemberment and travel accident insurance, are provided to employers, associations and other groups. Disability management and medical cost containment services provided by CIGNA help insurers and employers reduce the cost of their benefit programs. CIGNA also provides managed mental health and 3 6 substance abuse coverage and services to HMOs, insurers and employers through a national network of mental health specialists, some of whom are employees of CIGNA. CIGNA had outstanding approximately 8,100 group life insurance policies covering approximately 14 million lives as of December 31, 1993. The following table shows group life insurance in force and termination data.
YEAR ENDED DECEMBER 31 ----------------------------------- 1993 1992 1991 --------- --------- --------- (DOLLARS IN ROUNDED MILLIONS) In force, end of year.................................... $ 512,000 $ 490,000 $ 430,000 --------- --------- --------- --------- --------- --------- Cancellations (lapses and expirations)................... $ 53,000 $ 37,000 $ 56,000 --------- --------- --------- --------- --------- ---------
To control their health care costs, many employers have changed and others are changing their benefit plan design by introducing or expanding managed care features. Managed care products promote effective, efficient use of health care services by coordinating utilization of care and controlling unit costs through provider contracts. While HMOs are generally the most cost-efficient form of managed care, many employers offer their employees a choice of benefit and cost options. CIGNA provides these options through HMOs, preferred provider organizations ("PPOs") and traditional indemnity coverage as well as through integrated products, which include all three. Integrated products are available under alternative funding as well as traditional insurance arrangements. These products may include contract provisions that provide that costs to the customer will not exceed specified levels. In the aggregate, there was essentially no net effect on CIGNA's 1993 results associated with these contract provisions. CIGNA's prepaid health care operations provide medical services through HMOs. CIGNA's HMOs include (1) staff models, in which physicians and other providers are employees of the HMO, (2) individual practice association ("IPA") models, in which independent physicians and hospitals are under contract with CIGNA to provide services and (3) mixed models, in which attributes of IPA and staff model HMOs are combined. Staff model HMOs offer a greater opportunity for direct control of medical costs, quality and service, but require more capital investment. IPAs may cover wider geographic areas with lower fixed costs, but must rely on cost-effective contracts with providers and appropriate utilization management to control medical costs. Staff models generally offer lower costs to the consumer, whereas IPAs may offer broader provider choice and greater accessibility. CIGNA had 48 HMO networks serving approximately 2.7 million members as of December 31, 1993, 48 serving approximately 2.3 million members as of December 31, 1992, and 44 serving approximately 2.2 million members as of December 31, 1991. As of December 31, 1993, 40 of CIGNA's HMO networks were IPA models (with 60% of total members); 3 were staff models (with 24% of total members); and 5 were mixed models (with 16% of total members). CIGNA's indemnity business includes contracts with doctors, hospitals and other independent providers to form PPOs in 71 networks as of December 31, 1993 and 53 as of December 31, 1992. Under a PPO arrangement, CIGNA reimburses PPO participants for the costs of medical care obtained from contracted providers, who charge on a discounted rate basis. CIGNA's PPOs served approximately 900,000 individuals as of December 31, 1993 and approximately 780,000 individuals as of December 31, 1992. CIGNA also offers prepaid dental coverage, using networks of independent providers in most states, serving approximately 1.7 million, 1.3 million and 1.1 million participants as of December 31, 1993, 1992 and 1991, respectively. Distribution The products of this segment are distributed primarily by employed group sales representatives through national and other insurance brokers and insurance consultants and, to a lesser extent, by CIGNA's career agents. Sales of prepaid health care products are made primarily to employers by CIGNA's sales representatives and also through insurance brokers. During 1993, a new direct sales force began marketing HMOs on a 4 7 guaranteed-cost basis to smaller companies. Salaried marketing representatives sell disability management, medical and disability cost containment, and managed mental health and substance abuse services directly to insurance companies, HMOs and employer groups. Salaried enrollment specialists enroll employees in group life insurance, HMOs and related programs at the worksite. As of December 31, 1993, the field sales force for the products of this segment consisted of approximately 540 sales representatives in 106 field locations. Pricing and Reserves Premiums and fees charged for group indemnity and prepaid products reflect assumptions about future claims, expenses, credit risk, investment returns, competitive considerations and target profit margins. Premiums and fees charged for HMOs and PPOs also reflect assumptions about the impact of provider contracts and utilization management. Most of the premium volume for the indemnity business is established on an experience-rated basis, in which premiums may be adjusted to reflect actual claims experience, administrative expenses and income from investable funds attributable to a given policyholder. All other premiums are based on a guaranteed-cost method, for which there is no retrospective adjustment for actual experience. Both guaranteed-cost and experience-rated contracts generally permit annual rate adjustments. In addition to paying current benefits and expenses, CIGNA establishes reserves in amounts estimated to be sufficient to discharge reported claims not yet paid, as well as claims incurred but not yet reported. Also, reserves are established for estimated experience refunds based on the results of experience-rated policies. Interest on reserve and fund balances is credited to experience-rated policyholders through rates that are either set at the Company's discretion or based on actual investment performance. For rates set at the Company's discretion, several interest-crediting rates are in effect on different types of reserves; generally, higher rates are credited to long-term funds than to short-term funds, reflecting the fact that higher yields are generally available on investments of longer maturities. For 1993, the rates of interest credited ranged from 2.9% to 8.5%. Approximately one-third of the reserves comprise liabilities that will be paid within one year, primarily for group life and medical and prepaid health claims. The remainder primarily include liabilities for long-term disability benefits and group life insurance benefits for disabled individuals. The profitability of medical and dental indemnity and prepaid health care products is largely dependent upon the accuracy of projections for health care cost inflation and utilization, and the adequacy of fees charged for administration and risk assumption. The profitability of other indemnity products depends on the adequacy of premiums charged relative to claims and expenses. Also, particularly in the case of prepaid health care products, control of claim costs can significantly affect profitability. CIGNA reduces its exposure to large individual and catastrophe losses under group life, disability and accidental death contracts by purchasing reinsurance from unaffiliated insurers. Competition Group indemnity insurance and prepaid health care are highly competitive, and no one competitor or small number of competitors is dominant across the country, although some regions are dominated by local HMOs. A large number of insurance companies and other entities compete in offering similar products. Competition exists both for employer-policyholders and for the employees in those instances where the employer offers the products of more than one company. Most group policies are subject to Company review and renewal on an annual basis, and policyholders may seek competitive quotations from several sources prior to renewal. The principal competitive factors that affect this segment are: (i) price; (ii) quality of service; (iii) scope, cost-effectiveness and quality of provider networks; (iv) product responsiveness to customers' needs; (v) cost-containment services; and (vi) effectiveness of marketing and sales. 5 8 The principal competitors of group insurance and prepaid health care businesses are the large life and health insurance companies that provide group insurance, numerous Blue Cross and Blue Shield organizations, stand-alone HMOs, and HMOs sponsored by major insurance companies and hospitals. Competition also arises from smaller regional or specialty companies with strength in a particular geographic area or product line, administrative service firms and self-insurers. Addressing the needs of employee-consumers as well as of employers is increasingly important for success in these markets. CIGNA is one of the largest investor-owned insurance company providers of group life and health indemnity insurance, based on premiums and premium equivalents. It is the largest investor-owned HMO, based on the number of members. CIGNA is the second largest provider of group long-term disability coverages, based on premiums. Health Care Reform Reform of the United States health care system to address issues of cost, access, universal coverage and quality is widely predicted for 1994. A number of proposals are on the federal and state legislative agendas that would change the way health care is financed and delivered. Many reform proposals contain elements of managed competition. Some include global budgets or some form of price controls as a short-term means to restrain health care costs. Managed competition is a market-based approach to the delivery of health care and health insurance. Other reform proposals include a national standard benefit package, limits on the use of pre-existing conditions to exclude coverage, limits on the tax deductibility of health insurance, and provisions for purchasing pools that are intended to give employers and employees greater purchasing power for health insurance and health care. Certain proposals, including the Clinton Administration's, would create increased levels of regulation to accomplish the goal of health care reform. Reform may provide flexibility for the states to adopt their own programs, which would result in multiple layers of regulation. The proposals are complex and will be actively debated by Congress and the individual states. Health care reform could cause some companies to leave health care-related markets and enter or increase their commitment to other markets, such as for life, accident or disability insurance. Because the reform measures that will ultimately be adopted are not known, CIGNA cannot predict the effect that health care reform will have on its business operations. AIDS The impact of Acquired Immune Deficiency Syndrome ("AIDS") claims to date has not been material for CIGNA. However, the U.S. Center for Disease Control has projected substantial increases in the number of AIDS cases and related deaths in the general population. If such projected increases occur, they will result in higher life and health benefits claims. CIGNA anticipates that most AIDS claims in its Employee Life and Health Benefits business should be recoverable through the experience-rating process and appropriate rate increases for guaranteed-cost and prepaid products. D. Employee Retirement and Savings Benefits General CIGNA's Employee Retirement and Savings Benefits businesses provide investment products and professional services primarily to sponsors of qualified pension, profit-sharing and retirement savings plans. These products and services are marketed through CG Life and certain other subsidiaries. 6 9 Net earned premiums and fees for, and deposits to, general, separate and investment advisory accounts for this segment for the year ended December 31, were as follows:
1993 1992 1991 -------- -------- -------- (IN MILLIONS) Premiums and Fees: General Account: Guaranteed................................................ $ 151 $ 110 $ 169 Experience-rated.......................................... 99 96 89 -------- -------- -------- 250 206 258 Separate Accounts........................................... 46 42 42 -------- -------- -------- Total Premiums and Fees................................... $ 296 $ 248 $ 300 -------- -------- -------- -------- -------- -------- Deposits: General Account: Guaranteed................................................ $ 102 $ 411 $ 558 Experience-rated.......................................... 1,457 1,640 2,564 -------- -------- -------- 1,559 2,051 3,122 Separate Accounts........................................... 1,177 512 482 Investment Advisory Accounts................................ 75 43 54 -------- -------- -------- Total Deposits............................................ $ 2,811 $ 2,606 $ 3,658 -------- -------- -------- -------- -------- --------
Assets under management for this segment as of December 31 were as follows:
1993 1992 1991 -------- -------- -------- (IN MILLIONS) Assets under management: General Account: Guaranteed................................................ $ 4,369 $ 3,933 $ 3,460 Experience-rated.......................................... 17,171 16,937 16,882 -------- -------- -------- 21,540(1) 20,870 20,342 Separate Accounts........................................... 12,301 11,223 10,847 Investment Advisory Accounts................................ 628 643 637 -------- -------- -------- Total................................................... $ 34,469(1) $ 32,736 $ 31,826 -------- -------- -------- -------- -------- --------
- --------------- (1) General Account assets under management increased $521 million as a result of implementing SFAS No. 115. Principal Products and Markets CIGNA offers a broad range of products to both defined benefit and defined contribution pension plans, profit-sharing plans and retirement savings plans. CIGNA's primary marketing emphasis is on defined contribution plans, which provide for participant accounts with benefits based upon the value of contributions to, and investment returns on, the individual's account. This has been the fastest growing portion of the pension marketplace in recent years. Defined contribution plan assets amounted to approximately $15.9 billion or 46% of assets under management for this segment as of December 31, 1993, compared with $13.8 billion or 42% as of December 31, 1992. The balance of this segment's assets under management relate primarily to defined benefit plans, under which annual retirement benefits are fixed or defined by a benefit formula. CIGNA is increasing its marketing efforts for defined benefit plans. CIGNA sells investment products and investment management services, either separately or as full-service packages with administrative and other professional services, to pension plan sponsors. Traditionally, CIGNA's marketing emphasis has been on sales of full-service products that include investment management and pension services to middle market customers with plan assets of $500,000 to $50 million. In recent years, however, this emphasis has expanded to include sales to sponsors of larger plans that look to more than one entity to provide actuarial, administrative or investment services and products, or combinations 7 10 thereof. For defined contribution plans, principally 401(k) plans, CIGNA markets products that provide both investment management services and plan level and participant recordkeeping, as well as employee communications, enrollment, plan design and other consulting services. For defined benefit plans, CIGNA provides investment, administrative and professional services, including recordkeeping, plan documentation, and actuarial valuation and consulting. In addition, CIGNA offers single premium annuities, both on guaranteed and experience-rated bases; and guaranteed investment contracts ("GICs"), which provide guarantees of principal and interest with a fixed maturity date. Pension products are supported by the general asset account ("General Account") and segregated accounts ("Separate Accounts") of CG Life. The General Account supports both guaranteed and experience-rated contracts. Guaranteed contracts comprise single premium annuities and GICs. As of December 31, 1993, guaranteed single premium annuities accounted for $2.9 billion, and GICs accounted for $1.5 billion, of General Account assets under management for the Employee Retirement and Savings Benefits segment. For 1993, the interest rate on reserves for guaranteed single premium annuities ranged from 3.25% to 12.75%, with a weighted average of 8.6%. The rate of interest credited in 1993 on CIGNA's GICs ranged from 5% to 13%, with a weighted average rate of 9.6%. CIGNA's GICs and single premium annuities generally do not permit withdrawal by the plan sponsor prior to maturity, except that GICs permit withdrawal at market value in the event of plan termination. None of the GICs include renewal clauses. Payouts associated with GICs have not been material to the Company's liquidity and capital resources. Experience-rated contracts that are supported by the General Account ("policyholder contracts") have no fixed maturity dates and provide for transfer of net investment experience (including impairments and non-accruals) to policyholders through credited interest and termination provisions. Credited interest rates on policyholder contracts are generally declared annually in advance and may be changed prospectively by the Company from time to time. Credited interest rates reflect investment income and realized gains and losses. Credited interest rates on policyholder contracts for 1993 ranged from 6% to 10%, with a weighted average rate of 7.4%. The termination provisions of $4.8 billion, or 100%, of the Company's defined benefit policyholder contract liabilities that are subject to withdrawal, and the termination provisions of $3.8 billion, or 38%, of the Company's liability for defined contribution policyholder contracts, provide the policyholder with essentially two options for withdrawal of assets upon election to terminate: (a) a lump sum at market value; or (b) annual installments. Under the market value method, the Company approximates the market value of the underlying investments by discounting expected future investment cash flows from investment income (including the effect of non-accruals) and repayment of principal, including the effect of impaired assets. The discount rate assumed is based on current market interest rates. Under the installment method, 100% of the contractholder book value is paid, usually over not more than 10 years. Interest is credited over the installment period under a formula derived to pass investment gains and losses (reflecting non-accruals and impairments) through to policyholders. Withdrawals under the installment method have been insignificant to the Company. The termination provisions of $6.2 billion, or 62%, of the Company's liability for defined contribution policyholder contracts contain a book value mechanism for withdrawals at policyholder termination. Under certain circumstances, payout of book value is subject to deferral and the rate of interest credited may be reduced for the recovery of investment losses (including non-accruals and impairments). The Separate Accounts allow customers the flexibility to invest in specific portfolios and participate directly in the investment results. Investment options include publicly traded bonds, private placement bonds, equities, real estate, mutual funds and short-term securities. Approximately $7.4 billion, or 60%, of the assets in the Separate Accounts support experience-rated contracts under which the risks and benefits of investment performance are borne entirely by the customers. The remaining assets in the Separate Accounts are held under experience-rated contracts that guarantee a minimum level of benefits. As of December 31, 1993 and 1992, the amount of minimum benefit guarantees under these contracts was $4.9 billion and $4.5 billion, respectively. Reserves in addition to the 8 11 Separate Account liabilities are established when CIGNA believes a payment will be required under one of these guarantees. As of December 31, 1993, reserves of $6 million had been established to provide for the cost of interest guarantees. For additional information, see Note 17 to CIGNA's 1993 Financial Statements. CIGNA monitors contract termination experience on an ongoing basis. Of those assets subject to withdrawal, persistency for 1993 was 94%, compared with 93% and 85% in 1992 and 1991, respectively. The lower persistency rate in 1991 primarily reflected the termination of a large defined benefit plan by a single customer. Distribution CIGNA's retirement products and services are distributed primarily through CG Life salaried group pension representatives both directly and through career agents, independent insurance agents and brokers, pension plan consultants, investment advisors, and other service providers. As of December 31, 1993, CG Life had a field organization consisting of 51 pension sales representatives and 155 service consultants and administrative personnel located in 25 sales and service offices throughout the United States. Pricing and Reserves CIGNA establishes reserves for experience-rated contracts in an amount equivalent to the contractholder funds on deposit with it, including liability for estimated experience refunds based upon the results of each contract. Profitability on these contracts is based primarily on margins included in charges for investment and administrative services and risk assumption. Premiums and fees for annuity products are based on assumptions as to mortality experience, investment returns, expenses and target profit margins. For guaranteed-cost contracts, the reserve established is the present value of expected future obligations based on these assumptions, with a margin for adverse deviation. Profitability on guaranteed-cost contracts is affected by the degree to which future experience deviates from these assumptions. Competition The pension marketplace is highly competitive. CIGNA's competitors include other insurance companies, banks, investment advisors, certain service and professional organizations, and increasingly, mutual funds. No one competitor or small number of competitors is dominant. Competition focuses on service, technology, cost, variety of investment options, investment performance and, more recently, vendor financial condition as indicated by ratings issued by nationally recognized rating agencies. Business growth may be constrained by withdrawals and lower deposits resulting from decisions by pension plan sponsors to diversify assets and fund management. The largest single pension manager holds less than a 5% market share, as measured by assets under management. According to a survey published in "Pensions & Investments," CIGNA ranked 5th among insurers, and 15th among pension managers overall, in terms of pension and employee retirement savings plan assets under management. E. Individual Financial Services General CIGNA's Individual Financial Services businesses market a broad range of insurance and investment products and services to individuals and corporations. CIGNA also assumes reinsurance of certain risks under policies written by other insurance companies. 9 12 The following table sets forth the net earned premiums and fees, and deposits, for this segment.
YEAR ENDED DECEMBER 31, ------------------------------------ 1993 1992 1991 -------- -------- -------- (IN MILLIONS) Premiums and Fees: Life........................................... $ 513 $ 392 $ 378 Health......................................... 55 57 74 Reinsurance.................................... 246 261 247 -------- -------- -------- Total premiums and fees...................... $ 814 $ 710 $ 699 -------- -------- -------- -------- -------- -------- Deposits, primarily for universal life products....................................... $ 2,506 $ 1,040 $ 928 -------- -------- -------- -------- -------- --------
The following table provides data on sales and additions, terminations and life insurance in force for this segment, including assumed reinsurance, and reinsurance ceded to other companies.
YEAR ENDED DECEMBER 31, ------------------------------------ 1993 1992 1991 -------- -------- -------- (DOLLAR AMOUNTS IN MILLIONS EXCEPT AVERAGE SIZE POLICY IN FORCE) In force, beginning of the year.................. $ 60,749 $ 56,510 $ 48,208 -------- -------- -------- Sales and Additions(1): Permanent.................................... 23,551 7,055 11,042 Term......................................... 3,857 4,279 3,211 -------- -------- -------- Total.......................................... 27,408 11,334 14,253 -------- -------- -------- Less Terminations: Surrenders and conversions................... 1,813 2,139 1,199 Lapses....................................... 2,549 2,921 2,707 Other........................................ 2,522 2,035 2,045 -------- -------- -------- Total.......................................... 6,884 7,095 5,951 -------- -------- -------- In force, end of the year: Permanent...................................... 61,210 40,623 36,557 Term........................................... 20,063 20,126 19,953 -------- -------- -------- Total........................................ $ 81,273 $ 60,749 $ 56,510 -------- -------- -------- -------- -------- -------- Reinsurance ceded included above................. $ 10,700 $ 9,971 $ 9,457 -------- -------- -------- -------- -------- -------- Number of policies in force: Participating.................................. 79,042 29,813 31,647 Non-participating.............................. 410,633 414,389 422,913 -------- -------- -------- Total........................................ 489,675 444,202 454,560 -------- -------- -------- -------- -------- -------- Average size policy in force: By type: Participating.................................. $243,239 $ 77,797 $ 74,005 -------- -------- -------- -------- -------- -------- Non-participating.............................. $151,101 $141,003 $128,083 -------- -------- -------- -------- -------- -------- By division: CIGNA Individual Insurance..................... $178,639 $141,987 $126,538 -------- -------- -------- -------- -------- -------- CIGNA Reinsurance - Life-Accident-Health....... $132,748 $124,213 $116,747 -------- -------- -------- -------- -------- -------- Total.......................................... $165,974 $136,879 $124,318 -------- -------- -------- -------- -------- --------
- --------------- (1) For 1993, $17 billion of sales and additions were participating, with the remainder non-participating. For 1992 and 1991, substantially all sales and additions were non-participating. 10 13 As of December 31, 1993, total life insurance in force for this segment included assumed reinsurance of approximately $16.6 billion, compared with $16.4 billion as of December 31, 1992 and $15.9 billion as of December 31, 1991. In 1993, assumed reinsurance (included in sales and additions) totaled $3.6 billion compared with $3.9 billion and $2.7 billion in 1992 and 1991, respectively. Individual Products CIGNA's individual insurance products include term and permanent life insurance, disability insurance, and annuities. Term life insurance provides coverage for a stated period and pays a death benefit only if the insured dies within the period. Permanent life insurance, offered on a participating or non-participating basis, provides coverage that does not expire after a term of years and builds a cash value that equals the full policy amount if the insured is alive on the policy maturity date. In participating insurance, policyholders directly participate in policy earnings through dividends. Non-participating insurance does not pay dividends, but deviations from assumed experience may be reflected in the policyholder's future premium payments. Products that provide permanent coverages include whole life, universal life and variable universal life. Whole life provides fixed benefits and level premium payments. Universal life provides benefits that fluctuate with the amount of variable premiums paid, and interest credits, mortality and expense charges made, to the policy. Premiums and benefits in universal life products vary with the design of the benefits being funded. Variable universal life provides benefits that also fluctuate, but with the performance of one or more investment accounts. CIGNA offers both fixed and variable annuity products. Fixed annuities accumulate value at a fixed rate of interest on the invested premium (less applicable expenses and contract charges). Variable annuities accumulate value at levels determined by the contractholder's allocation of premium among a portfolio of mutual funds and fixed rate accounts, and the underlying investment performance of the selected funds (less applicable expenses and contract charges). CIGNA also markets a number of individual investment products and services, including mutual funds, and fee-based financial planning. Principal markets for products and services sold to individuals are affluent executives, professionals and small business owners (typically with incomes above $100,000 and net worths of $1.5 million or more). Individual insurance products are also sold to corporations to provide coverage on the lives of certain of their employees. Principal markets for corporate-owned life insurance ("COLI") are Fortune 1000 companies. The COLI market, and sales volume for COLI products, tend to be volatile. During 1993 the face amount of new sales (as shown in the preceding tables) of COLI universal life business issued on a participating basis was approximately $17 billion, accounting for the increases in deposits, permanent sales and in force, and the number and average size of participating policies. As of December 31, 1993 and 1992, approximately 64% and 85%, respectively, of CIGNA's individual life insurance in force was non-participating permanent, which includes interest-sensitive products such as universal life. The year-over-year decline was due to the large COLI sales mentioned above. Interest credited on whole life products is at a minimum guaranteed rate. For interest-sensitive products, credited interest rates vary with the characteristics of each product and the anticipated investment results of the assets backing these products. Where credited interest exceeds the guaranteed rate, the excess is used to purchase additional insurance or increase cash values. Credited interest rates on interest-sensitive products for 1993 ranged from 4% to 9.5%. Interest rates for policy loans on individual life insurance products are defined in the contract and are either variable or fixed. Variable interest rates are tied to an external index specified in the contract and are subject to a specified minimum rate. The interest rates charged to the policyholder on borrowed funds ("loan rates") are generally greater than the interest rates credited to the policyholder on those funds, and such loan rates and the related credited interest rates tend to move in tandem as interest rates fluctuate. A large portion of the contracts that provide for fixed rates also provide for a relatively constant spread between the policy loan rate and the related credited interest rate. 11 14 Most individual life insurance products have surrender charges to recover policy acquisition costs and to encourage persistency. Persistency for these products was approximately 95% in 1993, 1992 and 1991. Reinsurance Products Reinsurance products sold through this segment include coverages for part or all of the risks under policies written by other insurance companies for group life and health, individual life and health, and special risks, such as travel accident and workers' compensation catastrophe coverages. The principal markets for these products are individual and group life and health insurers and special risk and workers' compensation units of property-casualty insurers. Reinsurance coverages generally extend for the same duration as the underlying direct policies: from one year or less for group, special risk and individual life term policies, to time of lapse or expiration at death for permanent individual life and individual health policies. Most permanent reinsurance coverages have recapture charges to recover policy acquisition costs and to encourage persistency. Distribution As of December 31, 1993, CG Life sold individual insurance products primarily through approximately 875 full-time career agents and through brokers specializing in COLI products. Investment products are sold through the career agents, who are also registered representatives of a CIGNA broker-dealer. Annuities are distributed through stockbrokers and banks as well as through career agents. The COLI marketplace is dominated by a limited number of brokers. The volume of business from each of the brokers with whom CIGNA has a relationship tends to fluctuate over time. The participating COLI sales in 1993 were placed through one broker, the loss of which would have a significant adverse effect on new sales of corporate-owned participating universal life insurance. Reinsurance products are sold in the United States, Canada and Europe through a small sales force and through domestic and foreign brokers. Pricing, Reserves and Reinsurance Premiums for life and disability insurance, annuities and assumed reinsurance are based on assumptions about mortality, morbidity, persistency, expenses and target profit margins as well as interest rates and competitive considerations. The long-term profitability of individual products is affected by the degree to which future experience deviates from these assumptions. Fees for universal life insurance products consist of mortality, administration and surrender charges assessed against the policyholder's fund balance. Interest credits and mortality charges for universal life, and mortality charges on variable premium products, may be adjusted prospectively to reflect expected interest and mortality experience. Dividends on participating insurance products may be adjusted to reflect prior experience. For individual disability, annuity, traditional and variable premium life insurance and individual life and health reinsurance in force, CIGNA establishes policy reserves that reflect the present value of expected future obligations less the present value of expected future premiums. For universal life insurance, CIGNA establishes reserves for deposits received and investment income credited to the policyholder, less mortality, administration and surrender charges assessed against the policyholder's fund balance. In addition, for all individual and reinsurance products, CIGNA establishes claim reserves for claims received but not yet paid, based on the amount of the claim received, and for claims incurred but not reported, based on prior claim experience. CIGNA maintains a variety of reinsurance agreements with non-affiliated insurers to limit its exposure to large life and health losses and to multiple losses arising out of a single occurrence. Although such reinsurance does not discharge CIGNA from its obligations on insured risks, CIGNA's exposure to losses is reduced by the amount of reinsurance ceded, provided that reinsurers meet their obligations. 12 15 Competition The individual insurance, annuity and investment business is highly competitive. No one competitor or small number of competitors dominates. More than 1,000 domestic life insurance companies may offer one or more individual insurance and annuity products, and approximately 40 companies may offer one or more reinsurance products, similar to those offered by CIGNA. In addition, some of CIGNA's individual financial businesses compete with non-insurance organizations, including commercial and savings banks, investment advisory services, investment companies and securities brokers. Competition focuses on product, service, price, distribution method and, more recently, the financial strength of the vendor as indicated by ratings issued by nationally recognized rating agencies. CIGNA has benefited competitively from CG Life's financial strength and stability, and from the quality of its distribution systems. The COLI marketplace is also highly competitive. The Company principally competes with approximately half of the 25 largest domestic life insurance companies that may offer one or more COLI products. Competition in this market focuses primarily on product design, underwriting, price and administrative servicing capabilities, as well as vendor financial strength. Based on information published by A.M. Best, CG Life was the 32nd largest individual life insurer in terms of aggregate individual life insurance in force, and the 7th largest in terms of direct premiums, in the United States. Other Matters CIGNA does not expect AIDS claims, discussed on page 6, to have a significant effect on the results of operations of this segment. Where appropriate, CIGNA tests for AIDS antibodies and considers AIDS information in underwriting coverages and setting rates. Legislation may be proposed that could change the policyholder tax treatment of certain of the Company's interest-sensitive products and, thus, adversely affect future sales and persistency of such products. F. Property and Casualty Principal Products and Markets CIGNA provides property and casualty insurance and reinsurance for customers in the United States and international markets, primarily Europe, Canada, the Pacific region and Latin America. During 1993, United States and international markets constituted approximately 56% and 44%, respectively, of the total earned premiums and fees for this segment. CIGNA provides insurance coverage under standard risk transfer arrangements and provides coverages and services for customers who wish to increase their levels of risk retention or to self-insure. Principal product lines include workers' compensation, commercial packages, casualty (including commercial automobile and general liability), property, and marine and aviation. CIGNA also markets life, accident and health insurance coverages in a number of international markets. CIGNA also reinsures risks written by other insurance companies. It offers treaty reinsurance on both a full risk and finite risk basis. Treaty reinsurance is the reinsurance of a specified type, category or class of risks defined in a reinsurance agreement (a "treaty") between a primary insurer or other reinsured and a reinsurer. CIGNA also writes facultative reinsurance, which is the reinsurance of all or a portion of the insurance provided by a single policy. During 1993, approximately 90% of reinsurance premiums in the Property and Casualty segment were written on a treaty basis and 10% on a facultative basis. Approximately 77% of CIGNA's treaty reinsurance premium and all of its facultative reinsurance premium currently written is for property coverage. In recent years and increasingly during 1993, CIGNA has implemented strategies to change the business mix of its domestic operations. In the specialty insurance market, CIGNA has discontinued writing domestic-based airlines and most professional liability coverages and has divested its contract surety bond 13 16 business. In this market, CIGNA is focusing on excess casualty and homeowners business. In the medium-sized risk market, CIGNA intends to reduce the number of individual risks written, and increase production of group business, such as through affinity groups, associations and national broker blocks of business. In addition, CIGNA is focusing on writings of workers' compensation business that involves standard risk transfer in states with regulatory climates in which the Company believes it can operate profitably. Since 1990, CIGNA has implemented more restrictive risk selection and raised prices for its international property coverages. Also, CIGNA has withdrawn substantially from the domestic voluntary personal automobile insurance market and the London property and casualty assumed reinsurance market. The Company routinely re-evaluates the regulatory and reserving environment associated with these automobile and London reinsurance lines of business, and future changes in related reserves could occur. CIGNA generally attempts to protect itself from economic loss arising from foreign exchange exposure in its international operations by maintaining invested assets abroad that are currency specific in support of its foreign obligations. For information on the effect of foreign exchange exposure on CIGNA, see Notes 1(N) and 13 to CIGNA's 1993 Financial Statements. Until recently, CIGNA wrote financial guarantees on municipal bonds and certain corporate debt obligations (which are reported in the Property and Casualty segment) and on industrial revenue bonds (which are reported in other segments). For additional information, see Note 17 to CIGNA's 1993 Financial Statements. CIGNA's domestic subsidiaries are members of, or participate in, various voluntary associations and syndicates that facilitate the underwriting of large or highly concentrated risks. The associations distribute the risks assumed among the members, provide specialized inspection and engineering services and may use special forms of coverage to control overall exposures. In addition, regulatory authorities require the participation of CIGNA's domestic subsidiaries in various joint underwriting associations and pools, including workers' compensation pools that are unprofitable and represent a cost of conducting business in certain jurisdictions. Underwriting losses in these pools are the result of inadequate rate levels, the failure of states to institute workers' compensation reforms and reduced levels of voluntary writings by the industry. 14 17 The following table sets forth geographic distribution of GAAP net earned premiums and fees for the products of this segment.
YEAR ENDED DECEMBER 31, -------------------------------------- 1993 1992 ---------------- ---------------- (DOLLAR AMOUNTS IN MILLIONS) Domestic: California...................................................... $ 408 8% $ 439 8% New York........................................................ 287 6 383 7 New Jersey...................................................... 252 5 259 4 Texas........................................................... 233 5 292 5 Pennsylvania.................................................... 205 4 214 4 Florida......................................................... 154 3 184 3 Massachusetts................................................... 122 2 160 3 Illinois........................................................ 115 2 145 2 All other....................................................... 1,088 21 1,336 23 ------ ---- ------ ---- Total Domestic................................................ 2,864 56 3,412 59 ------ ---- ------ ---- Foreign: Japan........................................................... 810 16 650 11 United Kingdom.................................................. 412 8 482 8 Belgium......................................................... 169 3 196 4 France.......................................................... 101 2 142 3 All other....................................................... 780 15 878 15 ------ ---- ------ ---- Total Foreign................................................. 2,272 44 2,348 41 ------ ---- ------ ---- Total......................................................... $5,136 100% $5,760 100% ------ ---- ------ ---- ------ ---- ------ ----
- --------------- For 1993 and 1992, earned premiums and fees were substantially the same as written premiums. CIGNA's property and casualty insurance subsidiaries provide loss protection to insureds in exchange for premiums. If earned premiums exceed the sum of losses, commissions to agents or brokers, other operating expenses and policyholders' dividends, underwriting profits are realized. The "combined ratio" is a frequently used measure of property and casualty underwriting performance. On a GAAP basis, this ratio is the sum of (i) the ratio of incurred losses and associated loss expenses to earned premiums (the "loss and loss expense ratio"), (ii) the ratio of expenses incurred for sales commissions, premium taxes, administrative and other operating expenses to earned premiums (the "expense ratio") and (iii) the ratio of policyholders' dividends to earned premiums (the "policyholder dividend ratio"), each of these three ratios being expressed as a percentage. The statutory combined ratio differs from the GAAP ratio primarily in that the expense ratio and the policyholder dividend ratio are calculated as a percent of written premiums, rather than earned premiums. When the combined ratio is over 100%, underwriting results are not profitable. The combined ratios for CIGNA's property and casualty product lines and total property and casualty operations are shown in the table on page 16. Because time normally elapses between the receipt of premiums and the payment of claims and certain related expenses, funds become available for investment by CIGNA. The combined ratio does not reflect investment income from these funds, investment gains and losses, results of non-insurance business, or federal income tax expenses or benefits. Such investment income, when added to underwriting profits or losses, other items (including federal income tax expenses or benefits), investment income from accumulated earnings and capital, and realized investment gains and losses, produces net income or loss. For information concerning investment income, see "Investments and Investment Income -- Property and Casualty Investments" on pages 31 and 32. 15 18 The following tables set forth GAAP net earned premiums and fees, underwriting results, combined ratios and net investment income for the products of this segment.
YEAR ENDED DECEMBER 31, ------------------------------------------------------- 1993 1992 1991 ---------------- ---------------- --------------- (DOLLAR AMOUNTS IN MILLIONS) Premiums and Fees/Percent of Total Premiums and Fees: Domestic Lines: Workers' compensation............................. $ 710 14% $ 1,045 18% $1,230 20% Commercial packages............................... 611 12 737 13 819 14 Casualty.......................................... 457 9 669 12 676 11 Property.......................................... 243 5 223 4 278 5 Marine and aviation............................... 181 3 146 3 134 2 Personal automobile............................... 129 2 126 2 191 3 Homeowners........................................ 102 2 110 2 127 2 Other............................................. 95 2 72 1 78 1 ------- ----- ------- ----- ------ ----- Total........................................... 2,528 49 3,128 55 3,533 58 International (excluding international reinsurance)...................................... 1,293 25 1,403 24 1,470 24 Reinsurance (including international reinsurance)... 537 11 601 10 616 10 International life and health....................... 778 15 628 11 495 8 ------- ----- ------- ----- ------ ----- Total Premiums and Fees...................... $ 5,136 100% $ 5,760 100% $6,114 100% ------- ----- ------- ----- ------ ----- ------- ----- ------- ----- ------ ----- Underwriting Loss/Combined Ratios: Domestic Lines: Workers' compensation............................. $ (130) 118.4% $ (197) 118.8% $ (299) 124.4% Commercial packages............................... (334) 154.6 (254) 134.5 (117) 114.2 Casualty.......................................... (684) 249.5 (196) 129.4 (144) 121.3 Property.......................................... (101) 141.7 (127) 156.7 (29) 110.4 Marine and aviation............................... (30) 116.9 (50) 134.2 (5) 103.4 Personal automobile............................... (64) 149.9 (76) 159.9 (38) 119.8 Homeowners........................................ (14) 113.9 (15) 113.6 (20) 115.7 Other............................................. (5) 105.0 (7) 109.2 (9) 112.4 ------- ------- ------ Total........................................... (1,362) 153.9 (922) 129.4 (661) 118.8 International (excluding international reinsurance)...................................... (69) 105.4 (183) 113.0 (209) 114.2 Reinsurance (including international reinsurance)... (200) 137.1 (499) 183.1 (103) 116.7 ------- ------- ------ Underwriting Loss/Combined Ratio: After Policyholders' Dividends........... $(1,631) 137.4 $(1,604) 131.3 $ (973) 117.3 ------- ------- ------ ------- ------- ------ Before Policyholders' Dividends.......... $(1,501) 134.4 $(1,615) 131.5 $ (966) 117.2 ------- ------- ------ ------- ------- ------ Net investment income, pre-tax: Domestic lines...................................... $ 486 $ 556 $ 593 International....................................... 186 185 195 Reinsurance......................................... 81 101 110 ------- ------- ------ Total........................................... $ 753 $ 842 $ 898 ------- ------- ------ ------- ------- ------
The above table is presented on a GAAP basis. Industry results are more readily available on a statutory basis. CIGNA's statutory combined ratio after policyholders' dividends was 126.5 for 1993. CIGNA's 1993 statutory ratio was favorably affected by 9 points due to changes in the discounting of certain workers' compensation reserves. CIGNA's results have been adversely affected in recent years by a highly competitive pricing environment, which has resulted in general deterioration in its combined ratio. (The significance of the combined ratio is explained on page 15.) CIGNA's statutory combined ratio for 1993 was adversely affected by 9.0 points for environmental pollution losses and 3.9 points for asbestos-related losses, with the remainder primarily attributable to price deterioration and unfavorable underwriting. 16 19 It is not known to what extent the types of losses reflected in CIGNA's combined ratio are also reflected in the combined ratios of other companies. The average statutory combined ratio for the nine months ended September 30, 1993 for companies that write at least 70% commercial coverage and file data with the Insurance Services Office was 112.5%. However, caution should be exercised in using this data because it is not possible to compare meaningfully an individual company's combined ratio with an industry average due to numerous variables, including product mix and amounts of fee for service business, which differ between companies. Competition The principal competitive factors that affect the property and casualty products of this segment are (i) pricing; (ii) underwriting; (iii) quality of claims and policyholder services; (iv) operating efficiencies; and (v) product differentiation and availability. In the highly competitive environment of the past several years, CIGNA has reduced its premium volume rather than maintain business at inadequate prices, and its share of domestic and international markets has declined. Competition has intensified due to increased capacity in the direct insurance market resulting from growing capital supporting the industry. In international markets, particularly western Europe, price competition is intense as companies compete for market share. Perception of financial strength, as reflected in the ratings assigned to an insurance company, especially by A.M. Best, is also a factor in the Company's competitive position. Continued pressure on ratings of the domestic Pool Group is expected because of continued losses. If the A.M. Best rating of the Pool Group drops from its current A- level, the Company's ability to write the domestic lines at present levels would be adversely affected, although the effects cannot be reasonably estimated. In its international life insurance operations, CIGNA focuses on those market segments where it can compete effectively based on service levels and product design, and achieve an adequate level of profitability in the long term. It generally does not attempt to compete with large, entrenched local companies. Property and casualty insurance can be obtained through national and regional companies that use an agency distribution system, direct writers (who may have an employed agency force) or brokers, or through self-insurance, including the use by corporations of subsidiary captive insurers. Approximately 3,900 companies compete for this business in the United States and no single company or group of affiliated companies is dominant. In 1993 and 1992, CIGNA's domestic property and casualty statutory net written premiums amounted to approximately 1.1% and 1.2%, respectively, of the total market. Internationally, CIGNA competes directly with foreign insurance companies as well as with other U.S.-based companies. CIGNA's reinsurance operations compete with over 100 reinsurers around the world. Based on information published by A.M. Best, CIGNA's domestic property and casualty insurance subsidiaries rank 16th in annual net premiums written, CIGNA is the 3rd largest U.S. writer of commercial multi-peril coverages, 13th largest of workers' compensation coverages and 12th largest of commercial auto coverages. Based on revenues, CIGNA's international operations are the second largest U.S.-based provider of insurance products and services. CIGNA's reinsurance operations rank 14th domestically and 24th worldwide in annual net premiums written. Distribution In the United States, CIGNA markets its insurance products principally through independent agents and brokers. CIGNA is reducing the number of producers through which it markets its products to focus on those producers who historically have provided more profitable business, to better manage the change in business mix described on pages 13 and 14 and to reduce expenses associated with writing the business. The current producer force of approximately 3,000 is expected to be reduced to about 2,500 during 1994. In addition, CIGNA is increasing the use of brokers in the medium-sized risk market in an effort to increase the amount of group business that is written. 17 20 Property and casualty direct coverage is sold in the international marketplace primarily through brokers. A network of offices in about 50 jurisdictions provides claims and account services to international customers and brokers. Life, accident and health insurance products are sold in the international marketplace through approximately 7,000 brokers and agents. Reinsurance products are sold worldwide, with approximately 52% of 1993 business volume sold directly to client companies and the remainder through reinsurance brokers. About 56% of the brokered reinsurance business was sold through 30 broker organizations. Ceded Reinsurance To protect against losses greater than the amount that it is willing to retain on any one risk or event, CIGNA purchases reinsurance from unaffiliated insurance companies. The Company is not substantially dependent upon any single reinsurer. The Company's largest aggregation of reinsurance recoverables as of December 31, 1993 and 1992, at approximately 9% and 6%, respectively, was with syndicates affiliated with Lloyd's of London, with such recoverables spread over in excess of 100 syndicates. Although reinsurance does not discharge CIGNA from its obligations on insured risks, CIGNA's exposure to losses is reduced by the amount ceded, and thus will be limited to the amount of risk retained, provided that reinsurers meet their obligations. In recent years, in order to improve the long-term cost effectiveness of its reinsurance program, CIGNA has generally purchased less reinsurance and retained more risk. Changes in CIGNA's property catastrophe reinsurance program for domestic and international business are described on page 19 of the MD&A section of its 1993 Annual Report. The collectibility of reinsurance is largely a function of the solvency of reinsurers. CIGNA cedes risk to reinsurers who meet certain financial security standards and monitors their quality and financial condition. In its selection and monitoring process, CIGNA examines its reinsurers' financial performance and reserve adequacy; considers factors such as the quality of their management; and considers ratings and reviews of them by independent sources. When deemed appropriate, CIGNA seeks collateral from reinsurers; reassumes, in return for a settlement, risks for which it had previously purchased reinsurance; and establishes allowances for potentially unrecoverable reinsurance. Reinsurance disputes can delay recovery of reinsurance and, in some cases, affect its collectibility. Disputes resulting in such delays have increased in recent years, particularly on larger and more complex claims, such as those related to professional liability, asbestos and London reinsurance market exposures. Losses for unrecoverable reinsurance were $28 million, $89 million and $28 million for 1993, 1992 and 1991, respectively. Of the loss for 1992, $62 million related to CIGNA's London reinsurance market exposures. Additional losses from unrecoverable reinsurance are likely to affect CIGNA's future results adversely, although the amounts and timing cannot be reasonably estimated. Reserves General Significant periods of time may elapse between the occurrence of an insured loss, the reporting of the loss to the insurer and the insurer's payment of that loss. To recognize liabilities for unpaid losses, insurers establish "reserves," which are liabilities representing estimates of future amounts needed to pay claims and related expenses with respect to insured events that have occurred, including events that have not been reported to the insurer. After a claim is reported, except for a class of very small claims that typically are settled quickly, a "case reserve" is established by claims personnel for the estimated amount of the ultimate payment. The estimate reflects the informed judgment of such personnel, based on their experience and knowledge regarding the nature and value of the specific claim. Claims personnel review and update their estimates as additional information becomes available and claims proceed toward resolution. "Bulk reserves" are established on an aggregate basis (i) to provide for losses incurred but not yet reported to and recorded by the insurer; (ii) to provide for the estimated expenses of settling claims, including legal and other fees and general expenses of administering the claims adjustment process; and 18 21 (iii) to adjust for the fact that, in the aggregate, case reserves may not accurately estimate the ultimate liability for reported claims. As part of the bulk reserving process, CIGNA's historical claims data and other information are reviewed and consideration is given to the anticipated impact of various factors such as legal developments, economic conditions and changes in social attitudes. Insurance industry experience is also considered. With respect to asbestos-related, environmental pollution and certain other long-term exposure claims, CIGNA does not establish bulk reserves, except for the estimated expenses of settling reported claims and except for claims related to certain major asbestos manufacturers' policies. See below for a more detailed discussion of reserving for these claims. The reserving process relies on the basic assumption that past experience is an appropriate basis for predicting future events. The probable effects of current developments, trends and other relevant matters are also considered. Because the eventual deficiency or redundancy of reserves is affected by many factors, some of which are interdependent, there is no precise method for evaluating the adequacy of the consideration given to inflation or to any other specific factor affecting claims payments. However, the reserving process provides implicit recognition of the impact of inflation and other factors by taking into account changes in historic claims reporting and payment patterns. A number of analytical reserving techniques are used, which often yield differing results. Accordingly, estimating future claims costs is a complex and uncertain process. Because available claims data and other information are rarely definitive, the evaluation of such data's implications with respect to future losses requires the use of informed estimates and judgments. As additional experience and other data become available and are reviewed, the Company's estimates and judgments are revised and appropriate action is taken, which may include increases or decreases in CIGNA's estimate of ultimate liabilities for insured events of prior years. These increases or decreases, net of reinsurance, are reflected in results for the period in which the estimates are changed. CIGNA continually attempts to improve its loss estimation process by refining its ability to analyze loss development patterns, claims payments and other information, but there remain many reasons for adverse development of estimated ultimate liabilities. For example, the uncertainties inherent in the loss estimation process have grown in the last decade as loss estimates have become increasingly subject to changes in social and legal trends that expand the liability of insureds, establish new liabilities, and reinterpret insurance contracts to provide unanticipated coverage long after the related policies were written. As noted in the discussion below of asbestos-related, environmental pollution, and other long-term exposure claims, such changes from past experience significantly affect the ability of insurers to estimate liabilities for unpaid losses and related expenses. In management's judgment, information currently available has been appropriately considered in estimating CIGNA's loss reserves. However, future changes in estimates of claims costs will adversely affect results in future periods, although such effects cannot be reasonably estimated. Prior Year Development The adverse pre-tax effects during 1993, 1992 and 1991 on CIGNA's results of operations from insured events of prior years (prior year development) were $789 million, $656 million and $341 million, respectively. Of the prior year loss development during 1993, 82% was attributable to asbestos-related, environmental pollution and other long-term exposure claims, which are discussed below. The remaining development is discussed on pages 20 and 21 of the MD&A section of CIGNA's 1993 Annual Report. Asbestos-related, Environmental Pollution and Other Long-term Exposure Claims CIGNA continues to receive claims related to asbestos, environmental pollution and other long-term exposure claims asserting a right to recovery under insurance policies issued by the Company. 19 22 Liabilities for these claims cannot be estimated using standard actuarial methods because developed case law and adequate claim history do not exist for such claims. In addition, these claims differ from almost all others in that it is generally not clear that an insured loss has occurred and which, if any, of multiple policy years and insurers may be liable. These uncertainties prevent identification of applicable policies and policy limits until after a claim is reported to the Company and substantial time is spent (many years in some cases), resolving contract issues and determining facts necessary to evaluate the claim. Estimating liabilities and recoveries for claims that will be asserted under assumed and ceded reinsurance policies is also subject to uncertainties similar to those affecting claims under direct policies. CIGNA expects recoveries from ceded reinsurance to reduce its future losses, although the amount of recoveries cannot be reasonably estimated. Under current law, CIGNA expects these types of claims will continue to be reported for the foreseeable future. The claims to be paid, if any, and timing of any such payments depend on resolution of the uncertainties associated with them, which are expected to extend over several decades. For the reasons discussed above, and further elaborated on below, CIGNA expects that its future results will continue to be adversely affected by losses and legal expenses for these types of claims. Because of the significant uncertainties involved, and the likelihood that they will not be resolved in the near future, CIGNA is unable to reasonably estimate the additional losses and expenses and therefore is unable to determine whether such amounts will be material to its future results of operations, liquidity or financial condition. Asbestos-related Claims Since 1985, CIGNA has carried reserves related to certain insurance policies issued for certain major asbestos manufacturers ("targets"), under which CIGNA expects to pay the limits of liability. These reserves (which include amounts for unreported claims and associated legal expenses) are equal to the policy limits of liability, minus payments made to date, plus an estimate of the associated future legal expenses. More recent asbestos bodily injury litigation has been filed against manufacturers and suppliers of diverse products that either contain asbestos or used it in the manufacturing process, as well as against contractors and building owners. There is inadequate history from which the Company can predict the number or types of policyholders that will receive asbestos-related claims, how many claims they will receive, the amounts of those future claims, the insurance coverages that might be called upon for defense and indemnification or the likelihood of those coverages having to respond to claims. Because the date of event for which insurance coverage might be determined is unclear, numerous policies with varying terms over many years may be involved. In addition to bodily injury cases, damage suits have been brought seeking reimbursement for the diminution in value of buildings containing asbestos materials and for the expense of removing and replacing asbestos insulation material and other building components made of asbestos. The Company and the insurance industry generally dispute that coverage applies to these asbestos-in-building claims. Within the various state and federal court systems, there have been conflicting decisions regarding the extent, if any, of the obligation of insurers to provide coverage and the method of allocation of costs among involved insurers. Additional uncertainties are created by efforts to create novel dispute resolution procedures in response to the burden of asbestos litigation on the courts, such as the proposed global settlement of future asbestos bodily injury claims brought against certain asbestos producers, which is being contested in the courts. The majority of CIGNA's losses and legal expenses for asbestos-related claims arise from its domestic property and casualty operations. As of December 31, 1993, 1992 and 1991, respectively, approximately 1,200, 950 and 900 policyholders had asbestos-related claims outstanding with the domestic operations. The 1993 amount includes 140 policyholders for which data had not previously been available. The number of policyholders with claims pending increased during 1993, 1992 and 1991 reflecting policyholders filing claims for the first time. During those years, there were no policyholders for which all pending claims 20 23 were either dismissed or settled. CIGNA continues to litigate certain asbestos-related coverage issues, with 39 lawsuits involving 27 policyholders pending as of December 31, 1993. It is not possible to determine the Company's potential liability for asbestos-related claims based on the number of policyholders with claims outstanding. Additional information (which is not known for unreported claims) would be needed for such determination, including the extent of coverage, the policyholder's liability for claims tendered to it, the injuries allegedly sustained by the policyholder's claimants, and the number of claims pending against a policyholder. As discussed above, the lack of information on these and other matters prevents the estimation of liabilities for unreported asbestos-related claims. CIGNA establishes case reserves for reported asbestos-related claims as information permits and, during 1993, also established reserves for future legal and associated expenses for such reported claims. However, except for claims under the target manufacturers' policies discussed above, CIGNA does not establish reserves for unreported claims or for legal and associated expenses related to unreported claims because of the uncertainties described above. Reserve changes for asbestos-related claims before ("Gross") and after ("Net") the effects of reinsurance for the periods indicated are as follows:
YEAR ENDED DECEMBER 31, ---------------------------------------------------- 1993 1992 1991 -------------- -------------- -------------- GROSS NET GROSS NET GROSS NET ----- ---- ----- ---- ----- ---- (IN MILLIONS) Asbestos Bodily Injury Claims Beginning reserves................................... $ 486 $166 $ 442 $168 $ 453 $155 Plus incurred claims and claim adjustment expenses... 186 111 125 61 61 16 Less payments for claims and claim adjustment expenses........................................... (108) (61) (81) (63) (72) (3) ----- ---- ----- ---- ----- ---- Ending reserves...................................... $ 564 $216 $ 486 $166 $ 442 $168 ----- ---- ----- ---- ----- ---- ----- ---- ----- ---- ----- ---- Asbestos-in-Building Claims Beginning reserves................................... $ 70 $ 47 $ 65 $ 40 $ 76 $ 31 Plus incurred claims and claim adjustment expenses... 117 60 17 8 11 29 Less payments for claims and claim adjustment expenses........................................... (19) (10) (12) (1) (22) (20) ----- ---- ----- ---- ----- ---- Ending reserves...................................... $ 168 $ 97 $ 70 $ 47 $ 65 $ 40 ----- ---- ----- ---- ----- ---- ----- ---- ----- ---- ----- ----
During 1993 CIGNA was able to segregate and separately report asbestos-related reserves for certain of its excess and surplus and reinsurance contracts that were previously included in prior year development for lines of business such as casualty, commercial packages and reinsurance. The above table reflects this change for all periods presented. Excess and surplus business is generally subject to a significant amount of reinsurance; as a result, the effect on net reserves of losses for this business was not significant. The incurred claims and claim adjustment expenses for 1993 reflect the establishment in the third quarter of reserves of $72 million, net of reinsurance ($106 million gross), for future legal and associated expenses for reported claims. Environmental Pollution Claims The principal federal statute that requires cleanup of environmental damage is the Comprehensive Environmental Response, Compensation and Liability Act ("Superfund"), passed in 1980. It imposes liability on "Potentially Responsible Parties" ("PRPs"), subjecting them to liability for clean-up costs regardless of fault, time period and relative contribution of pollutants. Superfund is subject to reauthorization by Congress in 1994; any changes in Superfund's system of allocating responsibility or funding clean-up costs could affect the liabilities of policyholders and insurers. The proposals being considered by Congress to reform Superfund are in the early stages of development, therefore, CIGNA is not able to determine what effect, if any, such enacted reform would have on its future results. 21 24 In addition to Superfund, other federal environmental statutes exist, and state environmental statutes are, in some cases, stricter than the federal statutes. In addition to clean-up costs, environmental pollution may give rise to claims for bodily injury and property damage. Those identified as potentially responsible for environmental pollution typically assert that their liability is insured. As a result, CIGNA's environmental pollution claims have escalated rapidly since 1985, and a substantial and growing number of legal actions that involve insurers, including CIGNA, have been brought to determine insurance coverage issues. CIGNA and other insurers dispute coverage for the environmental liabilities of policyholders. Fundamental legal questions that will ultimately determine whether or not insurers have an obligation to provide coverage are being vigorously litigated and there is no consistency among the court decisions nationwide on these questions. Additional uncertainty arises because of the varying types and terms of policies, which may or may not provide for the costs of defense or contain pollution exclusions. Pollution exclusions may be absolute or may allow coverage for certain sudden and accidental events. The estimation of reserves for reported environmental pollution claims is difficult and likely to change as additional information emerges. Even if coverage issues on a particular claim are ultimately resolved in favor of the policyholder, that result may not be useful in setting reserves on other claims because of complex factual variations between sites, policyholders and policies. For example, at any given Superfund site, the allocation of liability varies greatly, depending on such factors as the amount and relative toxicity of the material contributed, extent of impairment to the environment and ability to pay. A PRP may have no liability, may share responsibility with others or may bear the cost alone. According to the Environmental Protection Agency, the average time period between issuance of initial notice of PRP status and determination of the method and cost of a site clean-up now averages about ten years. The issues have been resolved for relatively few waste sites. The majority of CIGNA's losses and expenses for environmental pollution claims arise from its domestic property and casualty operations. As of December 31, 1993, 1992 and 1991, respectively, the domestic operations had approximately 13,300, 9,200 and 7,000 environmental pollution files outstanding. During 1993, 1992 and 1991, new claim files opened were approximately 4,500 (including approximately 1,300 files for which data had not previously been available), 2,500 and 2,100, respectively, and pending claim files dismissed, settled or otherwise resolved were approximately 400, 300 and 200, respectively. A file represents each policyholder involved at a site, regardless of the number or type of claims asserted against the policyholder or the number or type of insurance policies (primary or excess) under which coverage is asserted. CIGNA disputes coverage for essentially all environmental pollution claims, and is involved in 493 coverage lawsuits as of December 31, 1993, compared with 449 as of December 31, 1992. Accordingly, and because of the many unresolved legal and factual issues described above, liabilities cannot be estimated from the number of environmental pollution files outstanding. CIGNA establishes case reserves for reported environmental pollution claims as information permits and, during 1993, also established reserves for future legal and associated expenses for such reported claims. However, CIGNA does not establish reserves for unreported claims or for legal and associated expenses related to unreported claims because of the uncertainties described above. 22 25 Reserve changes for environmental pollution claims before ("Gross") and after ("Net") the effects of reinsurance for the periods indicated are as follows:
YEAR ENDED DECEMBER 31, ----------------------------------------------------- 1993 1992 1991 --------------- -------------- -------------- GROSS NET GROSS NET GROSS NET ----- ----- ----- ---- ----- ---- (IN MILLIONS) ENVIRONMENTAL POLLUTION CLAIMS Beginning reserves................................. $ 252 $ 148 $ 192 $ 98 $ 181 $ 97 Plus incurred claims and claim adjustment expenses......................................... 482 394 197 127 103 83 Less payments for claims and claim adjustment expenses......................................... (141) (112) (137) (77) (92) (82) ----- ----- ----- ---- ----- ---- Ending reserves.................................... $ 593 $ 430 $ 252 $148 $ 192 $ 98 ----- ----- ----- ---- ----- ---- ----- ----- ----- ---- ----- ----
During 1993, CIGNA was able to segregate and separately report environmental pollution reserves for certain of its excess and surplus contracts that were previously included in prior year development for lines of business such as casualty and commercial packages. The above table reflects this change for all periods presented. Excess and surplus contracts are generally subject to a significant amount of reinsurance; as a result, the effect on net reserves of losses for this business was not significant. The incurred claims and claim adjustment expenses for 1993 reflect the establishment in the third quarter of reserves of $268 million net of reinsurance ($335 million gross) for future legal and associated expenses for reported claims. Other Long-term Exposure Claims Other long-term exposure claims typically assert injuries from a substance, such as DES, lead or breast implants, which are manifested over an extended period of time. These claims may involve multiple policies, policyholders and insurers, with uncertainties similar to those affecting asbestos-related claims, in resolving whether, and which, insurers may be liable. In addition, there are questions as to which, if any, injuries or damages are caused by the particular product or substance. CIGNA's losses and legal expenses for other long-term exposure claims primarily arise from its domestic property and casualty operations. As of December 31, 1993 and 1992, respectively, approximately 1,000 and 700 policyholders had other long-term exposure claims outstanding with the domestic operations. The 1993 amount includes approximately 250 policyholders for which data had not previously been available. CIGNA continues to litigate other long-term exposure coverage disputes, with 49 lawsuits involving 48 policyholders pending as of December 31, 1993. CIGNA establishes case reserves for reported long-term exposure claims and, during 1993, also established reserves for future legal and associated expenses for such reported claims. However, CIGNA does not establish reserves for certain classes of unreported claims or for legal and associated expenses related to certain classes of unreported claims because of the uncertainties described above. The incurred claims and claim adjustment expenses, net of reinsurance, for other long-term exposures were $76 million, $16 million and $21 million for 1993, 1992 and 1991, respectively. The incurred claims and claim adjustment expenses in 1993 for other long-term exposure claims reflect the establishment in the third quarter of reserves of $35 million, net of reinsurance, for future legal and associated expenses for reported claims. 23 26 Reserve Analysis The following table presents a reconciliation of total beginning and ending reserve balances of the Property and Casualty segment for unpaid claims and claim adjustment expenses for the periods indicated.
YEAR ENDED DECEMBER 31, ----------------------------- 1993 1992 1991 ------- ------- ------- (IN MILLIONS) Gross Reserve for Unpaid Claims and Claim Adjustment Expenses--January 1.................................................... $17,478 $16,750 $16,660 Less Reinsurance Recoverable......................................... 7,011 6,562 6,534 ------- ------- ------- Net Reserve for Unpaid Claims and Claim Adjustment Expenses--January 1... 10,467 10,188 10,126 ------- ------- ------- Plus incurred claims and claim adjustment expenses: Provision for insured events of the current year..................... 3,464 4,448 4,587 Increase in provision for insured events of prior years.............. 789 656 341 ------- ------- ------- Total incurred claims and claim adjustment expenses................ 4,253 5,104 4,928 ------- ------- ------- Less payments for claims and claim adjustment expenses: Attributable to insured events of the current year................... 1,153 1,371 1,454 Attributable to insured events of prior years........................ 3,017 3,454 3,412 ------- ------- ------- Total payments for claims and claim adjustment expenses............ 4,170 4,825 4,866 ------- ------- ------- Net Reserve for Unpaid Claims and Claim Adjustment Expenses--December 31.................................................. 10,550 10,467 10,188 Plus Reinsurance Recoverable......................................... 7,104 7,011 6,562 ------- ------- ------- Gross Reserve for Unpaid Claims and Claim Adjustment Expenses--December 31.................................................. $17,654 $17,478 $16,750 ------- ------- ------- ------- ------- -------
The table on page 25 presents the subsequent development of the estimated year-end property and casualty reserve, net of reinsurance ("net reserve") for the ten years prior to 1993. The first section of the table shows the estimated net reserve that was recorded at the end of each of the indicated years for all current and prior year unpaid claims and claim adjustment expenses. The second section shows the cumulative percentages of such previously recorded net reserve paid in succeeding years. The third section shows, as a percentage of such net reserve, the re-estimates of the net reserve made in each succeeding year. The indicated deficiency as shown in the table represents the aggregate change in the reserve estimates from the original balance sheet dates through 1993. The amounts noted are cumulative; that is, an increase in a loss estimate that related to a prior year occurrence generates a deficiency in each intermediate year. For example, a deficiency recognized in 1993 relating to losses incurred in 1987 would be included in the indicated deficiency amount for the years 1987 through 1992. Yet, the deficiency would be reflected in operating results in 1993 only. The effects on income in the past three years due to changes in estimates of net reserve are shown as "Increase in provision for insured events of prior years" in the above table. Conditions and trends that have affected the reserve development reflected in the table may continue to change, and care should be exercised in extrapolating future reserve redundancies or deficiencies from such development. 24 27
YEAR ENDED DECEMBER 31, -------------------------------------------------------------------------------------------- 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 ------ ------ ------ ------ ------ ------ ------ ------- ------- ------- ------- (DOLLAR AMOUNTS IN MILLIONS) Net reserve for unpaid claims and claim adjustment expenses.......... $4,584 $5,715 $7,299 $8,027 $8,784 $9,366 $9,731 $10,126 $10,188 $10,467 $10,550 ------ ------ ------ ------ ------ ------ ------ ------- ------- ------- ------- ------ ------ ------ ------ ------ ------ ------ ------- ------- ------- ------- Cumulative percentage of net reserve paid through: One year later................... 39.5% 38.3% 30.5% 31.0% 30.3% 31.1% 34.3% 33.7% 33.9% 28.8% Two years later.................. 62.6 60.0 51.2 50.2 49.6 52.7 54.2 53.8 53.4 Three years later................ 76.6 79.3 66.8 65.4 65.7 67.6 69.3 68.5 Four years later................. 91.5 92.7 79.5 78.9 77.0 78.9 80.7 Five years later................. 101.1 104.2 90.4 88.4 84.7 87.9 Six years later.................. 110.5 114.0 99.1 95.2 92.8 Seven years later................ 118.0 122.9 105.4 102.9 Eight years later................ 126.2 129.4 112.9 Nine years later................. 130.5 137.8 Ten years later.................. 139.7 Net reserve (percentage) re-estimated as of: One year later................... 105.1% 125.0% 101.7% 103.3% 102.7% 103.0% 103.1% 103.4% 106.4% 107.5% Two years later.................. 128.3 127.3 108.8 106.2 105.0 105.9 106.9 107.4 115.5 Three years later................ 130.2 133.3 111.8 110.0 108.0 109.8 109.7 117.0 Four years later................. 134.7 136.5 116.2 114.9 111.4 112.4 119.7 Five years later................. 139.2 140.5 122.4 118.9 114.1 122.0 Six years later.................. 142.3 147.7 126.7 122.2 124.0 Seven years later................ 148.8 151.5 130.9 132.7 Eight years later................ 153.4 157.5 142.1 Nine years later................. 159.8 170.7 Ten years later.................. 172.7 Net Indicated deficiency: $3,331 $4,039 $3,073 $2,623 $2,109 $2,059 $1,913 $ 1,722 $ 1,578 $ 789 Gross reserve--December 31.......... $17,478 $17,654 Less: Reinsurance recoverable....... 7,011 7,104 ------- ------- Net reserve--December 31............ $10,467 $10,550 ------- ------- ------- ------- Gross re-estimated reserve.......... $18,850 Less: Re-estimated reinsurance recoverable........................ 7,594 ------- Net re-estimated reserve............ $11,256 ------- ------- Gross cumulative deficiency......... $ 1,372 ------- -------
- --------------- The liability for foreign subsidiaries was excluded for 1983 because claims and claim adjustment expenses by accident year for foreign subsidiaries were not available that year. On a GAAP basis, which is before the effects of reinsurance, CIGNA's 1993 year-end reserves totaled $17.7 billion. For GAAP purposes, CIGNA's reserves are generally carried at the full value of the estimated liabilities, except for certain workers' compensation liabilities assumed in pre-1984 reinsurance agreements. The discount for these liabilities, based on an assumed interest rate of 9%, was approximately $22 million as of December 31, 1993, and approximately $2 million was amortized in 1993. For state regulatory purposes, reserves are reported in accordance with statutory accounting procedures ("SAP"), which is net of the effects of reinsurance, and, on that basis, totaled $9.6 billion. 25 28 The following table reconciles, as of year end, liabilities for unpaid claims and claim adjustment expenses determined for state regulatory purposes in accordance with SAP to those determined in accordance with GAAP:
1993 1992 1991 -------- -------- -------- (IN MILLIONS) Statutory reserve for unpaid claims and claim adjustment expenses, net of reinsurance................................................ $ 9,590 $ 9,864 $ 9,791 Adjustments: Statutory Reinsurance Recoverable................................. 6,584 6,807 6,448 Discounting of Gross Reserves(1).................................. 1,479 806 636 Salvage and Subrogation(2)........................................ -- -- (132) Other............................................................. 1 1 7 -------- -------- -------- GAAP reserve for unpaid claims and claim adjustment expenses........ 17,654 17,478 16,750 Less GAAP Reinsurance Recoverable................................... 7,104 7,011 6,562 -------- -------- -------- GAAP reserve for unpaid claims and claim adjustment expenses, net of reinsurance................................................ $ 10,550 $ 10,467 $ 10,188 -------- -------- -------- -------- -------- --------
- --------------- (1) Primarily for workers' compensation reserves. For SAP purposes workers' compensation reserves are discounted at rates ranging from 3.5% to 6%. During 1993, CIGNA expanded the use of discounting for certain statutory loss reserves and modified the assumptions used to discount other reserves, in accordance with state insurance regulations, which decreased statutory reserves by $388 million. (2) Prior to 1992, SAP did not generally allow for the recognition of estimated recoverable salvage and subrogation. Beginning in 1992, both SAP and GAAP included an adjustment for salvage and subrogation recoverables. NAIC and Other Property and Casualty Regulatory Matters The National Association of Insurance Commissioners ("NAIC") has adopted risk-based capital rules effective for property and casualty companies as of December 31, 1994. Additional information about the rules and their effect on CIGNA's property and casualty subsidiaries is contained on page 33 below and on page 15 of the MD&A section of CIGNA's 1993 Annual Report. The NAIC calculates annually 12 financial ratios to assist state insurance regulators in monitoring the financial condition of insurance companies. Departure from the benchmark "usual range" on four or more of the ratios could lead to inquiries from individual state insurance commissioners as to certain aspects of a company's business. For 1993, CIGNA's consolidated domestic property and casualty insurance subsidiaries fell outside the usual ranges for four of the ratios, as discussed below. Management believes that this departure from the usual ranges reflects the unfavorable insurance environment and will not result in any regulatory actions that would have a material adverse effect on the results of operations or financial condition of CIGNA. The consolidated subsidiaries fell outside the usual ranges for the two year overall operating ratio (118%), the one and two year reserve development to surplus ratios (38% and 49%, respectively) and the liabilities to liquid assets ratio (109%). The two year operating ratio measures a company's overall profitability by relating cumulative underwriting losses net of investment income for the current and prior year to premium for that period. A ratio in excess of 100% falls outside the usual range. Significant factors contributing to this result include losses from catastrophes and asbestos and environmental pollution claims as well as a highly competitive pricing environment. Underwriting losses and steps taken to improve results are discussed on page 19 of the MD&A section of the Company's 1993 Annual Report. The one and two year reserve development to surplus ratios relate a company's loss reserve development for insured events of prior years for the most recent calendar year to 1992 surplus (for the one 26 29 year ratio) and for the two most recent calendar years to 1991 surplus (for the two year ratio). A company falls outside the usual ranges if such development exceeds 20% of such surplus. The reasons for the Company's adverse loss development are discussed beginning on page 19 above and on pages 20 and 21 of the MD&A section of the Company's 1993 Annual Report. The liabilities to liquid assets ratio measures a company's ability to pay its liabilities with cash, investment assets or receivables. A ratio in excess of 105% falls outside the usual range. As stated above on page 13, CIGNA provides coverages and services for customers who wish to increase their levels of risk retention or to self-insure. The receivables associated with certain of these products (with respect to which the Company typically obtains collateral) are separately classified in the financial statements and are not included in the NAIC definition of liquid assets. The inclusion of the liabilities associated with such products without the related receivables results in the Company falling outside the usual range. As a result of property and casualty underwriting losses, CIGNA contributed $150 million of capital in 1993 to enhance the capital base of the domestic property and casualty operations. Also during 1993, CIGNA expanded the use of discounting for certain statutory loss reserves and modified the assumptions used to discount other reserves, in accordance with state insurance regulations, which increased statutory surplus by approximately $290 million. Additional capital contributions may be needed as a result of continued property and casualty losses; however, such amounts are not reasonably estimable at this time. CIGNA's property and casualty insurance subsidiaries are members of regulated advisory organizations that provide certain statistical, rate-making, policy audit and similar services on a fee basis. In most states, these subsidiaries may use rate filings developed by advisory organizations. They also use filings developed by themselves, or combinations of both, thus enabling them to pursue an independent course in certain areas while using advisory organization services in others. The continued operation of advisory organizations and their authority to set advisory rates is the subject of a variety of proposed regulatory restraints and legal challenges. G. Investments and Investment Income CIGNA's investment operations primarily provide investment management and related services in the United States and certain other countries for CIGNA's corporate and insurance-related assets. Assets under management at year-end 1993 totaled $67.4 billion, comprising CIGNA corporate and insurance-related investment assets ("investment assets") of $50.7 billion and advisory portfolios of $16.7 billion. Advisory portfolios included $13.7 billion in Separate Accounts of CIGNA's life insurance subsidiaries. For information about Separate Accounts, see "Employee Retirement and Savings Benefits-- Principal Products and Markets" on page 7. As of December 31, 1993, CIGNA implemented Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity Securities." Accordingly, certain fixed maturities were classified as available for sale and are now carried at fair value, rather than amortized cost. The effect of implementing SFAS No. 115 was to increase investment assets by $1.6 billion. CIGNA invests in a broad range of asset classes, including domestic and international fixed maturities and common stocks, mortgage loans, real estate, and short-term investments. In 1993, CIGNA ceased active management of the bulk of its domestic equity holdings in favor of an index approach primarily based on the Standard & Poor's 500 Index. The major portfolios under management consist of the combined assets of the Employee Life and Health Benefits, Employee Retirement and Savings Benefits, and Individual Financial Services segments (collectively, "Employee Benefits and Individual Financial portfolios") and the assets of the Property and Casualty segment. CIGNA's investment assets are generally managed to reflect the underlying characteristics of related insurance and contractholder liabilities, as well as regulatory and tax considerations pertaining to those liabilities. CIGNA's insurance and contractholder liabilities as of December 31, 1993 comprised the following: property and casualty 37%; fully guaranteed 13%, experience-rated 27%, interest-sensitive 10%, and other life and health 13%. 27 30 Property and casualty claim demands are somewhat unpredictable in nature and require liquidity from the underlying investment assets, which are structured to emphasize current investment income to the extent consistent with maintaining appropriate portfolio quality and diversity. The liquidity requirements for shorter-term liabilities are met primarily through cash flows and shorter-term investments (less than two years) and, to a lesser extent, through publicly traded fixed maturities. For longer-term liabilities, liquidity requirements are met primarily through private fixed maturity investments. During 1993, equity holdings were sold from the Property and Casualty portfolios and replaced with fixed maturity holdings with the objective of reducing future volatility of investments supporting CIGNA's property and casualty reserves. Fully guaranteed products primarily include GICs, settlement annuities and single premium annuity products. Because these products generally do not permit withdrawal by policyholders prior to maturity, the amount and timing of future benefit cash flows can be reasonably estimated. Funds supporting these products are invested in fixed income investments that generally match the aggregate duration of the investment portfolio with that of the related benefit cash flows. As of December 31, 1993, the duration of assets and liabilities for GICs, single premium annuities and settlement annuities was 3 years, 8 years and 12 years, respectively. Experience-rated products include defined benefit and defined contribution pension products. The principal and liquidity requirements of experience-rated liabilities are met by investments that emphasize current yield, primarily fixed income investments. Investment assets for interest-sensitive products, which include universal life insurance, primarily include fixed income investments, which emphasize investment yield while meeting the liquidity requirements of the related liabilities. Other life and health products consist of various group and individual life and health products. The supporting investment assets are structured to emphasize investment income, and the necessary liquidity is provided through cash flow, short-term investments and common stocks. Investment strategy and results are affected by the amount and timing of cash available for investment, economic conditions and interest rates. For example, cash flows have increased in the past two years due to higher principal repayments, primarily from prepayments of mortgage-backed securities. Reinvestment of this cash in high quality fixed maturities at prevailing interest rates has reduced investment income. Increased competition for quality investments could reduce the availability of such investments and adversely affect future investment results. CIGNA routinely monitors and evaluates the status of its investments in light of current economic conditions, trends in capital markets and other factors. Such factors include industry segment considerations for fixed maturity investments, and geographic and property-type considerations for mortgage loan investments. CIGNA's fixed maturity investments as of December 31, 1993 constituted approximately 54% of the Employee Benefits and Individual Financial portfolios and approximately 87% of the Property and Casualty portfolios, respectively. As of that date, approximately 33% of fixed maturity investments was attributable to experience-rated contracts. CIGNA reduces credit risk for the portfolios as a whole by investing primarily in investment grade securities rated by rating agencies (for public investments), by CIGNA (for private investments) or by the Securities Valuation Office of the NAIC (for both public and private investments). For information about below investment grade holdings and NAIC and agency ratings, see page 24 of the MD&A section of CIGNA's 1993 Annual Report. Adverse economic conditions in particular industry sectors have impaired certain borrowers' abilities to pay debt service on fixed maturities. This resulted in additional write-downs, delinquencies and restructured bonds in 1993. Despite signs of overall economic growth, continuing adverse conditions in various industry segments are expected to result in additional problem fixed maturities and write-downs and valuation reserves. 28 31 CIGNA's mortgage loan investments constituted approximately 26% of the Employee Benefits and Individual Financial portfolios and approximately 4% of the Property and Casualty portfolios as of December 31, 1993. As of that date, approximately 59% of mortgage loan investments was attributable to experience-rated contracts. Mortgage loan investments are subject to underwriting criteria addressing loan-to-value ratio, debt service coverage, cash flow, tenant quality, leasing, market, location and financial strength of the borrower. Such investments consist primarily of first mortgage loans on commercial properties and are diversified relative to property type, location, borrower and loan size. The Company invests in fully completed and substantially leased commercial properties. Virtually all of the Company's mortgage loans are bullet or balloon loans, under which all or a substantial portion of the loan principal is due at the end of the loan term. Conditions in certain economic sectors and the real estate markets generally, have impaired certain borrowers' abilities to pay debt service on mortgage loans. As a result, CIGNA experienced additional delinquencies, restructurings and, in particular, foreclosures in 1993, as well as an increase in valuation reserves. Continuing adverse conditions, in particular in California and the office building sector, are expected to result in additional problem mortgage loans, foreclosures and valuation reserves. In addition, in 1993 the Company refinanced approximately $900 million of mortgage loans in good standing that related to borrowers unable to obtain alternative financing and extended the maturities of certain mortgage loans. CIGNA manages properties obtained through foreclosure of mortgage loans ("foreclosure properties") until such properties are sold. The Company's general policy is to sell foreclosure properties after rehabilitating the properties, re-leasing them, and managing them for two to four years, although CIGNA may hold certain foreclosure properties for immediate sale if circumstances indicate that to do so is in the best financial interests of the Company or policyholders. The amounts and timing of future write-downs and changes in valuation reserves for bonds, mortgage loans and foreclosure properties cannot be reasonably estimated. However, CIGNA currently does not expect a significant decline in the aggregate carrying value of its assets or a material adverse effect on its financial condition. See pages 23 through 29 of the MD&A section of CIGNA's 1993 Annual Report and Notes 1, 3 and 4 to CIGNA's 1993 Financial Statements for additional information about CIGNA's investments. 29 32 Employee Benefits and Individual Financial Investments The following tables summarize the distribution of investments attributable to CIGNA's Employee Benefits and Individual Financial portfolios and the related net investment income from such investments. Approximately 53% of the investments in the Employee Benefits and Individual Financial portfolios is attributable to experience-rated contracts with policyholders.
AS OF DECEMBER 31, ----------------------------- INVESTMENTS 1993 1992 1991 - ------------------------------------------------------------------------- ------- ------- ------- (IN MILLIONS) Fixed maturities Bonds: Finance.............................................................. $ 9,021 $ 7,245 $ 6,107 Manufacturing........................................................ 2,511 2,425 2,475 Consumer products.................................................... 2,274 2,478 2,593 States, municipalities and political subdivisions.................... 2,198 1,554 1,178 Energy............................................................... 1,867 1,731 1,510 Public utilities..................................................... 647 835 999 Transportation....................................................... 568 632 553 U.S. government and government agencies and authorities.............. 318 287 184 Foreign governments(1)............................................... 278 182 203 ------- ------- ------- Total bonds..................................................... 19,682 17,369 15,802 Redeemable preferred stocks............................................ 26 24 27 ------- ------- ------- Total fixed maturities.......................................... 19,708(2) 17,393 15,829 ------- ------- ------- Equity securities Common stocks: Industrial and miscellaneous......................................... 1,110 886 833 Public utilities..................................................... 162 232 269 Banks, trust and insurance companies................................. 121 76 39 ------- ------- ------- Total common stocks............................................. 1,393 1,194 1,141 Non-redeemable preferred stocks........................................ 84 54 31 ------- ------- ------- Total equity securities......................................... 1,477 1,248 1,172 ------- ------- ------- Mortgage loans Commercial: Office buildings..................................................... 3,652 4,245 4,780 Retail facilities.................................................... 3,483 3,486 3,161 Apartments........................................................... 923 905 896 Hotels............................................................... 711 875 965 Industrial........................................................... 379 380 434 Other................................................................ 109 114 120 ------- ------- ------- Total commercial................................................ 9,257 10,005 10,356 Agricultural........................................................... 118 171 245 ------- ------- ------- Total mortgages................................................. 9,375 10,176 10,601 ------- ------- ------- Policy loans............................................................. 3,623 2,062 1,627 Real estate.............................................................. 1,539 1,173 718 Other long-term investments.............................................. 108 99 93 Short-term investments................................................... 401 497 528 ------- ------- ------- Total investments............................................... $36,231 $32,648 $30,568 ------- ------- ------- ------- ------- -------
- --------------- See Note 1 of Notes to Financial Statements on page 34 of CIGNA's 1993 Annual Report for a discussion of the method of valuation of investments. The above amounts do not include Separate Account assets. (1) Comprises fixed maturities of sovereign foreign governments. (2) Amount reflects an increase of $732 million related to the adoption of SFAS No. 115. See Note 1 of Notes to Financial Statements on page 33 of CIGNA's 1993 Annual Report. 30 33
YEAR ENDED DECEMBER 31, ----------------------------- NET INVESTMENT INCOME 1993 1992 1991 - ------------------------------------------------------------------------- ------- ------- ------- (DOLLAR AMOUNTS IN MILLIONS) Fixed maturities......................................................... $1,610 $1,594 $1,460 Equity securities........................................................ 56 42 40 Mortgage loans........................................................... 948 998 1,047 Real estate.............................................................. 244 162 102 Policy loans............................................................. 253 164 126 Other investments........................................................ 69 70 92 ------- ------- ------- Total........................................................... 3,180 3,030 2,867 Less investment expenses................................................. 248 176 120 ------- ------- ------- Net investment income, pre-tax........................................... $2,932 $2,854 $2,747 ------- ------- ------- ------- ------- ------- NAIC earned interest rate(1)............................................. 8.80 % 9.14 % 9.43 % ------- ------- ------- ------- ------- -------
- --------------- (1) In accordance with rules prescribed by the NAIC, the earned interest rate for any given year is equal to (a) net investment income multiplied by two, divided by (b) the sum, at the beginning and end of the year (excluding the effects of SFAS No. 115), of cash, invested assets and investment income due and accrued, less borrowed money, less net investment income. Property and Casualty Investments The following tables summarize the distribution of investments attributable to CIGNA's Property and Casualty segment and the related net investment income from such investments.
AS OF DECEMBER 31, ----------------------------- INVESTMENTS 1993 1992 1991 - ------------------------------------------------------------------------- ------- ------- ------- (IN MILLIONS) Fixed maturities Bonds: States, municipalities and political subdivisions.................... $ 2,545 $ 2,088 $ 2,065 Foreign governments(1)............................................... 1,472 218 355 Finance.............................................................. 1,404 1,455 1,380 U.S. government and government agencies and authorities.............. 1,083 599 656 Energy............................................................... 810 163 151 Public utilities..................................................... 635 200 116 Consumer products.................................................... 548 559 543 Manufacturing........................................................ 487 458 439 Transportation....................................................... 76 198 192 Other................................................................ 924 411 333 ------- ------- ------- Total bonds........................................................ 9,984 6,349 6,230 Redeemable preferred stocks............................................ 24 23 41 ------- ------- ------- Total fixed maturities............................................. 10,008(2) 6,372 6,271 ------- ------- ------- Equity securities Common stocks: Industrial and miscellaneous......................................... 293 877 858 Banks, trust and insurance companies................................. 57 45 20 Public utilities..................................................... 9 125 58 ------- ------- ------- Total common stocks................................................ 359 1,047 936 Non-redeemable preferred stocks........................................ 7 11 8 ------- ------- ------- Total equity securities............................................ 366 1,058 944 ------- ------- ------- Other long-term investments, principally mortgages....................... 643 722 799 Short-term investments(3)................................................ 461 2,473 2,271 ------- ------- ------- Total investments.................................................. $11,478 $10,625 $10,285 ------- ------- ------- ------- ------- -------
- ------------ See Note 1 of Notes to Financial Statements on page 34 of CIGNA's 1993 Annual Report for a discussion of the method of valuation of investments. The above table does not reflect purchase accounting adjustments relating to the 1982 business combination of Connecticut General Corporation ("CGC") and INA Corporation ("INA"), which are made in consolidation. In addition, the above amounts do not include Separate Account assets. (1) Comprises fixed maturities of sovereign foreign governments. (2) Amount reflects an increase of $548 million related to the adoption of SFAS No. 115. See Note 1 of Notes to Financial Statements on page 33 of CIGNA's 1993 Annual Report. Fixed maturities carried at fair value prior to adoption of SFAS No. 115 approximated $2.3 billion as of December 31, 1993 and are reflected in the appropriate bond categories presented above. (3) Includes fixed maturities that are carried at market value of approximately $2.1 billion and $1.9 billion, respectively, as of December 31, 1992 and 1991. 31 34
YEAR ENDED DECEMBER 31, --------------------------- NET INVESTMENT INCOME(1) 1993 1992 1991 - ------------------------------------------------------------------------- ----- ----- ----- (IN MILLIONS) Interest: Taxable.............................................................. $ 643 $ 712 $ 740 Tax-exempt........................................................... 101 105 108 ----- ----- ----- Total........................................................... 744 817 848 Dividends from stocks.................................................... 25 30 31 Other.................................................................... 34 42 56 ----- ----- ----- Total investment income.................................................. 803 889 935 Less investment expenses................................................. 50 47 37 ----- ----- ----- Net investment income, pre-tax........................................... $ 753 $ 842 $ 898 ----- ----- ----- ----- ----- -----
- --------------- (1) The above table does not reflect purchase accounting adjustments relating to the 1982 business combination of CGC and INA, which are made in consolidation. Portfolio Management and Advisory Services CIGNA's investment operations primarily focus on providing investment services to CIGNA and its insurance subsidiaries. In addition, the investment operations provide fee-based investment management and advisory services to advisory clients, including large group pension sponsors, institutions and international investors. CIGNA acquires or originates, directly or through intermediaries, various investments including private placements, public securities, mortgage loans, real estate and leveraged capital funds. Other Investments and Operations Assets for CIGNA's Other Operations include fixed maturities, mortgage loans and investments maturing in less than two years. These assets support the settlement annuity and non-insurance businesses, and also supported, until January 1994 when they were sold, the California personal automobile and homeowners insurance businesses that CIGNA retained from the 1989 sale of the Horace Mann insurance companies. Net investment income for these investments was $217 million for 1993, $218 million for 1992 and $215 million for 1991. In addition, CIGNA has non-strategic equity investments in operating businesses, including oil and gas, drilling rig and real estate operations. H. Regulation CIGNA's insurance subsidiaries are licensed to do business in, and are subject to regulation and supervision by, the states of the United States, the District of Columbia, certain U.S. territories and various foreign jurisdictions. Although the extent of regulation varies, most jurisdictions have laws and regulations governing rates, solvency, standards of business conduct, and various insurance and investment products. Licensing of insurers and their agents and the approval of policy forms are usually required. The form and content of statutory financial statements and the type and concentration of investments are also regulated. Each insurance subsidiary is required to file annual financial reports with supervisory agencies in most of the jurisdictions in which it does business, and its operations and accounts are subject to examination by such agencies at regular intervals. Most states and the District of Columbia require licensed insurance companies to support guaranty associations, which are organized to pay claims on behalf of insolvent insurance companies. These associations levy assessments on member insurers in a particular state to pay such claims on the basis of their proportionate shares of the lines of business of the insolvent insurer. Maximum assessments permitted by law in any one year generally range from 1% to 2% of annual premiums written by each member in a particular state with respect to the categories of business involved, and in some cases may be offset against premium taxes payable to the state. The assessments against CIGNA's subsidiaries were $28 million, 32 35 $23 million and $32 million for 1993, 1992 and 1991, respectively, before giving effect to premium tax offsets. The amounts of future assessments are not expected to have a material adverse effect on CIGNA's financial condition. The increase in the number of insurance companies that are impaired or insolvent has prompted state and federal initiatives to enhance solvency regulation. For example, the NAIC has developed model solvency-related laws that it is encouraging states to adopt. In addition, effective for life insurance companies in 1993 and property and casualty companies in 1994, risk-based capital rules have been adopted that recommend a specified level of capital depending on the types and quality of investments held, the types of business written and the types of liabilities maintained. Depending on the ratio of the insurer's surplus to its risk-based capital, the insurer could be subject to various regulatory actions ranging from increased scrutiny to conservatorship. See page 15 of the MD&A section of CIGNA's 1993 Annual Report for additional information. Also, the NAIC is addressing risk-based capital guidelines for HMOs and a proposal that would limit the types and amounts of investment assets that an insurance company can hold. In the past, federal oversight of insurer solvency has also been proposed. Among proposals that have been discussed are optional federal chartering, which would preempt most state insurance regulations; minimum federal solvency standards, which would be supervised by the states; federal licensing of all reinsurers; and establishment of a national guaranty fund. Recent state and federal regulatory scrutiny of life insurers' sales and advertising tactics, including the adequacy of disclosure regarding products and their future performance, may result in increased regulations in this area. In December 1993, the U.S. Supreme Court issued the John Hancock Mutual Life Insurance Company v. Harris Trust decision, which held that certain funds held under a general account group annuity contract were subject to ERISA fiduciary standards. The Department of Labor is addressing compliance issues raised by the decision and, depending on the outcome, CIGNA may make future changes to its group annuity contracts or the operation of its general account. CIGNA's insurance subsidiaries are subject to state laws regulating insurers that are subsidiaries of insurance holding companies. Under such laws, which are generally becoming more stringent, certain dividends, distributions and other transactions between an insurance subsidiary and the holding company or its other subsidiaries may require notification to, or be subject to the approval of, one or more state insurance commissioners. Proposals to reform the United States health care system could change the way health care is financed and delivered. Such proposals are discussed on page 6. CIGNA's HMOs and mental health and substance abuse clinics are subject to regulation and supervision by various government agencies in the states in which they do business. The extent of regulation varies, but most jurisdictions regulate licensing, solvency, contracts and rates. Regulation of these entities may also include standards for quality assurance, minimum levels of benefits that must be offered and requirements for availability and continuity of care. A few states require HMOs to participate in guaranty funds, and several state legislatures have recently considered insolvency and guaranty fund legislation, a trend that is expected to continue. Regulatory concerns with insurance risk selection have increased significantly in recent years. For example, there is continuous legislative, regulatory and judicial activity regarding the use of gender in determining insurance benefits and rates. Also, some states have imposed restrictions on the use of underwriting criteria related to AIDS. Property and casualty insurers are required to participate in assigned risk plans, joint underwriting associations and other residual market mechanisms to write coverages on risks not acceptable under normal underwriting standards. In addition, states have responded to concerns about the availability and affordability of commercial casualty insurance by proposing or adopting legislation, regulations or positions to, among 33 36 other things, limit rate increases, require rate reductions or refunds, restrict nonrenewal and cancellation with respect to commercial lines coverages or require the refunding of "excess" profits, and by expanding regulatory examination of the appropriateness of rates, non-renewals and cancellations. The extent of insurance regulation varies significantly among the countries in which CIGNA conducts its international operations. As a foreign insurer, CIGNA is, in many countries, faced with greater restrictions than domestic competitors. Trade barriers include discriminatory licensing procedures, compulsory cessions of reinsurance, required localization of records and funds, higher premium and income taxes, and requirements for local participation in an insurer's ownership. Where appropriate, CIGNA has incorporated insurance subsidiaries locally to improve its position. Depending upon their nature, CIGNA's investment management activities and products with United States contacts are subject to the federal securities laws, ERISA and other federal and state laws governing investment management activities and products. Investments made by United States insurance companies are subject to state insurance laws. Investment management activities and products outside the United States, and investments made by non-United States insurance companies outside the United States, are subject to local regulation. Often, the investments of individual insurance companies are subject to regulation by multiple jurisdictions. Federal initiatives can have an impact on the insurance business in a variety of ways. In addition to proposals discussed above related to Superfund, health care reform and federal oversight of insurer solvency, current and proposed federal measures that may significantly affect the insurance business include: (a) pension and other employee benefit regulation; (b) Social Security legislation; (c) financial services regulation; (d) amendment to the antitrust exemption provided for the business of insurance by the McCarran-Ferguson Act; and (e) tax legislation. The economic and competitive effects of the legislative and regulatory proposals discussed above would depend upon the final form such legislation or regulation might take. I. Miscellaneous Portions of CIGNA's insurance business are seasonal in nature. Reported claims under group health and certain property and casualty products are generally higher in the first quarter. Sales, particularly of individual life products, are generally lowest in the first quarter and highest in the fourth quarter. CIGNA and its principal subsidiaries are not dependent on business from one or a few customers. No customer accounted for 10% or more of CIGNA's consolidated revenues in 1993. CIGNA and its principal subsidiaries are not dependent on business from one or a few brokers or agents, except as noted on page 12 in connection with sales of certain corporate-owned life insurance. In addition, CIGNA's insurance businesses are generally not committed to accept a fixed portion of the business submitted by independent brokers and agents, and generally all such business is subject to its approval and acceptance. CIGNA had approximately 50,600, 52,300 and 56,000 employees as of December 31, 1993, 1992 and 1991, respectively. Item 2. PROPERTIES CIGNA's headquarters are located in approximately 90,240 total square feet of leased office space at One Liberty Place, Philadelphia, Pennsylvania. CIGNA Property & Casualty, CIGNA Reinsurance -- Property & Casualty, CIGNA Group Insurance -- Life - Accident - Disability, and CIGNA International are located in a leased building of approximately 1.25 million total square feet at Two Liberty Place, Philadelphia. CIGNA HealthCare, CIGNA Individual Insurance, CIGNA Reinsurance -- Life - Accident - Health and CIGNA Investment Management are located in a complex of buildings owned by CIGNA, aggregating approximately 1.15 million total square feet of office space, located at 900-950 Cottage Grove Road, Bloomfield, Connecticut. CIGNA's Retirement & Investment Services operations are located in approximately 230,000 total square feet of leased office space at Metro Center One, Hartford, Connecticut. In addition, CIGNA owns or leases office buildings, or parts thereof, throughout the United States and in other 34 37 countries. For additional information concerning leases and property, see Notes 1(H) and 15 to CIGNA's 1993 Consolidated Financial Statements, which are incorporated herein by reference from pages 35 and 46, respectively, of CIGNA's 1993 Annual Report. This paragraph does not include information on investment properties. CIGNA's information processing resources include large mainframe computers in major data centers, a multitude of personal computers connected through local area networks and a nationwide backbone network that provides desktop computing and office automation to CIGNA employees. CIGNA's policies regarding the safeguarding of critical corporate data are disseminated to all employees. The policies require data security through the use of appropriate identification and password practices and data backup through appropriate offsite storage techniques. Protection of CIGNA's major data centers, which house large amounts of critical corporate data, involves access controls, fire detection and suppression systems, and other hazard elimination processes. In addition, CIGNA maintains a formal disaster contingency plan, which includes recovery services in the event of a disaster in a CIGNA data center. Critical files are stored offsite, to be available for recovery in the event of a disaster. Item 3. LEGAL PROCEEDINGS CIGNA is continuously involved in numerous lawsuits arising, for the most part, in the ordinary course of its business either as a liability insurer defending third-party claims brought against its insureds or as an insurer defending coverage claims brought against it by its policyholders or other insurers. During 1988, a number of state attorneys general and private plaintiffs filed lawsuits against a number of insurance companies and others, including CIGNA, alleging violations of federal and state antitrust laws. One of the lawsuits, filed in Texas, was settled in March 1991 for an insignificant amount. All of the remaining lawsuits were dismissed by the trial court in 1989. The United States Court of Appeals reversed the trial court and the United States Supreme Court reversed in part and modified in part the ruling of the Court of Appeals and remanded the cases to the Court of Appeals for further proceedings in accordance with its opinion. The Supreme Court ruled that the insurance companies did not forfeit their McCarran-Ferguson protection when they acted with reinsurers to produce acceptable policy terms and defined the boycott exception to the McCarran-Ferguson exemption in a manner favorable to the insurance industry. The cases are now in the trial court for further proceedings, having been remanded by the Court of Appeals. While the outcome of litigation involving CIGNA cannot be determined, such litigation (other than that related to asbestos, environmental pollution and other long-term exposure claims, which is discussed below), net of reserves and giving effect to reinsurance, is not expected to have a material effect on CIGNA. CIGNA is involved in lawsuits regarding policy coverage and judicial interpretation of legal liability for asbestos-related, environmental pollution and other long-term exposure claims. As discussed beginning on page 19, reserving for these claims is subject to significant uncertainties, such as lack of developed case law or adequate claim history. Future results of the Company are expected to continue to be affected adversely by losses and expenses for asbestos-related, environmental pollution and other long-term exposure claims. Because of the significant uncertainties involved and the likelihood that these uncertainties will not be resolved in the near future, CIGNA is unable to reasonably estimate the additional losses and expenses and therefore is unable to determine whether such amounts will be material to its future results of operations, liquidity or financial condition. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 35 38 PART II Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS The information under the caption "Quarterly Financial Data--Stock and Dividend Data" on page 51 and under the caption "Stock Listing" on the inside back cover of CIGNA's 1993 Annual Report is incorporated by reference, as is the information from Note 7 to CIGNA's Consolidated Financial Statements on page 41 and the number of shareholders of record as of December 31, 1993 under the caption "Highlights" on page 1 of CIGNA's 1993 Annual Report. Item 6. SELECTED FINANCIAL DATA The five-year financial information under the caption "Highlights" on page 1 of CIGNA's 1993 Annual Report is incorporated by reference. Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information on pages 14 through 29 of CIGNA's 1993 Annual Report is incorporated by reference. Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA CIGNA's Consolidated Financial Statements on pages 30 through 49 and the report of its independent accountants on page 50 of CIGNA's 1993 Annual Report are incorporated by reference, as is the unaudited information set forth under the caption "Quarterly Financial Data--Consolidated Results" on page 51. Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT A. Directors of the Registrant The information under the captions "Nominees for Election" and "Incumbent Directors to Continue in Office" on pages 5 through 7, and the information in the final paragraph under the caption "Certain Transactions" on page 9 of CIGNA's proxy statement dated March 21, 1994 are incorporated by reference. B. Executive Officers of the Registrant Reference is made below to CG Life and ICNA, which are indirect subsidiaries of CIGNA. All officers are elected to serve for a one-year term or until their successors are elected. Principal occupations and employment during the past five years are listed. LAWRENCE P. ENGLISH, 53, President of CIGNA HealthCare since March 1992; President of CIGNA's Individual Financial Services Division from April 1986 until March 1992; and President of CG Life from January 1991 until February 1992. H. EDWARD HANWAY, 42, President of CIGNA International beginning March 7, 1994; President of CIGNA International -- Property & Casualty from February 1989 until March 7, 1994; Senior Vice President of ICNA since February 1989; and Vice President of CIGNA with responsibility for Operational Planning and Business Control from December 1986 until February 1989. 36 39 GERALD A. ISOM, 55, President of CIGNA Property and Casualty beginning March 1993. Group Vice President of Transamerica Corporation from 1990 until March 1993; and Chief Executive Officer and President of Transamerica Insurance Group from January 1985 until March 1993. Transamerica Insurance Group is a major provider of property and casualty insurance products. JOHN K. LEONARD, 45, President of CIGNA Group Insurance - Life-Accident-Disability since March 1992; and Senior Vice President of CIGNA from March 1989 until March 1992 (Vice President from December 1986 until March 1989) with responsibility for Corporate Marketing and Strategy. DONALD M. LEVINSON, 48, Executive Vice President of CIGNA since March 1988, with responsibility for Human Resources and Services. BYRON D. OLIVER, 51, President of CIGNA Retirement & Investment Services since February 1988. ARTHUR C. REEDS, III, 49, President of CIGNA Investment Management since March 1992; and Managing Director and Head of Portfolio Management, CIGNA's Investment Division, from May 1986 until March 1992. JAMES G. STEWART, 51, Executive Vice President and Chief Financial Officer of CIGNA since 1983. WILSON H. TAYLOR, 50, Chairman of CIGNA since November 1989; and Chief Executive Officer of CIGNA since November 1988 and President of CIGNA since May 1988. GEORGE R. TRUMBULL, 49, President of CIGNA Individual Insurance since March 1992; Executive Vice President of CIGNA from January 1988 until April 1992; President of CG Life since February 1992; and President of CIGNA's Investment Division from July 1988 until March 1992. THOMAS J. WAGNER, 54, Executive Vice President and General Counsel of CIGNA since January 1992; Corporate Secretary of CIGNA from January 1988 until April 1992; and Senior Vice President of CIGNA from January 1988 until January 1992. C. Compliance with Section 16(a) of the Securities Exchange Act The information under the caption "Compliance with Section 16(a) of the Securities Exchange Act" on page 18 of CIGNA's proxy statement dated March 21, 1994 is incorporated by reference. Item 11. EXECUTIVE COMPENSATION The information under the captions "Executive Compensation" on pages 11 through 14 and "Compensation of Directors" on pages 8 and 9 of CIGNA's proxy statement dated March 21, 1994 is incorporated by reference. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information under the captions "Ownership of CIGNA Corporation Common Stock by Directors and Executive Officers" on pages 2 and 3 and "Ownership of CIGNA Corporation Common Stock by Certain Beneficial Owners" on page 4 of CIGNA's proxy statement dated March 21, 1994, relating to security ownership of certain beneficial owners and management, is incorporated by reference. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information under the caption "Certain Transactions" on page 9 of CIGNA's proxy statement dated March 21, 1994 is incorporated by reference. 37 40 PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K A. (1) The following financial statements have been incorporated by reference from the pages indicated below of CIGNA's 1993 Annual Report: Consolidated Statements of Income and Retained Earnings for the years ended December 31, 1993, 1992 and 1991--page 30. Consolidated Balance Sheets as of December 31, 1993 and 1992--page 31. Consolidated Statements of Cash Flows for the years ended December 31, 1993, 1992 and 1991--page 32. Notes to Financial Statements--pages 33 through 49. Report of Independent Accountants, Price Waterhouse--page 50. (2) The financial statement schedules are listed in the Index to Financial Statement Schedules on page FS-1. (3) The exhibits are listed in the Index to Exhibits beginning on page E-1. B. During the last quarter of the fiscal year ended December 31, 1993, the registrant filed (1) a Report on Form 8-K dated December 21, 1993 regarding legal proceedings; (2) a Report on Form 8-K dated December 14, 1993 restating the registrant's 1992 Form 10-K financial information to reflect the effects of implementing SFAS 113; (3) a Report on Form 8-K dated November 19, 1993 regarding a revised rating by Standard & Poor's; and (4) a Report on Form 8-K dated November 1, 1993 containing a copy of a press release reporting its third quarter 1993 results. 38 41 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed by its undersigned duly authorized officer, on its behalf and in the capacity indicated. Date: March 25, 1994 CIGNA Corporation By:/s/ James G. Stewart James G. Stewart Executive Vice President and Chief Financial Officer (PRINCIPAL FINANCIAL OFFICER)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on March 25, 1994. PRINCIPAL EXECUTIVE OFFICER: DIRECTORS:* Robert P. Bauman Evelyn Berezin Wilson H. Taylor* Robert H. Campbell Chairman, Chief Executive Officer Alfred C. DeCrane, Jr. and a Director James F. English, Jr. Frank S. Jones Robert D. Kilpatrick Gerald D. Laubach Marilyn W. Lewis Paul F. Oreffice Charles R. Shoemate PRINCIPAL ACCOUNTING OFFICER: Louis W. Sullivan, M.D. Hicks B. Waldron Ezra K. Zilkha /s/ Gary A. Swords Gary A. Swords Vice President and Chief Accounting Officer *By:/s/ Thomas J. Wagner Thomas J. Wagner Attorney-in-Fact
39 42 [THIS PAGE INTENTIONALLY LEFT BLANK] 43 CIGNA CORPORATION AND SUBSIDIARIES INDEX TO FINANCIAL STATEMENT SCHEDULES
PAGE ----- Report of Independent Accountants on Financial Statement Schedules......................................................... FS-2 SCHEDULES I Summary of Investments--Other Than Investments in Related Parties as of December 31, 1993.......................... FS-3 III Condensed Financial Information of CIGNA Corporation (Registrant)............................................. FS-4 V Supplementary Insurance Information........................ FS-8 VI Reinsurance................................................ FS-10 VIII Valuation and Qualifying Accounts and Reserves............. FS-11 IX Short-term borrowings...................................... FS-12 X Supplemental Information Concerning Property-Casualty Insurance Operations..................................... FS-13
Schedules other than those listed above are omitted because they are not required or are not applicable, or the required information is shown in the financial statements or notes thereto, which are incorporated by reference from CIGNA's 1993 Annual Report. FS-1 44 REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULES To the Board of Directors of CIGNA Corporation Our audits of the consolidated financial statements referred to in our report dated February 14, 1994 appearing on page 50 of the 1993 Annual Report to Shareholders of CIGNA Corporation (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the Financial Statement Schedules listed in the index on page FS-1 of this Form 10-K. In our opinion, these Financial Statement Schedules present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. The Company implemented certain new accounting pronouncements as discussed in Note 1 to the consolidated financial statements. /S/ PRICE WATERHOUSE Philadelphia, Pennsylvania February 14, 1994 FS-2 45 CIGNA CORPORATION AND SUBSIDIARIES SCHEDULE I SUMMARY OF INVESTMENTS-- OTHER THAN INVESTMENTS IN RELATED PARTIES DECEMBER 31, 1993 (IN MILLIONS)
AMOUNT AT WHICH SHOWN IN THE FAIR CONSOLIDATED TYPE OF INVESTMENT COST VALUE BALANCE SHEET - --------------------------------------------------------- ------- ------- --------------- Fixed maturities Bonds: United States government and government agencies and authorities....................................... $ 1,480 $ 1,688 $ 1,688 States, municipalities and political subdivisions... 4,296 4,787 4,772 Foreign governments................................. 1,665 1,767 1,766 Public utilities.................................... 1,378 1,478 1,451 Convertibles and bonds with warrants attached....... 31 35 33 All other corporate bonds........................... 21,100 23,381 21,994 Redeemable preferred stocks............................ 43 51 51 ------- ------- --------------- Total fixed maturities............................ 29,993 33,187 31,755(1) ------- ------- --------------- Equity securities Common stocks: Industrial, miscellaneous and all other............. 1,200 1,406 1,406 Banks, trust and insurance companies................ 168 178 178 Public utilities.................................... 160 171 171 Non-redeemable preferred stocks........................ 98 94 94 ------- ------- --------------- Total equity securities........................... 1,626 1,849 1,849 ------- ------- --------------- Total fixed maturities and equity securities...... 31,619 $35,036 33,604 ------- ------- Mortgage loans on real estate............................ 10,021 10,021 Policy loans............................................. 3,663 3,663 Real estate investments (including $929 million of real estate acquired in satisfaction of debt)............... 1,780 1,780 Other long-term investments.............................. 303 303 Short-term investments................................... 1,357 1,357 ------- --------------- Total investments................................. $48,743 $50,728 ------- --------------- ------- ---------------
- --------------- (1) Amount reflects an increase of approximately $1.6 billion related to the adoption of SFAS No. 115. See Note 1 of Notes to Financial Statements on page 33 of CIGNA's 1993 Annual Report. FS-3 46 CIGNA CORPORATION AND SUBSIDIARIES SCHEDULE III CONDENSED FINANCIAL INFORMATION OF CIGNA CORPORATION (REGISTRANT) STATEMENTS OF INCOME (IN MILLIONS)
FOR THE YEAR ENDED DECEMBER 31, ----------------------------- 1993 1992 1991 ----- ----- ----- Intercompany income...................................... $ 3 $ 2 $ 3 Other revenue............................................ -- 4 -- ----- ----- ----- Total revenues......................................... 3 6 3 ----- ----- ----- Operating expenses: Interest............................................... 105 90 88 Intercompany interest.................................. 14 18 23 Other.................................................. 1 3 5 ----- ----- ----- Total operating expenses............................ 120 111 116 ----- ----- ----- Loss before income taxes................................. (117) (105) (113) Income tax benefit....................................... (33) (17) (15) ----- ----- ----- Loss of parent company................................... (84) (88) (98) Equity in income of subsidiaries before extraordinary item and cumulative effect of accounting changes....... 318 425 551 ----- ----- ----- Income before extraordinary item and cumulative effect of accounting changes..................................... 234 337 453 Loss from early extinguishment of subsidiary debt, net of taxes.................................................. -- -- (4) Cumulative effect of accounting changes for postemployment and postretirement benefits other than pensions, net of taxes................................. -- (530) -- Cumulative effect of accounting change for income taxes.................................................. -- 504 -- ----- ----- ----- Net income............................................... $ 234 $ 311 $ 449 ----- ----- ----- ----- ----- -----
See Notes to Condensed Financial Statements on FS-7. FS-4 47 CIGNA CORPORATION AND SUBSIDIARIES SCHEDULE III CONDENSED FINANCIAL INFORMATION OF CIGNA CORPORATION (REGISTRANT) BALANCE SHEETS (IN MILLIONS)
AS OF DECEMBER 31, ------------------- 1993 1992 ------ ------ Assets: Cash and cash equivalents........................................... $ 1 $ 7 Investments in subsidiaries......................................... 8,964 7,581 Goodwill............................................................ 124 207 Other assets........................................................ 115 88 ------ ------ Total............................................................ $9,204 $7,883 ------ ------ ------ ------ Liabilities: Intercompany........................................................ $ 486 $ 449 Short-term debt..................................................... 348 389 Long-term debt...................................................... 1,100 816 Other liabilities................................................... 695 485 ------ ------ Total liabilities................................................ 2,629 2,139 ------ ------ Shareholders' Equity: Common stock (shares issued, 83 and 82)............................. 83 82 Additional paid-in capital.......................................... 2,222 2,206 Net unrealized appreciation -- fixed maturities..................... 961 12 Net unrealized appreciation -- equity securities.................... 211 325 Net translation of foreign currencies............................... (74) (46) Retained earnings................................................... 3,717 3,702 Less treasury stock, at cost........................................ (545) (537) ------ ------ Total shareholders' equity....................................... 6,575 5,744 ------ ------ Total............................................................ $9,204 $7,883 ------ ------ ------ ------
See Notes to Condensed Financial Statements on FS-7. FS-5 48 CIGNA CORPORATION AND SUBSIDIARIES SCHEDULE III CONDENSED FINANCIAL INFORMATION OF CIGNA CORPORATION (REGISTRANT) STATEMENT OF CASH FLOWS (IN MILLIONS)
FOR THE YEAR ENDED DECEMBER 31, ----------------------- 1993 1992 1991 ----- ----- ----- Cash Flows from Operating Activities: Income from continuing operations.................................. $ 234 $ 337 $ 453 Adjustments to reconcile income from continuing operations to net cash provided by (used in) operating activities: Equity in income of subsidiaries.............................. (318) (425) (551) Dividends received from subsidiaries.......................... 308 322 293 Accounts payable, accrued expenses, other liabilities and income taxes................................................. 210 38 19 Other, net.................................................... (22) 10 7 ----- ----- ----- Net cash provided by operating activities................... 412 282 221 ----- ----- ----- Cash Flows from Investing Activities: Capital contributions to subsidiaries.............................. (480) (79) (145) Proceeds from sale of subsidiaries................................. -- 4 88 Other, net......................................................... 1 -- (6) ----- ----- ----- Net cash used in investing activities....................... (479) (75) (63) ----- ----- ----- Cash Flows from Financing Activities: Change in intercompany debt........................................ 37 (61) 159 Net change in commercial paper..................................... (48) 92 (281) Issuance of long-term debt......................................... 327 111 219 Repayment of debt.................................................. (36) (124) (38) Dividends paid..................................................... (219) (218) (217) ----- ----- ----- Net cash provided by (used in) financing activities......... 61 (200) (158) ----- ----- ----- Net (decrease) increase in cash and cash equivalents............... (6) 7 -- Cash and cash equivalents, beginning of year....................... 7 -- -- ----- ----- ----- Cash and cash equivalents, end of year............................. $ 1 $ 7 $ -- ----- ----- ----- ----- ----- -----
See Notes to Condensed Financial Statements on FS-7. FS-6 49 CIGNA CORPORATION AND SUBSIDIARIES SCHEDULE III CONDENSED FINANCIAL INFORMATION OF CIGNA CORPORATION (REGISTRANT) NOTES TO CONDENSED FINANCIAL STATEMENTS The accompanying condensed financial statements should be read in conjunction with the Consolidated Financial Statements and the accompanying notes thereto in the Annual Report. Note 1-- As of December 31, 1993, CIGNA implemented Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity Securities." The effect of implementing SFAS No. 115 resulted in an increase in net assets and shareholders' equity of approximately $900 million resulting from the classification of certain fixed maturities previously classified as held to maturity (carried at amortized cost) to available for sale (carried at fair value). In the fourth quarter of 1992, CIGNA implemented SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions"; No. 109, "Accounting for Income Taxes"; and SFAS No. 112, "Employers' Accounting for Postemployment Benefits." These accounting changes were implemented as of January 1, 1992 through cumulative effect adjustments. Prior year financial statements were not restated. The cumulative effect of implementing these accounting standards as of January 1, 1992 resulted in a non-cash after-tax charge to net income of $26 million. In addition, the implementation of these accounting standards decreased 1992 net income by $5 million. Note 2-- Long-term debt, net of current maturities, consists of CIGNA's 7.4% Notes, due 2003; 7.65% Notes, due 2023; 8% Notes, due 1996; 8.2% Convertible Subordinated Debentures, due 2010; 8 1/4% Notes, due 2007; 8.3% Notes due 2023; 8 3/4% Notes, due 2001; and Medium-term Notes with interest rates ranging from 5 3/4% to 10%, and original maturity dates from approximately two to ten years. Maturities of long-term debt for each of the next five years are as follows: 1994--$43 million; 1995--$2 million; 1996--$157 million; 1997--$39 million; 1998--$82 million. In 1993, CIGNA issued $100 million of unsecured 7.4% Notes due in 2003; $100 million of unsecured 7.65% Notes due in 2023; $100 million of unsecured 8.3% Notes due in 2023 and $27 million of medium-term notes. In 1992, CIGNA issued $100 million of unsecured 8 1/4% Notes due in 2007 and $11 million of medium-term notes. As of December 31, 1993, CIGNA had approximately $950 million remaining under effective shelf registration statements filed with the Securities and Exchange Commission that may be issued as debt and equity securities, depending upon market conditions and CIGNA's capital requirements. In January 1994, CIGNA issued $100 million of unsecured 6 3/8% Notes due in 2006 under one of the shelf registration statements. Interest paid on short-and long-term debt amounted to $95 million, $88 million and $84 million, for 1993, 1992 and 1991, respectively. Note 3-- CIGNA Corporation files a consolidated U.S. federal income tax return with its domestic subsidiaries. Net income taxes paid in connection with the consolidated return were $75 million, $287 million and $122 million during 1993, 1992 and 1991, respectively. FS-7 50 CIGNA CORPORATION AND SUBSIDIARIES SCHEDULE V SUPPLEMENTARY INSURANCE INFORMATION (IN MILLIONS)
DEFERRED FUTURE POLICY UNPAID POLICY BENEFITS AND CLAIMS ACQUISITION CONTRACTHOLDER AND CLAIM SEGMENT COSTS DEPOSIT FUNDS EXPENSES - -------------------------------------------------- ----------- -------------- --------- Year Ended December 31, 1993: Property and Casualty: Domestic..................................... $ 269 $ -- $13,107 International................................ 167 1,242 2,270 Other, primarily Reinsurance................. 10 129 2,370 ----------- -------------- --------- Total Property and Casualty................ 446 1,371 17,747 Employee Life and Health Benefits............... 28 3,833 2,168 Employee Retirement and Savings Benefits........ 62 20,404 -- Individual Financial Services................... 549 7,699 200 All Other....................................... -- 1,956 29 ----------- -------------- --------- Total...................................... $ 1,085 $ 35,263 $20,144 ----------- -------------- --------- ----------- -------------- --------- Year Ended December 31, 1992: Property and Casualty: Domestic..................................... $ 283 $ -- $12,559 International................................ 178 809 2,309 Other, primarily Reinsurance................. 21 120 2,684 ----------- -------------- --------- Total Property and Casualty................ 482 929 17,552 Employee Life and Health Benefits............... 27 3,583 1,668 Employee Retirement and Savings Benefits........ 53 19,936 -- Individual Financial Services................... 499 5,607 157 All Other....................................... -- 1,923 35 ----------- -------------- --------- Total...................................... $ 1,061 $ 31,978 $19,412 ----------- -------------- --------- ----------- -------------- --------- Year Ended December 31, 1991: Property and Casualty: Domestic..................................... $ 339 $ -- $12,329 International................................ 174 463 2,573 Other, primarily Reinsurance................. 21 85 1,910 ----------- -------------- --------- Total Property and Casualty................ 534 548 16,812 Employee Life and Health Benefits............... 20 3,446 1,699 Employee Retirement and Savings Benefits........ 47 19,561 -- Individual Financial Services................... 455 4,696 161 All Other....................................... -- 1,881 52 ----------- -------------- --------- Total...................................... $ 1,056 $ 30,132 $18,724 ----------- -------------- --------- ----------- -------------- ---------
- ------------ (1) Amounts presented are shown net of the effects of reinsurance. (2) The allocation of net investment income is based upon the investment year method, the identification of certain portfolios with specific segments, or a combination of both. FS-8 51 CIGNA CORPORATION AND SUBSIDIARIES SCHEDULE V SUPPLEMENTARY INSURANCE INFORMATION (IN MILLIONS)
BENEFITS, PREMIUMS NET LOSSES AND UNEARNED AND INVESTMENT SETTLEMENT SEGMENT PREMIUMS FEES(1) INCOME(2) EXPENSES(1) - -------------------------------------------------- -------- -------- ----------- ----------- Year Ended December 31, 1993: Property and Casualty: Domestic..................................... $1,403 $ 2,528 $ 486 $ 3,017 International................................ 965 2,071 186 1,446 Other, primarily Reinsurance................. 112 537 81 570 -------- -------- ----------- ----------- Total Property and Casualty................ 2,480 5,136 753 5,033 Employee Life and Health Benefits............... 188 7,438 503 5,543 Employee Retirement and Savings Benefits........ -- 296 1,846 1,721 Individual Financial Services................... 35 814 583 921 All Other....................................... 8 28 217 201 -------- -------- ----------- ----------- Total...................................... $2,711 $13,712 $ 3,902 $13,419 -------- -------- ----------- ----------- -------- -------- ----------- ----------- Year Ended December 31, 1992: Property and Casualty: Domestic..................................... $1,562 $ 3,128 $ 556 $ 3,188 International................................ 747 2,031 185 1,474 Other, primarily Reinsurance................. 161 601 101 920 -------- -------- ----------- ----------- Total Property and Casualty................ 2,470 5,760 842 5,582 Employee Life and Health Benefits............... 64 7,174 504 5,553 Employee Retirement and Savings Benefits........ -- 248 1,893 1,738 Individual Financial Services................... 51 710 457 775 All Other....................................... 9 32 218 209 -------- -------- ----------- ----------- Total...................................... $2,594 $13,924 $ 3,914 $13,857 -------- -------- ----------- ----------- -------- -------- ----------- ----------- Year Ended December 31, 1991: Property and Casualty: Domestic..................................... $1,898 $ 3,533 $ 593 $ 3,309 International................................ 722 1,965 195 1,450 Other, primarily Reinsurance................. 180 616 110 528 -------- -------- ----------- ----------- Total Property and Casualty................ 2,800 6,114 898 5,287 Employee Life and Health Benefits............... 63 7,137 488 5,724 Employee Retirement and Savings Benefits........ -- 300 1,879 1,783 Individual Financial Services................... 38 699 380 699 All Other....................................... 9 45 215 219 -------- -------- ----------- ----------- Total...................................... $2,910 $14,295 $ 3,860 $13,712 -------- -------- ----------- ----------- -------- -------- ----------- -----------
POLICY OTHER ACQUISITION OPERATING PREMIUMS SEGMENT EXPENSES EXPENSES WRITTEN - -------------------------------------------------- ----------- --------- -------- Year Ended December 31, 1993: Property and Casualty: Domestic..................................... $ 524 $ 619 $2,388 International................................ 465 448 1,334 Other, primarily Reinsurance................. 124 77 507 ----------- --------- -------- Total Property and Casualty................ 1,113 1,144 4,229 Employee Life and Health Benefits............... 13 1,985 -- Employee Retirement and Savings Benefits........ 14 153 -- Individual Financial Services................... 68 294 -- All Other....................................... 2 32 28 ----------- --------- -------- Total...................................... $ 1,210 $ 3,608 $4,257 ----------- --------- -------- ----------- --------- -------- Year Ended December 31, 1992: Property and Casualty: Domestic..................................... $ 567 $ 517 $2,858 International................................ 491 391 1,377 Other, primarily Reinsurance................. 131 (75) 582 ----------- --------- -------- Total Property and Casualty................ 1,189 833 4,817 Employee Life and Health Benefits............... 15 1,938 -- Employee Retirement and Savings Benefits........ 12 142 -- Individual Financial Services................... 61 306 -- All Other....................................... 3 47 32 ----------- --------- -------- Total...................................... $ 1,280 $ 3,266 $4,849 ----------- --------- -------- ----------- --------- -------- Year Ended December 31, 1991: Property and Casualty: Domestic..................................... $ 538 $ 540 $3,384 International................................ 488 339 1,456 Other, primarily Reinsurance................. 146 74 622 ----------- --------- -------- Total Property and Casualty................ 1,172 953 5,462 Employee Life and Health Benefits............... 18 1,759 -- Employee Retirement and Savings Benefits........ 10 144 -- Individual Financial Services................... 65 259 -- All Other....................................... 3 71 34 ----------- --------- -------- Total...................................... $ 1,268 $ 3,186 $5,496 ----------- --------- -------- ----------- --------- --------
- ------------ (1) Amounts presented are shown net of the effects of reinsurance. (2) The allocation of net investment income is based upon the investment year method, the identification of certain portfolios with specific segments, or a combination of both. FS-9 52 CIGNA CORPORATION AND SUBSIDIARIES SCHEDULE VI REINSURANCE (IN MILLIONS)
PERCENTAGE CEDED TO ASSUMED OF AMOUNT GROSS OTHER FROM OTHER NET ASSUMED AMOUNT COMPANIES COMPANIES AMOUNT TO NET -------- --------- ---------- -------- ---------- Year Ended December 31, 1993: Life insurance in force............... $395,042 $26,268 $234,892 $603,666 38.9% -------- --------- ---------- -------- ----- -------- --------- ---------- -------- ----- Premiums and fees: Life insurance and annuities....... $ 2,378 $ 167 $ 893 $ 3,104 28.8% Accident and health insurance...... 5,970 228 835 6,577 12.7 Property and casualty insurance.... 4,780 1,801 1,052 4,031 26.1 -------- --------- ---------- -------- Total......................... $ 13,128 $ 2,196 $ 2,780 $ 13,712 20.3% -------- --------- ---------- -------- ----- -------- --------- ---------- -------- ----- Year Ended December 31, 1992: Life insurance in force............... $310,592 $25,933 $263,726 $548,385 48.1% -------- --------- ---------- -------- ----- -------- --------- ---------- -------- ----- Premiums and fees: Life insurance and annuities....... $ 1,697 $ 81 $ 926 $ 2,542 36.4% Accident and health insurance...... 5,920 236 901 6,585 13.7 Property and casualty insurance.... 5,878 2,258 1,177 4,797 24.5 -------- --------- ---------- -------- Total......................... $ 13,495 $ 2,575 $ 3,004 $ 13,924 21.6% -------- --------- ---------- -------- ----- -------- --------- ---------- -------- ----- Year Ended December 31, 1991: Life insurance in force............... $251,183 $20,035 $257,573 $488,721 52.7% -------- --------- ---------- -------- ----- -------- --------- ---------- -------- ----- Premiums and fees: Life insurance and annuities....... $ 1,604 $ 134 $ 1,014 $ 2,484 40.8% Accident and health insurance...... 6,233 250 552 6,535 8.5 Property and casualty insurance.... 6,109 2,315 1,482 5,276 28.1 -------- --------- ---------- -------- Total......................... $ 13,946 $ 2,699 $ 3,048 $ 14,295 21.3% -------- --------- ---------- -------- ----- -------- --------- ---------- -------- -----
FS-10 53 CIGNA CORPORATION SCHEDULE VIII VALUATION AND QUALIFYING ACCOUNTS AND RESERVES (IN MILLIONS)
CHARGED CHARGED (CREDITED) (CREDITED) BALANCE AT TO TO OTHER OTHER BALANCE BEGINNING COSTS AND ACCOUNTS DEDUCTIONS AT END DESCRIPTION OF PERIOD EXPENSES --DESCRIBE(1) --DESCRIBE(2) OF PERIOD - -------------------------------------- ---------- --------- ------------- ------------- --------- 1993: INVESTMENT ASSET VALUATION RESERVES: Fixed maturities.................... $ 29 $ (10) $ (8) $ -- $ 11 Mortgage loans...................... 184 62 48 (78) 216 Real estate......................... 79 8 21 (10) 98 ALLOWANCE FOR DOUBTFUL ACCOUNTS: Premiums, accounts and notes receivable........................ 90 49 -- (19) 120 Reinsurance recoverables............ 381 28 -- (4) 405 DEFERRED TAX ASSET VALUATION ALLOWANCE........................... 82 (29) -- -- 53 1992: INVESTMENT ASSET VALUATION RESERVES: Fixed maturities.................... $ 28 $ 1 $ -- $ -- $ 29 Mortgage loans...................... 170 32 51 (69) 184 Real estate......................... 45 8 29 (3) 79 ALLOWANCE FOR DOUBTFUL ACCOUNTS: Premiums, accounts and notes receivable........................ 104 17 -- (31) 90 Reinsurance recoverables............ 311 89 -- (19) 381 DEFERRED TAX ASSET VALUATION ALLOWANCE(3)........................ 38 44 -- -- 82 1991: INVESTMENT ASSET VALUATION RESERVES: Fixed maturities.................... $ -- $ 15 $ 13 $ -- $ 28 Mortgage loans...................... 85 46 97 (58) 170 Real estate......................... 20 18 7 -- 45 ALLOWANCE FOR DOUBTFUL ACCOUNTS: Premiums, accounts and notes receivable........................ 86 50 -- (32) 104 Reinsurance recoverables............ 311 28 -- (28) 311
- --------------- (1) Change in valuation reserves attributable to policyholder contracts. (2) Reflects transfer of reserves to other investment asset categories as well as charge-offs upon sales, repayments and other. (3) The Company adopted SFAS No. 109 effective January 1, 1992. FS-11 54 CIGNA CORPORATION SCHEDULE IX SHORT-TERM BORROWINGS (IN MILLIONS)
MAXIMUM AVERAGE WEIGHTED AMOUNT AMOUNT AVERAGE WEIGHTED OUTSTANDING OUTSTANDING INTEREST RATE CATEGORY OF AGGREGATE BALANCE AT AVERAGE DURING DURING DURING THE SHORT-TERM BORROWINGS END OF PERIOD INTEREST RATE THE PERIOD THE PERIOD(1) PERIOD(2) - ------------------------ ------------- ------------- ----------- ------------- ------------- 1993: Commercial paper........ $ 304 3.3% $ 419 $ 340 3.1% Medium-term notes....... 44 9.1% 57 46 8.3% Other................... 3 8.0% 50 33 12.0% 1992: Commercial paper........ $ 352 3.4% $ 459 $ 350 3.6% Medium-term notes....... 37 8.7% 98 75 8.8% Other................... 86 11.4% 93 22 11.2% 1991: Commercial paper........ $ 260 4.6% $ 489 $ 350 5.9% Medium-term notes....... 124 8.3% 142 97 7.7% Other................... 1 10.0% 17 6 10.0%
- --------------- (1) Method of computation -- the sum of the daily amount outstanding for each day divided by the number of days in the year. (2) Method of computation -- the sum of the weighted average rate for each month times the sum of the daily amount outstanding during the month, divided by the sum of the daily amount outstanding during the year. FS-12 55 CIGNA CORPORATION AND SUBSIDIARIES SCHEDULE X SUPPLEMENTAL INFORMATION CONCERNING PROPERTY-CASUALTY INSURANCE OPERATIONS (IN MILLIONS)
- ------------------------------------------------------------------------------------------------------------ COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E - ------------------------------------------------------------------------------------------------------------ RESERVES FOR DEFERRED UNPAID CLAIMS DISCOUNT, AFFILIATION POLICY AND CLAIM IF ANY, WITH ACQUISITION ADJUSTMENT DEDUCTED IN UNEARNED REGISTRANT COSTS EXPENSES COLUMN C(1) PREMIUMS - ------------------------------------------------------------------------------------------------------------ Year Ended December 31, 1993: Consolidated property-casualty entities............................. $ 420 $17,654 $22 $1,980 Year Ended December 31, 1992: Consolidated property-casualty entities............................. $ 442 $17,478 $20 $2,139 Year Ended December 31, 1991: Consolidated property-casualty entities............................. $ 493 $16,750 $21 $2,535
- --------------- (1) Discounts were computed using an annual interest rate of 9%. (2) Amounts presented are shown net of the effects of reinsurance. FS-13 56 CIGNA CORPORATION AND SUBSIDIARIES SCHEDULE X SUPPLEMENTAL INFORMATION CONCERNING PROPERTY-CASUALTY INSURANCE OPERATIONS (IN MILLIONS)
- ---------------------------------------------------------------------------------------------- COLUMN A COLUMN F COLUMN G COLUMN H - ---------------------------------------------------------------------------------------------- CLAIMS AND CLAIM ADJUSTMENT EXPENSES AFFILIATION NET INCURRED RELATED TO: WITH EARNED INVESTMENT CURRENT PRIOR REGISTRANT PREMIUMS(2) INCOME YEAR(2) YEAR(2) - ---------------------------------------------------------------------------------------------- Year Ended December 31, 1993: Consolidated property-casualty entities............................. $ 4,358 $667 $3,464 $789 Year Ended December 31, 1992: Consolidated property-casualty entities............................. $ 5,132 $780 $4,448 $656 Year Ended December 31, 1991: Consolidated property-casualty entities............................. $ 5,619 $845 $4,587 $341
- ---------------------------------------------------------------------------------------- COLUMN A COLUMN I COLUMN J COLUMN K - ---------------------------------------------------------------------------------------- AMORTIZATION OF DEFERRED PAID CLAIMS AFFILIATION POLICY AND CLAIM WITH ACQUI- ADJUSTMENT PREMIUMS REGISTRANT SITION COSTS EXPENSES(2) WRITTEN - ---------------------------------------------------------------------------------------- Year Ended December 31, 1993: Consolidated property-casualty entities............................. $1,020 $ 4,170 $4,229 Year Ended December 31, 1992: Consolidated property-casualty entities............................. $1,103 $ 4,825 $4,817 Year Ended December 31, 1991: Consolidated property-casualty entities............................. $1,080 $ 4,866 $5,462
- --------------- (1) Discounts were computed using an annual interest rate of 9%. (2) Amounts presented are shown net of the effects of reinsurance. FS-14 57 INDEX TO EXHIBITS
NUMBER DESCRIPTION METHOD OF FILING - ------ --------------------------------------- --------------------------------------- 3.1 Restated Certificate of Incorporation Filed herewith.* of the registrant as last amended October 2, 1990 3.2 By-Laws of the registrant as last Filed as Exhibit 4.2 to the amended and restated December 9, 1991 registrant's Post-Effective Amendment No. 1 dated December 19, 1991 to Form S-8 Registration Statement No. 33-44371 and incorporated herein by reference. 4.1 Description of Preferred Stock Purchase Filed as Item 1 and Exhibit 1 to the Rights, including the Rights Agreement registrant's Form 8-A Registration dated as of July 23, 1987 between CIGNA Statement dated July 28, 1987, such Corporation and Morgan Shareholder Exhibit 1 amended by the registrant's Services Trust Company Amendment No. 1 on Form 8 dated August 11, 1987, and incorporated herein by reference. 4.2 Amended description of Preferred Stock Filed as Item 1 and Exhibit 2 to the Purchase Rights, including the First registrant's Amendment No. 2 on Form 8 Amendment to Rights Agreement dated as dated March 27, 1989 and incorporated of March 22, 1989 between CIGNA herein by reference. Corporation and Morgan Shareholder Services Trust Company Exhibits 10.1 through 10.17 are filed as exhibits pursuant to Item 14(c) of Form 10-K. 10.1 CIGNA Corporation Stock Plan effective Filed herewith.* as of May 1, 1991 10.2 Amendment No. 1 dated as of July 28, Filed herewith.* 1993 to the CIGNA Corporation Stock Plan 10.3 Amendment No. 2 dated as of February Filed herewith. 24, 1994 to the CIGNA Corporation Stock Plan 10.4 CIGNA Corporation Executive Stock Filed herewith.* Incentive Plan, as Amended and Restated as of March 23, 1988 10.5 Amendment No. 1 dated as of September Filed herewith.* 28, 1988 to the CIGNA Corporation Executive Stock Incentive Plan 10.6 Amendment No. 2 dated as of March 27, Filed herewith.* 1991 to the CIGNA Corporation Executive Stock Incentive Plan
- --------------- * Refiled in electronic format. E-1 58 INDEX TO EXHIBITS
NUMBER DESCRIPTION METHOD OF FILING - ------ --------------------------------------- --------------------------------------- 10.7 Description of the CIGNA Corporation Filed herewith.* Key Management Annual Incentive Bonus Plan 10.8 CIGNA Corporation Strategic Performance Filed herewith.* Plan, as amended and restated March 25, 1992 10.9 Description of CIGNA Corporation Filed herewith.* Financial Services Program 10.10 Deferred Compensation Plan of CIGNA Filed herewith.* Corporation and Participating Subsidiaries, as amended and restated as of January 1, 1990 10.11 Deferred Compensation Plan for Filed herewith.* Directors of CIGNA Corporation, as amended and restated as of May 1, 1991 10.12 Retirement and Consulting Plan for Filed herewith.* Directors of CIGNA Corporation, as amended and restated as of May 29, 1991 10.13 CIGNA Corporation Supplemental Filed herewith.* Executive Retirement Plan Agreement dated as of March 23, 1989 between R. D. Kilpatrick and the registrant 10.14 Agreement dated February 9, 1993 Filed herewith. between Gerald A. Isom and the registrant 10.15 Restricted Stock Plan for Non-Employee Filed herewith.* Directors for CIGNA Corporation effective as of September 30, 1989 10.16 Description of First Amendment to the Filed herewith.* Restricted Stock Plan for Non-Employee Directors of CIGNA Corporation 10.17 Description of Stock Compensation Plan Filed herewith. for Non-Employee Directors of CIGNA Corporation, as amended
- --------------- * Refiled in electronic format. E-2 59 INDEX TO EXHIBITS
NUMBER DESCRIPTION METHOD OF FILING - ------ --------------------------------------- --------------------------------------- 11 Computation of Primary and Fully Filed herewith. Diluted Earnings Per Share 12 Computation of Ratios of Earnings to Filed herewith. Fixed Charges and to Combined Fixed Charges and Preferred Stock Dividends 13 Portions of registrant's 1993 Annual Filed herewith. Report to Shareholders 21 Subsidiaries of the Registrant Filed herewith. 23 Consent of Independent Accountants Filed herewith. 24.1 Powers of Attorney Filed herewith. 24.2 Certified Resolutions Filed herewith. 28.1 Reconciliation of Schedule P to Total Filed herewith. Statutory Reserves 28.2 (P) Schedule P to the Annual Statement Filed herewith in paper format under for the Year 1993 of ICNA and its cover of Form SE. Affiliates
The registrant will furnish to the Commission upon request a copy of any of the registrant's agreements with respect to its long-term debt. Shareholders may obtain copies of exhibits by writing to CIGNA Corporation, Shareholder Services Department, Two Liberty Place, 1601 Chestnut Street, P.O. Box 7716, Philadelphia, Pennsylvania 19192-2378. - --------------- * Refiled in electronic format. E-3 EX-3.1 2 RESTATED CERTIFICATE OF INCORPORATION 1 RESTATED CERTIFICATE OF INCORPORATION OF CIGNA CORPORATION ***** This Restated Certificate of Incorporation of CIGNA Corporation was duly approved by the Board of Directors of the Corporation and only restates and integrates but does not further amend the provisions of the Corporation's Certificate of Incorporation as theretofore amended or supplemented; and there is no discrepancy between these amended and supplemented provisions and the provisions of the Restated Certificate of Incorporation set forth below except as permitted by Section 245 of the General Corporation Law. The Corporation was incorporated under the name North American General Corporation. The original Certificate of Incorporation of the Corporation was filed with the Secretary of State of the State of Delaware on November 3, 1981. First: The name of the Corporation is CIGNA Corporation. Second: The address of the Corporation's registered office in the State of Delaware is 1209 Orange Street in the City of Wilmington, County of New Castle, Delaware 19801. The name of its registered agent at such address is The Corporation Trust Company. Third: The nature of the business or purposes to be conducted or promoted is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware. Fourth: The total number of shares of all classes of capital stock which the Corporation shall have the authority to issue is 225,000,000 shares divided into two classes as follows: 200,000,000 shares of Common Stock (the "Common Stock") of the par value of $1 per share and 25,000,000 shares of Preferred Stock (the "Preferred Stock") of the par value of $1 per share. a. PREFERRED STOCK The Board of Directors is expressly authorized to provide for the issue of all or any shares of the Preferred Stock, in one or more series, and to fix for each such series such voting powers, full or limited, or no voting powers, and such designations, preferences and relative, participating, optional or other special rights and such qualifications, limitations or restrictions thereof, as shall be stated and expressed in the resolution or resolutions adopted by the Board 2 of Directors providing for the issue of such series and as may be permitted by the General Corporation Law of the State of Delaware, including, without limitation, the authority to provide that any such series may be (i) subject to redemption at such time or times and at such price or prices; (ii) entitled to receive dividends (which may be cumulative or non-cumulative) at such rates, on such conditions, and at such times, and payable in preference to, or in such relation to, the dividends payable on any other class or classes or any other series; (iii) entitled to such rights upon the dissolution of, or upon any distribution of the assets of, the Corporation; or (iv) convertible into, or exchangeable for, shares of any other class or classes of stock, or of any other series of the same or any other class or classes of stock, of the Corporation at such price or prices or at such rates of exchange and with such adjustments; all as may be stated in such resolution or resolutions. 1. Junior Participating Preferred Stock, Series D. Section 1. Designation and Amount. The shares of such series which shall be designated as "Junior Participating Preferred Stock, Series D," $1.00 par value, and the number of shares constituting such series shall be 2,000,000. Such number of shares may be increased or decreased by resolution of the Board of Directors; provided, that no decrease shall reduce the number of shares of Junior Preferred Stock, Series D to a number less than that of the shares then outstanding plus the number of shares issuable upon exercise of outstanding rights, options or warrants or upon conversion of outstanding securities issued by the Corporation. Section 2. Dividends and Distributions. (A) Subject to the prior and superior rights of the holders of any shares of any series of Preferred Stock ranking prior and superior to the shares of Junior Participating Preferred Stock, Series D, with respect to dividends, the holders of shares of Junior Participating Preferred Stock, Series D, in preference to the holders of shares of Common Stock, par value $1.00 per share (the "Common Stock"), of the Corporation and any other junior stock, shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for the purpose, quarterly dividends payable in cash on the 10th day of January, April, July, and October in each year (each such date being referred to herein as a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or fraction of a share of Junior Participating Preferred Stock, Series D, in an amount per share (rounded to the nearest cent) equal to the greater of (a) $10.00, or (b) subject to the provision for adjustment hereinafter set forth, 100 times the aggregate per share amount of all cash dividends, and 100 times the aggregate per share amount (payable in kind) of all non-cash - 2 - 3 dividends or other distributions other than a dividend payable in shares of Common Stock or a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise), declared on the Common Stock, since the immediately preceding Quarterly Dividend Payment Date, or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a share of Junior Participating Preferred Stock, Series D. In the event the Corporation shall at any time after August 5, 1987 (the "Rights Declaration Date") (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the amount to which holders of shares of Junior Participating Preferred Stock, Series D were entitled immediately prior to such event under clause (b) of the preceding sentence shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (B) The Corporation shall declare a dividend or distribution on the Junior Participating Preferred Stock, Series D, as provided in paragraph (A) above immediately after it declares a dividend or distribution on the Common Stock (other than a dividend payable in shares of Common Stock); provided that, in the event no dividend or distribution shall have been declared on the Common Stock during the period between any Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date, a dividend of $10.00 per share on the Junior Participating Preferred Stock, Series D, shall nevertheless be payable on such subsequent Quarterly Dividend Payment Date. (C) Dividends shall begin to accrue and be cumulative on outstanding shares of Junior Participating Preferred Stock, Series D, from the Quarterly Dividend Payment Date next preceding the date of issue of such shares of Junior Participating Preferred Stock, Series D, unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of shares of Junior Participating Preferred Stock, Series D, entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date in either of which events such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the shares of Junior Participating Preferred Stock, Series D, in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall - 3 - 4 be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board of Directors may fix a record date for the determination of holders of shares of Junior Participating Preferred Stock, Series D, entitled to receive payment of a dividend or distribution declared thereon, which record date shall be no more than 30 days prior to the date fixed for the payment thereof. Section 3. Voting Rights. The holders of shares of Junior Participating Preferred Stock, Series D shall have the following voting rights: (A) Subject to the provision for adjustment hereinafter set forth, each share of Junior Participating Preferred Stock, Series D, shall entitle the holder thereof to 100 votes on all matters submitted to a vote of the stockholders of the Corporation. In the event the Corporation shall at any time after the Rights Declaration Date (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the number of votes per share to which holders of shares of Junior Participating Preferred Stock, Series D, were entitled immediately prior to such event shall be adjusted by multiplying such number by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (B) Except as otherwise provided herein or by law, the holders of shares of Junior Participating Preferred Stock, Series D, and the holders of shares of Common Stock shall vote together as one class on all matters submitted to a vote of stockholders of the Corporation. (C) (i) If at any time dividends on any Junior Participating Preferred Stock, Series D, shall be in arrears in an amount equal to six (6) quarterly dividends thereon, the occurrence of such contingency shall mark the beginning of a period (herein called a "default period") which shall extend until such time when all accrued and unpaid dividends for all previous quarterly dividend periods and for the current quarterly dividend period on all shares of Junior Participating Preferred Stock, Series D, then outstanding shall have been declared and paid or set apart for payment. During each default period, all holders of Preferred Stock (including holders of the Junior Participating Preferred Stock, Series D) with dividends in arrears in an amount equal to six (6) quarterly dividends thereon, voting as a class, irrespective of series, shall have the right to elect two (2) Directors. (ii) During any default period, such voting right of the holders of Junior Participating Preferred Stock, Series D, - 4 - 5 may be exercised initially at a special meeting called pursuant to subparagraph (iii) of this Section 3(C) or at any annual meeting of stockholders, and thereafter at annual meetings of stockholders, provided that neither such voting right nor the right of the holders of any other series of Preferred Stock, if any, to increase, in certain cases, the authorized number of Directors shall be exercised unless the holders of ten percent (10%) in number of shares of Preferred Stock outstanding shall be present in person or by proxy. The absence of a quorum of the holders of Common Stock shall not affect the exercise by the holders of Preferred Stock of such voting right. At any meeting at which the holders of Preferred Stock shall exercise such voting right initially during an existing default period, they shall have the right, voting as a class, to elect Directors to fill such vacancies, if any, in the Board of Directors as may then exist up to two (2) Directors or, if such right is exercised at an annual meeting, to elect two (2) Directors. If the number which may be so elected at any special meeting does not amount to the required number, the holders of the Preferred Stock shall have the right to make such increase in the number of Directors as shall be necessary to permit the election by them of the required number. After the holders of the Preferred Stock shall have exercised their right to elect Directors in any default period and during the continuance of such period, the number of Directors shall not be increased or decreased except by vote of the holders of Preferred Stock as herein provided or pursuant to the rights of any equity securities ranking senior to or pari passu with the Junior Participating Preferred Stock, Series D. (iii) Unless the holders of Preferred Stock shall, during an existing default period, have previously exercised their right to elect Directors, the Board of Directors may order, or any stockholder or stockholders owning in the aggregate not less than ten percent (10%) of the total number of shares of Preferred Stock outstanding, irrespective of series, may request, the calling of a special meeting of the holders of Preferred Stock, which meeting shall thereupon be called by the Chairman, President, a Vice-President or the Corporate Secretary of the Corporation. Notice of such meeting and of any annual meeting at which holders of Preferred Stock are entitled to vote pursuant to this paragraph (C)(iii) shall be given to each holder of record of Preferred Stock by mailing a copy of such notice to him at his last address as the same appears on the books of the Corporation. Such meeting shall be called for a time not earlier than 10 days and not later than 60 days after such order or request or in default of the calling of such meeting within 60 days after such order or request, such meeting may be called on similar notice by any stockholder or stockholders owning in the aggregate not less than ten percent (10%) of the total number of shares of Preferred Stock outstanding. Notwithstanding the provisions of this paragraph (C)(iii), no such special meeting shall be called during the period within 60 days immediately preceding the date fixed for the next annual meeting of the stockholders. - 5 - 6 (iv) In any default period, the holders of Common Stock, and other classes of stock of the Corporation if applicable, shall continue to be entitled to elect the whole number of Directors until the holders of Preferred Stock shall have exercised their right to elect two (2) Directors voting as a class, after the exercise of which right (x) the Directors so elected by the holders of Preferred Stock shall continue in office until their successors shall have been elected by such holders or until the expiration of the default period, and (y) any vacancy in the Board of Directors may (except as provided in paragraph (C)(ii) of this Section 3) be filled by vote of a majority of the remaining Directors theretofore elected by the holders of the class of stock which elected the Director whose office shall have become vacant. References in this paragraph (C) to Directors elected by the holders of a particular class of stock shall include Directors elected by such Directors to fill vacancies as provided in clause (y) of the foregoing sentence. (v) Immediately upon the expiration of a default period, (x) the right of the holders of Preferred Stock as a class to elect Directors shall cease, (y) the term of any Directors elected by the holders of Preferred Stock as a class shall terminate, and (z) the number of Directors shall be such number as may be provided for in, or pursuant to, the Restated Certificate of Incorporation or By-Laws irrespective of any increase made pursuant to the provisions of paragraph (C)(ii) of this Section 3 (such number being subject, however to change thereafter in any manner provided by law or in the Restated Certificate of Incorporation or By-Laws). Any vacancies in the Board of Directors effected by the provisions of clauses (y) and (z) in the preceding sentence may be filled by a majority of the remaining Directors, even though less than a quorum. (D) Except as set forth herein, holders of Junior Participating Preferred Stock, Series D, shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Common Stock as set forth herein) for taking any corporate action. Section 4. Certain Restrictions. (A) Whenever quarterly dividends or other dividends or distributions payable on the Junior Participating Preferred Stock, Series D, as provided in Section 2 are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on shares of Junior Participating Preferred Stock, Series D, outstanding shall have been paid in full, the Corporation shall not (i) declare or pay dividends on, make any other distributions on, or redeem or purchase or otherwise acquire for consideration any shares of stock ranking - 6 - 7 junior (either as to dividends or upon liquidation, dissolution or winding up) to the Junior Participating Preferred Stock, Series D; (ii) declare or pay dividends on or make any other distributions on any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Junior Participating Preferred Stock, Series D, except dividends paid ratably on the Junior Participating Preferred Stock, Series D, and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled; (iii) redeem or purchase or otherwise acquire for consideration shares of any stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Junior Participating Preferred Stock, Series D, provided that the Corporation may at any time redeem, purchase or otherwise acquire shares of any such parity stock in exchange for shares of any stock of the Corporation ranking junior (either as to dividends or upon dissolution, liquidation or winding up) to the Junior Participating Preferred Stock, Series D; or (iv) purchase or otherwise acquire for consideration any shares of Junior Participating Preferred Stock, Series D, or any shares of stock ranking on a parity with the Junior Participating Preferred Stock, Series D, except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes. (B) The Corporation shall not permit any subsidiary of the Corporation to purchase or otherwise acquire for consideration any shares of stock of the Corporation unless the Corporation could, under paragraph (A) of this Section 4, purchase or otherwise acquire such shares at such time and in such manner. Section 5. Reacquired Shares. Any shares of Junior Participating Preferred Stock, Series D, purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and cancelled promptly after the acquisition thereof. - 7 - 8 All such shares shall upon their cancellation become authorized but unissued shares of Preferred Stock and may be reissued as part of a new series of Preferred Stock to be created by resolution or resolutions of the Board of Directors, subject to the conditions and restrictions on issuance set forth herein. Section 6. Liquidation, Dissolution or Winding Up. (A) Upon any liquidation (voluntary or otherwise), dissolution or winding up of the Corporation, no distribution shall be made to the holders of shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Junior Participating Preferred Stock, Series D, unless, prior thereto, the holders of shares of Junior Participating Preferred Stock, Series D, shall have received $20,000 per share plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment, (the "Series D Liquidation Preference"). Following the payment of the full amount of the Series D Liquidation Preference, no additional distributions shall be made to the holders of shares of Junior Participating Preferred Stock, Series D, unless, prior thereto, the holders of shares of Common Stock shall have received an amount per share (the "Common Adjustment") equal to the quotient obtained by dividing (i) the Series D Liquidation Preference by (ii) 100 (as appropriately adjusted as set forth in subparagraph C below to reflect such events as stock splits, stock dividends and recapitalizations with respect to the Common Stock) (such number in clause (ii), the "Adjustment Number"). Following the payment of the full amount of the Series D Liquidation Preference and the Common Adjustment in respect of all outstanding shares of Junior Participating Preferred Stock, Series D, and Common Stock, respectively, holders of Junior Participating Preferred stock, Series D, and holders of shares of Common Stock shall receive their ratable and proportionate share of the remaining assets to be distributed in the ratio of the Adjustment Number to 1 with respect to such Preferred Stock and Common Stock, on a per share basis, respectively. (B) In the event there are not sufficient assets available to permit payment in full of the Series D Liquidation Preference and the liquidation preferences of all other series of Preferred Stock, if any, which rank on a parity with the Junior Participating Preferred Stock, Series D, then such remaining assets shall be distributed ratably to the holders of such parity shares in proportion to their respective liquidation preferences. In the event there are not sufficient assets available to permit payment in full of the Common Adjustment, then such remaining assets shall be distributed ratably to the holders of Common Stock. (C) In the event the Corporation shall at any time after the Rights Declaration Date (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide - 8 - 9 the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the Adjustment Number in effect immediately prior to such event shall be adjusted by multiplying such Adjustment Number by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. Section 7. Consolidation, Merger, etc. In case the Corporation shall enter into any consolidation, merger, combination or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case the shares of Junior Participating Preferred Stock, Series D, shall at the same time be similarly exchanged or changed in an amount per share (subject to the provision for adjustment hereinafter set forth) equal to 100 times the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of Common Stock is changed or exchanged. In the event the Corporation shall at any time after the Rights Declaration Date (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the amount set forth in the preceding sentence with respect to the exchange or change of shares of Junior Participating Preferred Stock, Series D, shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that are outstanding immediately prior to such event. Section 8. Redemption. The shares of Junior Participating Preferred Stock, Series D, shall not be redeemable. Section 9. Ranking. The Junior Participating Preferred Stock, Series D, shall rank junior to all other series of the Corporation's Preferred Stock as to the payment of dividends and the distribution of assets, unless the terms of any such series shall provide otherwise. Section 10. Amendment. The Restated Certificate of Incorporation of the Corporation shall not be further amended in any manner which would materially alter or change the powers, preferences for special rights of the Junior Participating Preferred Stock, Series D, so as to affect them adversely without the affirmative vote of the holders of a majority or more of the outstanding shares of Junior Participating Preferred Stock, Series D, voting separately as a class. - 9 - 10 Section 11. Fractional Shares. Junior Participating Preferred Stock, Series D, may be issued in fractions of a share which shall entitle the holder, in proportion to such holders's fractional shares, to exercise voting rights, receive dividends, participate in distributions and to have the benefit of all other rights of holders of Junior Participating Preferred Stock, Series D. b. COMMON STOCK 1. Voting Rights. Except as provided by law or this Certificate of Incorporation, each holder of Common Stock shall have one vote in respect of each share of stock held by him of record on the books of the Corporation for the election of directors and on all matters submitted to a vote of stockholders of the Corporation. 2. Dividends. Subject to the preferential rights of the Preferred Stock, the holders of shares of Common Stock shall be entitled to receive, when and if declared by the Board of Directors, out of the assets of the Corporation which are by law available therefor, dividends payable either in cash, in property, or in shares of capital stock. 3. Dissolution, Liquidation or Winding Up. In the event of any dissolution, liquidation or winding up of the affairs of the Corporation, after distribution in full of the preferential amounts, if any, to be distributed to the holders of shares of Preferred Stock, holders of Common Stock shall be entitled to receive all of the remaining assets of the Corporation of whatever kind available for distribution to stockholders ratably in proportion to the number of shares of Common Stock held by them respectively. The Board of Directors may distribute in kind to the holders of Common Stock such remaining assets of the Corporation or may sell, transfer or otherwise dispose of all or any part of such remaining assets to any other corporation, trust or other entity and receive payment therefor in cash, stock or obligations of such other corporation, trust or entity, or any combination thereof, and may sell all or any part of the consideration so received and distribute any balance thereof in kind to holders of Common Stock. Neither the merger or consolidation of the Corporation into or with any other corporation, nor the merger of any other corporation into it, nor any purchase or redemption of shares of stock of the Corporation of any class, shall be deemed to be a dissolution, liquidation or winding up of the Corporation for the purpose of this paragraph. Fifth: The By-Laws of the Corporation may be adopted, amended or repealed (a) by action of the holders of at least eighty percent (80%) of the voting power of all outstanding Voting Stock (as defined in Article Tenth) of the Corporation entitled to vote generally at any annual or special meeting of - 10 - 11 stockholders or (b) by action of the Board of Directors at a regular or special meeting thereof. Any By-Laws made by the Board of Directors may be amended or repealed by action of the stockholders by the vote required by (a) above at any annual or special meeting of stockholders. Sixth: Elections of directors need not be by written ballot unless the By-Laws of the Corporation shall otherwise provide. Seventh: Notwithstanding any provision of the General Corporation Law of the State of Delaware, no action may be taken by stockholders without a meeting, without prior notice and without a vote, unless a consent in writing setting forth the action so taken shall be signed by the holders of all the outstanding stock who would be entitled to vote thereon. Eighth: Whenever a compromise or arrangement is proposed between this Corporation and its creditors or any class of them and/or between this Corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of this Corporation or of any creditor or stockholder thereof or on the application of any receiver or receivers appointed for this Corporation under the provisions of Section 291 of Title 8 of the Delaware Code or on the application of trustees in dissolution or of any receiver or receivers appointed for this Corporation under the provisions of Section 279 of Title 8 of the Delaware Code order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of this Corporation as consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all of the stockholders or class of stockholders, of this Corporation, as the case may be, and also on this Corporation. Ninth: The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation. Tenth: 1. Higher Vote for Certain Business Combinations. In addition to any affirmative vote of holders of a class or series of capital stock of the Corporation required by law or this Certificate, a Business Combination (as hereinafter - 11 - 12 defined) with or upon a proposal by a Related Person (as hereinafter defined) shall require the affirmative vote of the holders of at least eighty percent (80%) of the voting power of all outstanding Voting Stock (as hereinafter defined) of the Corporation, voting together as a single class. Such affirmative votes shall be required notwithstanding the fact that no vote may be required, or that a lesser percentage may be specified, by law or the Board. 2. When Higher Vote Is Not Required. The provisions of this Article shall not be applicable to a particular Business Combination, and such Business Combination shall require only such affirmative vote as is required by law and any other provision of this Certificate or the By-Laws of the Corporation, if all of the conditions specified in any one of the following Paragraphs (A), (B) or (C) are met: (A) Approval by Directors. The Business Combination has been approved by a vote of a majority of all the Continuing Directors (as hereinafter defined); or (B) Combination with Subsidiary. The Business Combination is solely between the Corporation and a subsidiary of the Corporation and such Business Combination does not have the direct or indirect effect set forth in Paragraph 3(B)(v) of this Article Tenth; or (C) Price and Procedural Conditions. The proposed Business Combination will be consummated within three years after the date the Related Person became a Related Person (the "Determination Date") and all of the following conditions have been met: (i) The aggregate amount of (x) cash and (y) fair market value (as of the date of the consummation of the Business Combination) of consideration other than cash, to be received per share of Common or Preferred Stock of the Corporation in such Business Combination by holders thereof shall be at least equal to the highest per share price (including any brokerage commissions, transfer taxes and soliciting dealers' fees) paid by the Related Person for any shares of such class or series of stock acquired by it; provided, that if either (a) the highest preferential amount per share of a series of Preferred Stock to which the holders thereof would be entitled in the event of any voluntary or involuntary liquidation, dissolution or winding-up of the affairs of the Corporation (regardless of whether the Business Combination to be consummated constitutes such an event) or (b) the highest reported sales price per share for any shares of such series of Preferred Stock on any national securities exchange on which such series is traded and if not traded on any such exchange, the highest reported closing bid quotation per share with respect to shares of such series on the National - 12 - 13 Association of Securities Dealers, Inc. Automated Quotation System or on any system then in use, at any time after the Related Person became a holder of any shares of Common Stock, is greater than such aggregate amount, holders of such series of Preferred Stock shall receive an amount for each such share at least equal to the greater of (a) or (b). (ii) The consideration to be received by holders of a particular class or series of outstanding Common or Preferred Stock shall be in cash or in the same form as the Related Person has previously paid for shares of such class or series of stock. If the Related Person has paid for shares of any class or series of stock with varying forms of consideration, the form of consideration given for such class or series of stock in the Business Combination shall be either cash or the form used to acquire the largest number of shares of such class or series of stock previously acquired by it. (iii) No Extraordinary Event (as hereinafter defined) occurs after the Determination Date and prior to the consummation of the Business Combination. (iv) A proxy or information statement describing the proposed Business Combination and complying with the requirements of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder (or any subsequent provisions replacing such Act, rules or regulations) is mailed to public stockholders of the Corporation at least 30 days prior to the consummation of such Business Combination (whether or not such proxy or information statement is required pursuant to such Act or subsequent provisions). 3. Certain Definitions. For purposes of this Article Tenth: (A) A "person" shall mean any individual, firm, corporation or other entity, or a group of "persons" acting or agreeing to act together in the manner set forth in Rule 13d-5 under the Securities Exchange Act of 1934, as in effect on April 24, 1985. (B) The term "Business Combination" shall mean any of the following transactions, when entered into by the Corporation or a subsidiary of the Corporation with, or upon a proposal by, a Related Person: (i) the merger or consolidation of the Corporation or any subsidiary of the Corporation; or (ii) the sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one or a series of transactions) of any assets of the Corporation or any subsidiary of the Corporation having an aggregate fair market value of $100 million or more; or - 13 - 14 (iii) the issuance or transfer by the Corporation or any subsidiary of the Corporation (in one or a series of transactions) of securities of the Corporation or any subsidiary having an aggregate fair market value of $50 million or more; or (iv) the adoption of a plan or proposal for the liquidation or dissolution of the Corporation; or (v) the reclassification of securities (including a reverse stock split), recapitalization, consolidation or any other transaction (whether or not involving a Related Person) which has the direct or indirect effect of increasing the voting power, whether or not then exercisable, of a Related Person in any class or series of capital stock of the Corporation or any subsidiary of the Corporation; or (vi) any agreement, contract or other arrangement providing directly or indirectly for any of the foregoing. (C) The term "Related Person" shall mean any person (other than the Corporation, a subsidiary of the Corporation or any profit sharing, employee stock ownership or other employee benefit plan of the Corporation or of a subsidiary of the Corporation or any trustee of or fiduciary with respect to any such plan acting in such capacity) that is the direct or indirect beneficial owner (as defined in Rule 13d-3 and Rule 13d-5 under the Securities Exchange Act of 1934, as in effect on April 24, 1985) of more than ten percent (10%) of the outstanding Voting Stock of the Corporation, and any Affiliate or Associate of any such person. (D) The term "Continuing Director" shall mean any member of the Board of Directors who is not affiliated with a Related Person and who was a member of the Board of Directors immediately prior to the time that the Related Person became a Related Person, and any successor to a Continuing Director who is not affiliated with the Related Person and is recommended to succeed a Continuing Director by a majority of Continuing Directors who are then members of the Board of Directors. (E) "Affiliate" and "Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 under the Securities Exchange Act of 1934, as in effect on April 24, 1985. (F) The term "Extraordinary Event" shall mean, as to any Business Combination and Related Person, any of the following events that is not approved by a majority of all Continuing Directors: - 14 - 15 (i) any failure to declare and pay at the regular date therefor any full quarterly dividend (whether or not cumulative) on outstanding Preferred Stock; or (ii) any reduction in the annual rate of dividends paid on the Common Stock (except as necessary to reflect any subdivision of the Common Stock); or (iii) any failure to increase the annual rate of dividends paid on the Common Stock as necessary to reflect any reclassification (including any reverse stock split), recapitalization, reorganization or any similar transaction that has the effect of reducing the number of outstanding shares of the Common Stock; or (iv) the receipt by the Related Person, after the Determination Date, of a direct or indirect benefit (except proportionately as a stockholder) from any loans, advances, guarantees, pledges or other financial assistance or any tax credits or other tax advantages provided by the Corporation or any subsidiary of the Corporation, whether in anticipation of or in connection with the Business Combination or otherwise. (G) A majority of all Continuing Directors shall have the power to make all determinations with respect to this Article Tenth, including, without limitation, the transactions that are Business Combinations, the persons who are Related Persons, the time at which a Related Person became a Related Person, and the fair market value of any assets, securities or other property, and any such determinations of such directors shall be conclusive and binding. (H) The term "Voting Stock" shall mean all outstanding shares of the Common or Preferred Stock of the Corporation entitled to vote generally and each reference to a proportion of Voting Stock shall refer to shares having such proportion of the number of shares entitled to be cast. 4. No Effect on Fiduciary Obligations of Related Persons. Nothing contained in this Article Tenth shall be construed to relieve any Related Person from any fiduciary obligation imposed by law. 5. Amendment, Repeal, etc. The affirmative vote of the holders of at least eighty percent (80%) of the voting power of all outstanding Voting Stock of the Corporation, voting together as a single class, shall be required in order to amend, repeal or adopt any provision inconsistent with this Article Tenth. Eleventh: To the fullest extent permitted by the General Corporation Law of the State of Delaware as the same exists or - 15 - 16 may hereafter be amended, no director of the Corporation shall be liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director. Any repeal or modification of the preceding sentence shall not adversely affect any right or protection of a director existing at the time of such repeal or modification. IN WITNESS WHEREOF, the Corporation has caused this instrument to be signed in its name by its Chairman of the Board and Chief Executive Officer and attested to by its Corporate Secretary this 26th day of September, 1990. s/ Wilson H. Taylor -------------------------------- Wilson H. Taylor Chairman of the Board and Chief Executive Officer Attest: s/Thomas J. Wagner - ------------------------------- Thomas J. Wagner Corporate Secretary - 16 - EX-10.1 3 CIGNA CORPORATION STOCK PLAN 1 CIGNA CORPORATION STOCK PLAN (Effective as of May 1, 1991) ARTICLE 1 STATEMENT OF PURPOSE The CIGNA Corporation Stock Plan (the "Plan") is intended to reward and provide incentives for key employees of CIGNA Corporation and its Subsidiaries by providing them with an opportunity to acquire an equity interest in CIGNA Corporation, thereby increasing their personal interest in its continued success and progress. It also is intended to aid the Company in attracting key personnel of exceptional ability. ARTICLE 2 DEFINITIONS 2.1 Defined Terms. For all purposes of this Plan, except as otherwise expressly provided or defined herein or unless the context otherwise requires, the terms defined in this Article shall have the following meanings: "Board of Directors" means either the board of directors of CIGNA Corporation or any duly authorized committee of that board. "Change of Control" means: (i) a corporation, person or group acting in concert as described in Section 14(d)(2) of the Securities Exchange Act of 1934, as amended ("Exchange Act"), holds or acquires beneficial ownership within the meaning of Rule 13d-3 promulgated under the Exchange Act of a number of preferred or common shares of CIGNA Corporation having voting power which is either (i) more than 50% of the voting power of the shares which voted in the election of directors of CIGNA Corporation at the shareholders' meeting immediately preceding such determination, or (ii) more than 25% of the voting power of CIGNA Corporation's outstanding common shares; or (ii) as a result of a merger or consolidation to which CIGNA Corporation is a party, either (i) CIGNA Corporation is not the surviving corporation or (ii) Directors of CIGNA Corporation immediately prior to the merger or consolidation constitute less than a majority of the Board of Directors of the surviving corporation; or (iii) a change occurs in the composition of the Board at any time during any consecutive 24-month period such that the "Continuity Directors" cease for any reason to constitute a majority of the Board. For purposes of the preceding sentence "Continuity Directors" shall mean those members of the Board who either: (i) were directors at the beginning of such consecutive 24-month period; or (ii) were elected by or on nomination or recommendation of, at least a majority (consisting of at least nine directors) of the Board. "Committee" means the People Resources Committee of the Board of Directors or any successor committee with responsibility for compensation. The number of Committee members and their qualifications shall at all times be sufficient to meet the requirements of Securities and Exchange Commission Rule 16b-3 as in effect from time to time. -1- 2 "Common Stock" means the common stock, par value $1 per share, of CIGNA Corporation. "Company" means CIGNA Corporation, a Delaware corporation, and/or its Subsidiaries. "Deferred Compensation Account" means a separate account established pursuant to a Deferred Compensation Plan. "Deferred Compensation Plan" means and refers to a deferred compensation plan of the Company which has been designated by the Committee as a "Deferred Compensation Plan" for purposes of this Plan. "Disability" means permanent and total disability as defined in Section 22(e)(3) of the Internal Revenue Code. "Early Retirement" means a Termination of Employment, after appropriate notice to the Company, (i) on or after age 55 and before age 65 with eligibility for immediate annuity benefits under a qualified pension or retirement plan of the Company, or (ii) upon such terms and conditions approved by the Committee or officers of the Company designated by the Board of Directors or the Committee. "Eligible Employee" means a salaried officer or other key employee of the Company who (i) occupies a position with the Company that has been designated by the Committee as an eligible position for participation in this Plan or (ii) has been specifically authorized or designated by the Committee to participate in this Plan. "Fair Market Value" means the mean between the highest and lowest quoted selling prices as reported on the Composite Tape (or other successor means of publishing stock prices) on the date as of which any determination of such value is or is required to be made, or, if the Composite Tape or such successor publication is not published on such date, on the next preceding date of publication. In the absence of such sales, Fair Market Value shall be determined by the Committee, which shall take into account all relevant facts and circumstances. "Incentive Stock Option" means a stock option granted in accordance with Section 422A of the Internal Revenue Code. "Participant" means an Eligible Employee to whom any one or more of the awards authorized in this Plan shall have been granted. "Payment Date" means the date that payment of an award pursuant to a Qualifying Incentive Plan, or of a benefit pursuant to a Qualifying Supplemental Benefit Plan, is made or would have been made but for deferral pursuant to Section 3.7(b). "Qualifying Incentive Plan" means any bonus plan or other incentive compensation plan of the Company, including but not limited to the Company's Performance Recognition Award Program, pursuant to which awards payable in cash are or are authorized to be made to employees of the Company. "Qualifying Supplemental Benefit Plan" means any plan of the Company pursuant to which benefits which would have been paid under a tax qualified retirement plan but for legal limitations are payable in cash to eligible employees of the Company. "Retirement" means a Termination of Employment, after appropriate notice to the Company, (i) on or after age 65 with eligibility for immediate annuity benefits under a qualified pension or -2- 3 retirement plan of the Company, or (ii) upon such terms and conditions approved by the Committee, or officers of the Company designated by the Board of Directors or the Committee. "Subsidiary" means any corporation of which more than 50% of the total combined voting power of all classes of stock entitled to vote, or other equity interest, is directly or indirectly owned by CIGNA Corporation; or a partnership, joint venture or other unincorporated entity of which more than a 50% interest in the capital, equity or profits is directly or indirectly owned by CIGNA Corporation. "Termination for Cause" means a Termination of Employment initiated by the Company on account of the conviction of Participant of a felony involving fraud or dishonesty directed against the Company. "Termination of Employment" means the termination of the Participant's active employment relationship with the Company, unless otherwise expressly provided by the Committee, or the occurrence of a transaction by which the Participant's employing Company ceases to be a Subsidiary. "Termination Upon a Change of Control" means a Termination of Employment upon or within two years after a Change of Control (i) initiated by the Company or a successor corporation other than pursuant to Termination for Cause or (ii) initiated by the Participant and pursuant to the Participant's certification that the Change of Control has rendered him unable to perform the duties and responsibilities of the position he held immediately prior to the Change of Control by adverse changes in his authority, compensation, office location, duties, responsibilities, or title. 2.2 General. Certain terms are defined in other Articles of this Plan. The terms defined in this Article and elsewhere in this Plan shall include the feminine as well as the masculine gender and the plural as well as the singular, as the context in which they are used requires. ARTICLE 3 AUTHORIZED STOCK INCENTIVE AWARDS 3.1 Authorized Awards. The awards authorized are as follows: (a) stock options, (b) stock appreciation rights, (c) restricted stock grants, (d) dividend equivalent rights, and (e) Common Stock in lieu of cash payable under a Qualifying Incentive Plan or Qualifying Supplemental Benefit Plan. 3.2 General Powers of the Committee. Subject to the provisions of this Plan, the Committee is authorized and empowered in its sole discretion to select Participants and to grant to them any one or more of the awards authorized above in such amounts and combinations and upon such terms and conditions as it shall determine. 3.3 Stock Options. The Committee shall have the authority to grant Eligible Employees options to purchase Common Stock upon such terms and conditions as it shall establish, including restrictions on the right to exercise options, subject in all events to the following limitations and provisions of general application: (a) The option price per share of any option shall not be less than the Fair Market Value on the date of grant. The option price may be paid in cash or, if the Committee so provides, in -3- 4 Common Stock (including Common Stock subject to a Restricted Period pursuant to Section 3.5(a)). Common Stock used to pay the option price shall be valued using the Fair Market Value on the date of exercise. To the extent the option price is paid in shares of restricted stock, an equal number of the shares of Common Stock purchased upon exercise of the option shall be subject to identical restrictions which shall continue in effect for the remaining part of the Restricted Period applicable to the restricted stock used to pay the option price. (b) No option shall be for a term of more than 10 years from the date of grant. (c) No option may be exercised during a leave of absence except to the extent exercisable immediately prior to commencement of the leave of absence, unless otherwise expressly provided by the Committee. (d) In the event of Termination of Employment (including termination during an approved leave of absence) of a Participant holding an outstanding option for any reason other than death, Disability or Upon a Change of Control (in case of an Incentive Stock Option) or for any reason other than death, Disability, Retirement or Upon a Change of Control (in case of any option other than an Incentive Stock Option), the term of the option shall expire on the earlier of the date of Termination of Employment or the expiration date set forth in the option. (e) In the event of Termination of Employment due to death or Disability (including death or Disability during an approved leave of absence) of a Participant holding an outstanding Incentive Stock Option, the option shall be fully exercisable immediately and the term of the option shall expire on the earlier of 12 months from the date of Termination of Employment or the expiration date set forth in the option. (f) In the event of Termination of Employment due to death, Disability or Retirement (including death, Disability or Retirement during an approved leave of absence) of a Participant holding an outstanding option other than an Incentive Stock Option, the option shall remain fully exercisable until the expiration date set forth in the option. (g) In the event of Termination of Employment Upon a Change of Control of a Participant holding an outstanding option, the term of the option shall expire on the earlier of 3 months from the date of Termination of Employment or the expiration date set forth in the option. (h) Notwithstanding the provisions of Section 3.3(d), in the event of a Termination of Employment due to Early Retirement (including Early Retirement during an approved leave of absence) of a Participant holding an outstanding option, the Committee or its designee may extend the exercise period of the option up to 3 months from the date of Termination of Employment (but not beyond the expiration date set forth in the option) in the case of an Incentive Stock Option or up to the expiration date set forth in the option in the case of an option other than an Incentive Stock Option. 3.4 Stock Appreciation Rights. The Committee shall have the authority to grant stock appreciation rights to Eligible Employees who are granted options under this Plan upon such terms and conditions as it shall establish, subject in all events to the following limitations and provisions of general application: (a) Each right shall relate to a specific option granted under this Plan and shall be granted to the optionee either concurrently with the grant of such option or at such later time as determined by the Commitee. (b) The right shall entitle an optionee to receive a number of shares of Common Stock, without payment to the Company, determined by dividing- (1) the total number of shares which the optionee is eligible to purchase as of the exercise date under the related option multiplied by the amount by which the Fair Market -4- 5 Value of a share of Common Stock on the exercise date of the right exceeds the Fair Market Value of a share of Common Stock on the date, as determined by the Commitee, that the right or related option was granted to the optionee; by (2) the Fair Market Value of a share of Common Stock on the exercise date. (c) In lieu of issuing shares on an exercise of a right, the Committee may elect to pay the cash equivalent of the Fair Market Value on the date of exercise of any or all the shares which would otherwise be issuable pursuant to such exercise. (d) Shares under an option to which a right is related shall be used not more than once to calculate a number of shares or cash to be received pursuant to an exercise of such right. (e) The number of shares which may be purchased pursuant to an exercise of the related option will be reduced to the extent such shares are used in calculating the number of shares or cash to be received pursuant to an exercise of a related right. (f) In the event of Termination of Employment of a Participant holding an outstanding right, the right shall be exercisable only to the extent and upon the conditions that its related option is exercisable. 3.5 Restricted Stock Grants. The Committee shall have the authority to award Common Stock to Eligible Employees by grant (a "Grant") upon such terms and conditions as it shall establish, subject in all events to the following limitations, restrictions and provisions of general application: (a) Except as expressly provided below, the Common Stock awarded by a Grant shall not be sold, transferred, assigned, pledged or otherwise disposed of by the Participant during the period or periods established by the Committee (each such period, a "Restricted Period"). Common Stock subject to a Restricted Period may be used to exercise options pursuant to Section 3.3(a). The Committee may establish different Restricted Periods applicable to such number of the shares of Common Stock evidenced by a single Grant as it deems appropriate. (b) The Common Stock awarded by a Grant shall be issued by the Company as of the date of the Grant. During the Restricted Period, the Participant shall be entitled to vote the shares. Dividends paid on shares of Common Stock subject to a Restricted Period shall be retained by the Company during the Restricted Period and shall be paid to the Participant, with interest computed in a manner determined by the Committee, when the Restricted Period ends or otherwise lapses, but shall not be paid to the Participant if the related shares of Common Stock are forfeited by the Participant pursuant to Section 3.5(c). Shares issued as a consequence of stock dividends, splits or reclassifications shall be issued subject to the same limitations, restrictions and provisions applicable to the Common Stock with respect to which they are to be issued. (c) In the event of Termination of Employment of a Participant during a Restricted Period, except Termination Upon a Change of Control or termination by reason of death, Disability or Retirement, ownership of the Common Stock subject to any Restricted Period at the date of Termination of Employment and all rights therein shall be forfeited to the Company, unless otherwise expressly provided by the Committee. (d) In the event of Termination Upon a Change of Control or Termination of Employment by reason of death, Disability or Retirement of a Participant during a Restricted Period, the Restricted Period applicable to any outstanding Grant at the date of Termination of Employment shall lapse immediately. (e) The effect of approved leaves of absence on the running of applicable Restricted Periods shall be determined by the Committee, provided, however, that no Restricted Period shall lapse during an approved leave of absence unless expressly provided by the Committee. -5- 6 3.6 Dividend Equivalent Rights. The Committee shall have the authority to grant dividend equivalent rights to Eligible Employees upon such terms and conditions as it shall establish, subject in all events to the following limitations and provisions of general application: (a) Each right may relate to a specific option granted under this Plan and may be granted to the optionee either concurrently with the grant of such option or at such later time as determined by the Committee, or each right may be granted independent of any option. (b) The right shall entitle a holder to receive, for a period of time to be determined by the Committee, a payment equal to the quarterly dividend declared and paid by the Company on one share of Common Stock. If the right relates to a specific option, the period shall not extend beyond the earliest of the date the option is exercised, the date any stock appreciation right related to the option is exercised, or the expiration date set forth in the option. (c) The Committee shall determine at time of grant whether payment pursuant to a right shall be immediate or deferred and whether it shall be in the form of cash or Common Stock, or a combination of cash and Common Stock. If immediate, the Company shall make payments pursuant to each right within 90 days after the Company has paid the quarterly dividend to holders of Common Stock. If deferred, the payments shall accumulate (with interest computed in a manner to be determined by the Committee) until a date or event specified by the Committee and then shall be made within 90 days after the occurrence of the specified date or event, unless the right is forfeited under the terms of the Plan. (d) In the event of Termination of Employment (including termination during an approved leave of absence) of a Participant for any reason, any dividend equivalent right held by such Participant at Termination of Employment shall be forfeited, unless otherwise expressly provided by the Committee. 3.7 Common Stock in Lieu of Cash. The Committee shall have the authority to award an Eligible Employee Common Stock (a "Stock Payment") in lieu of all or a portion (determined by the Committee) of an award otherwise payable in cash pursuant to a Qualifying Incentive Plan or Qualifying Supplemental Benefit Plan (collectively referred to as a "Qualifying Plan"). The number of shares of Common Stock comprising the Stock Payment shall have an aggregate Fair Market Value, determined as of the Payment Date, equal to the amount of cash in lieu of which the Stock Payment is made. All Stock Payments shall be subject to the following limitations and provisions of general application: (a) Stock Payments shall not be made to any Participant whose employment terminates for any reason before the Payment Date or to the heirs of an Eligible Employee who dies before the Payment Date. In any such event, the entire award, in lieu of a portion of which a Stock Payment was to be made, shall be paid to such Participant or his personal representative, as the case may be, in cash. (b) The right to receive all or a portion of Stock Payments may be deferred by a Participant under a Deferred Compensation Plan, subject to the following provisions: (i) the aggregate Fair Market Value of the Stock Payment so deferred shall be hypothetically invested (within the meaning of the Deferred Compensation Plan) in the number of shares of Common Stock (as adjusted to reflect stock dividends, splits and reclassifications) comprising the Stock Payment, (ii) an amount equal to cash dividends which otherwise would have been paid on the Stock Payment if it were not so hypothetically invested, also will be deemed to have been paid and hypothetically invested pursuant to the Deferred Compensation Plan, and (iii) a certificate evidencing the number of shares of Common Stock (as so adjusted) comprising the Stock Payment shall not be issued or delivered to the Participant until payment of his Deferred Compensation Account is made pursuant to the Deferred Compensation Plan. -6- 7 ARTICLE 4 SHARES AUTHORIZED UNDER THE PLAN 4.1 Maximum Number Authorized. The number of shares of Common Stock authorized to be issued pursuant to stock options, rights, Grants or Stock Payments awarded under this Plan is 3,500,000. 4.2 Maximum Number Per Participant. No more than 10% of the maximum number of shares of Common Stock authorized pursuant to this Plan shall be acquired by any one Participant by way of option (including Common Stock subject to option), right, Grant or Stock Payment under this Plan. 4.3 Unexercised Options, Grant Forfeitures and Options Exercised with Common Stock. All Common Stock (i) under options granted under this Plan which expire or are cancelled or surrendered or (ii) which is forfeited pursuant to Section 3.5, shall be available for further awards under this Plan upon such expiration, cancelation, surrender and forfeiture. In addition, any Common Stock granted or purchased under this Plan which is used by a Participant as full or partial payment to the Company of the purchase price of Common Stock acquired upon exercise of a stock option granted under this Plan shall be available for further awards under this Plan upon such payment. 4.4 No Fractional Shares. No fractional shares of Common Stock shall be issued pursuant to this Plan. 4.5 Source of Shares. Common Stock may be issued from authorized but unissued shares or out of shares held in CIGNA Corporation's treasury, or both. ARTICLE 5 ANTIDILUTION PROVISIONS Except as otherwise expressly provided herein, the following provisions shall apply to all Common Stock authorized for issuance, and options, granted or awarded under this Plan: 5.1 Stock Dividends, Splits, Etc. In the event of a stock dividend, stock split, or other subdivision or combination of the Common Stock, the number of shares of Common Stock authorized under this Plan will be adjusted proportionately. Similarly, in any such event there will be a proportionate adjustment in the number of shares of Common Stock subject to unexercised stock options (but without adjustment to the aggregate option price) and in the number of shares of Common Stock then subject to Restricted Periods under a Grant. 5.2 Merger, Exchange or Reorganization. In the event that the outstanding shares of Common Stock are changed or converted into, exchanged or exchangeable for, a different number or kind of shares or other securities of CIGNA Corporation or of another corporation, by reason of a reorganization, merger, consolidation, reclassification or combination, appropriate adjustment shall be made by the Committee in the number of shares and kind of Common Stock for which options, rights, Grants and Stock Payments may be or may have been awarded under this Plan, to the end that the proportionate interests of Participants shall be maintained as before the occurrence of such event, provided, however, that in the event of any contemplated transaction which may constitute a Change of Control of CIGNA Corporation, the Committee, with the approval of a majority of the members of the Board of Directors who are not then Participants, may modify any and all outstanding options, rights, Grants and Stock Payments (except those deferred pursuant to -7- 8 Section 3.7(b)), so as to accelerate, as a consequence of or in connection with such transaction, the vesting of a Participant's right to exercise any such options or stock appreciation right or the unqualified ownership of Common Stock subject to a Grant or the accelerated payment of any deferred dividend equivalent rights. ARTICLE 6 ADMINISTRATION OF PLAN 6.1 General Administration. The Plan is to be administered by the Committee, subject to such requirements for review and approval by the Board of Directors as the Board of Directors may establish. 6.2 Administrative Rules. The Committee shall have the power and authority to adopt, amend and rescind administrative guidelines, rules and regulations pertaining to this Plan and to interpret and rule on any questions respecting any provision of this Plan. 6.3 Committee Members Not Eligible. No member of the Committee shall be eligible to participate in this Plan. 6.4 Decisions Binding. Decisions of the Committee concerning this Plan shall be binding on CIGNA Corporation and its Subsidiaries and their respective boards of directors, and on all Eligible Employees and Participants. ARTICLE 7 AMENDMENTS All amendments to this Plan shall be in writing and shall be effective when approved by the Board of Directors, provided, however, that an amendment shall not be effective without the prior approval of the shareholders of CIGNA Corporation if such approval is necessary under Internal Revenue Service or Securities and Exchange Commission regulations, or the rules of the New York Stock Exchange or any applicable law. The Board of Directors may make any changes required to conform this Plan and option agreements with applicable provisions of the Internal Revenue Code or regulations thereunder pertaining to Incentive Stock Options. Unless otherwise expressly provided by an amendment or the Board of Directors, no amendment to this Plan shall apply to grants of options, rights or Restricted Stock made before the effective date of the amendment. ARTICLE 8 OTHER PROVISIONS 8.1 Effective Date. This Plan is effective on May 1, 1991 (the "Effective Date"). 8.2 Duration of the Plan. The Plan shall remain in effect until all options and rights granted under this Plan have been satisfied by the issuance of Common Stock, or terminated under the terms of this Plan, provided that options, rights, Grants and Stock Payments under this Plan must be awarded on or after the Effective Date. 8.3 Early Termination. Notwithstanding the provisions of Section 8.2, the Board of Directors may terminate this Plan at any time; but no such action by the Board of Directors shall adversely affect the rights of Participants which exist under this Plan immediately before its termination. -8- 9 8.4 General Restriction. No Common Stock issued pursuant to this Plan shall be sold or distributed by a Participant until all appropriate listing, registration and qualification requirements and consents and approvals have been obtained, free of any condition unacceptable to the Board of Directors. 8.5 Awards Not Assignable. No right to receive Common Stock, including options or similar rights (such as stock appreciation rights), pursuant to this Plan shall be assignable or transferable by a Participant except by will or by the laws of descent and distribution, and any option or similar right shall be exercisable during a Participant's lifetime only by the Participant or by the Participant's guardian or legal representative. 8.6 Withholding Taxes. Whenever Common Stock is to be issued or delivered in satisfaction of options or other awards granted hereunder, the Company shall have the right to require the Participant to remit an amount sufficient to satisfy federal, state and local withholding taxes prior to delivery of any certificate for such shares. The Committee may require, or permit, the Participant to remit such amount in whole or in part in Common Stock. If the Committee permits a Participant to elect to remit such amount in Common Stock, any such election shall be irrevocable, be made on or prior to the date the withholding obligation arises and be subject to the disapproval of the Committee. The Committee may establish such additional conditions as it deems appropriate. If the Participant remits such amount in Common Stock, the number of shares of Common Stock delivered to or on behalf of a Participant shall be reduced by the number of shares so remitted. Common Stock so remitted shall be valued using the Fair Market Value of Common Stock as of the date the withholding obligation arises. 8.7 Safekeeping of Certificates. The certificate evidencing Common Stock awarded by a restricted stock grant or purchased upon exercise of an option shall be retained for safekeeping by the Company, or by a custodian appointed by the Company, except the Committee may in its discretion cause the certificate to be delivered to the Participant after a restricted stock grant or a purchase upon exercise of an option. The Company will deliver any such retained certificates that are not subject to a Restricted Period to the Participant within a reasonable period after a Participant requests delivery of such certificates. -9- EX-10.2 4 AMENDMENT NO. 1 TO CIGNA CORPORATION STOCK PLAN 1 AMENDMENT NO. 1 to the CIGNA CORPORATION STOCK PLAN WHEREAS, the Board of Directors has retained the right to amend the CIGNA Corporation Stock Plan (the "Plan") pursuant to Article 7 thereof; and WHEREAS, the Board of Directors, by resolution dated July 28, 1993, approved certain amendments to the Plan in order to comply with requirements imposed on Plan transactions by the Securities and Exchange Commission; NOW THEREFORE, Section 4.3 of the Plan is hereby amended in its entirety, effective as of its Effective Date (as defined therein), as follows: 4.3 Unexercised Options, Grant Forfeitures and Options Exercised with Common Stock. To the extent permitted in maintaining compliance with regulations adopted by the Securities and Exchange Commission (including SEC Rule 16b-3 and successor provisions), (a) all Common Stock (i) under options granted under this Plan which expire or are canceled or surrendered or (ii) which is forfeited pursuant to Section 3.5, shall be available for further awards under this Plan upon such expiration, cancellation, surrender and forfeiture; provided, however, that in the case of a stock appreciation right paid in cash pursuant to Section 3.4(c), there shall immediately cease to be available for further awards under this Plan that number of shares of Common Stock having a fair market value (calculated on the date the right is exercised) equal to such cash payment; and (b) any Common Stock granted or purchased under this Plan which is used by a Participant as full or partial payment to the Company for the purchase of Common Stock acquired upon exercise of a stock option granted under this Plan shall be available for further awards under this Plan upon such payment. EX-10.3 5 AMENDMENT NO.2 TO CIGNA CORPORATION STOCK PLAN 1 AMENDMENT NO. 2 to the CIGNA CORPORATION STOCK PLAN WHEREAS, the Board of Directors has retained the right to amend the CIGNA Corporation Stock Plan (the "Plan") pursuant to Article 7 thereof; and WHEREAS, the Board of Directors, by resolution dated February 23, 1994, approved certain amendments to the Plan in order to permit current payment of dividends on shares of restricted stock and to eliminate the automatic lapse of restrictions on restricted stock at retirement; NOW THEREFORE, the Plan is hereby amended, effective as of February 23, 1994, as follows: 1. Section 3.5(b) of Article 3 is amended in its entirety to read as follows: (b) The Common Stock awarded by a Grant shall be issued by the Company as of the date of the Grant. During the Restricted Period, the Participant shall be entitled to vote the shares. Shares issued as a consequence of stock dividends, splits or reclassifications shall be issued subject to the same limitations, restrictions and provisions applicable to the Common Stock with respect to which they are issued. 2. Section 3.5(c) of Article 3 is amended in its entirety to read as follows: (c) In the event of Termination of Employment of a Participant during a Restricted Period, except Termination Upon a Change of Control or termination by reason of death or Disability, ownership of the Common Stock subject to any Restricted Period at the date of Termination of Employment and all rights therein shall be forfeited to the Company, unless otherwise expressly provided by the Committee. In the event of Termination of Employment by reason of Retirement of a Participant during a Restricted Period, the Committee or its designee in the sole discretion of either may provide, before the Participant's Retirement, 2 that the Restricted Period applicable to any outstanding Grant at the date of Retirement shall lapse immediately upon the Participant's Retirement. 3. Section 3.5(d) of Article 3 is amended in its entirety to read as follows: (d) In the event of Termination Upon a Change of Control or Termination of Employment by reason of death or Disability of a Participant during a Restricted Period, the Restricted Period applicable to any outstanding Grant at the date of Termination of Employment shall lapse immediately. -2- EX-10.4 6 CIGNA CORPORATION EXECUTIVE STOCK INCENTIVE PLAN 1 CIGNA CORPORATION Executive Stock Incentive Plan (Amended and Restated Effective as of March 23, 1988) ARTICLE 1 STATEMENT OF PURPOSE The CIGNA Corporation Executive Stock Incentive Plan (the "Plan") is intended to reward and provide incentives for key employees of CIGNA Corporation and its Subsidiaries by providing them with an opportunity to acquire an equity interest in CIGNA Corporation, thereby increasing their personal interest in its continued success and progress. It also is intended to aid the Company in attracting key personnel of exceptional ability, ARTICLE 2 DEFINITIONS 2.1 Defined Terms. For all purposes of this Plan, except as otherwise expressly provided or defined herein, or unless the context otherwise requires, the terms defined in this Article shall have the meanings assigned to them as follows: "Board of Directors" means either the board of directors of CIGNA Corporation or any duty authorized committee of that board. "Change of Control" means: (i) a corporation, person or group acting in concert as described in Section 14(d)(2) of the Securities Exchange Act of 1934, as amended ("Exchange Act"), holds or acquires beneficial ownership within the meaning of Rule 13d-3 promulgated under the Exchange Act of a number of preferred or common shares of CIGNA Corporation having voting power which is either (i) more than 50% of the voting power of the shares which voted in the election of directors of CIGNA Corporation at the shareholders' meeting immediately preceding such determination, or (ii) more than 25% of the voting power of CIGNA Corporation's outstanding common shares; or (ii) as a result of a merger or consolidation to which CIGNA Corporation is a party, either (i) CIGNA Corporation is not the surviving corporation or (ii) Directors of CIGNA Corporation immediately prior to the merger or consolidation constitute less than a majority of the Board of Directors of the surviving corporation; or 2 (iii) a change occurs in the composition of the Board at any time during any consecutive 24-month period such that the "Continuity Directors" cease for any reason to constitute a majority of the Board. For purposes of the preceding sentence "Continuity Directors" shall mean those members of the Board who either: (i) were directors at the beginning of such consecutive 24-month period; or (ii) were elected by, or on nomination or recommendation of, at least a majority (consisting of at least nine directors) of the Board. "Committee" means the People Resources Committee of the Board of Directors of any successor committee with responsibility for compensation. "Common Stock" means the common stock, par value $1 per share, of CIGNA Corporation. "Company" means CIGNA Corporation, a Delaware corporation, and/or its Subsidiaries. "Deferred Compensation Account" means a separate account established pursuant to a Deferred Compensation Plan. "Deferred Compensation Plan" means and refers to a deferred compensation plan of the Company which has been designated by the Committee as a "Deferred Compensation Plan" for purposes of this Plan. "Disability" means permanent and total disability as defined in Section 22(e)(3) of the Internal Revenue Code. "Early Retirement" means Termination of Employment, after appropriate notice to the Company, (i) on or after age 55 and before age 65 with eligibility for immediate annuity benefits under a qualified pension or retirement plan of the Company, or (ii) upon such terms and conditions approved by the Committee, or officers of the Company designated by the Board of Directors or the Committee. "Eligible Employee" means a salaried officer or other key employee of the Company who (i) occupies a position with the Company that has been designated by the Committee as an eligible position for participation in this Plan or (ii) has been specifically authorized or designated by the Committee to participate in this Plan. "Fair Market Value" means the mean between the highest and lowest quoted selling prices as reported on the Composite Tape (or other successor means of publishing stock prices) on the -2- 3 date as of which any determination of such value is or is required to be made or if the Composite Tape, or such successor publication, is not published on such date, the next preceding date on which it was published. In the absence of such sales, Fair Market Value shall be determined by the Committee, which shall take into account all relevant facts and circumstances. "Incentive Stock Option" means a stock option granted in accordance with Section 422A of the Internal Revenue Code. "Participant" means an Eligible Employee to whom any one or more of the awards authorized in this Plan shall have been granted. "Qualifying Incentive Plan" means any bonus plan or other incentive compensation plan of the Company pursuant to which awards payable in cash are or are authorized to be made to employees of the Company. "Restatement Date" means the date this Plan was amended and restated -- March 23, 1988. "Retirement" means Termination of Employment, after appropriate notice to the Company, (i) on or after age 65 with eligibility for immediate annuity benefits under a qualified pension or retirement plan of the Company, or (ii) upon such terms and conditions approved by the Committee, or officers of the Company designated by the Board of Directors or the Committee. "Subsidiary" means any corporation of which more than 50% of the total combined voting power of all classes of stock entitled to vote, or other equity interest, is directly or indirectly owned by CIGNA Corporation; or a partnership, joint venture or other unincorporated entity of which more than a 50% interest in the capital, equity or profits is directly or indirectly owned by CIGNA Corporation. "Termination for Cause" means a Termination of Employment by the Company on account of the conviction by the Participant of a felony involving fraud or dishonesty directed against the Company. "Termination of Employment" means the termination of the Participant's active employment relationship with the Company, unless otherwise expressly provided by the Committee, or the occurrence of a transaction by which the Participant's employing Company ceases to be a Subsidiary. "Termination Upon a Change of Control" means a Termination of Employment upon or within two years after a Change of Control (i) initiated by the Company, or a successor corporation other -3- 4 than pursuant to Termination for Cause or (ii) initiated by the Participant and pursuant to the Participant's certification that the Change of Control has rendered him unable to perform the duties and responsibilities of the position he held immediately prior to the Change of Control by adverse changes in his authority, compensation, office location, duties, responsibilities, or title. 2.2 General. Certain terms are defined in other Articles of this Plan. The terms defined in this Article and elsewhere in this Plan shall include the feminine as well as the masculine gender and the plural as well as the singular, as the context in which they are used requires. ARTICLE 3 AUTHORIZED STOCK INCENTIVE AWARDS 3.1 Authorized Awards. The awards authorized are as follows: (a) stock options, (b) stock appreciation rights, (c) restricted stock grants, and (d) Common Stock in lieu of cash payable under a Qualifying Incentive Plan. 3.2 General Powers of the Committee. Subject to the provisions of this Plan, the Committee is authorized and empowered in its sole discretion to select Participants and to grant to them any one or more of the awards authorized above in such amounts and combinations and upon such terms and conditions as it shall determine. 3.3 Stock Options. The Committee shall have the authority to grant Eligible Employees options to purchase Common Stock upon such terms and conditions as it shall establish, subject in all events to the following limitations and provisions of general application: (a) The option price per share shall not be less than the Fair Market Value at the date of grant. The option price may be paid in cash or, if the Committee so provides, in Common Stock (including Common Stock subject to a Restricted Period pursuant to Section 3.5(a)). Common Stock used to pay the option price shall be valued using the Fair Market Value on the date of exercise. To the extent the -4- 5 option price is paid in shares of restricted stock, an equal number of the shares of Common Stock purchased upon exercise of the option shall be subject to identical restrictions which shall continue in effect for the remaining part of the Restricted Period applicable to the restricted stock used to pay the option price. (b) No option shall be for a term of more than 10 years from the date of grant. (c) No option may be exercised during a leave of absence except to the extent exercisable immediately prior to commencement of the leave of absence unless otherwise expressly provided by the Committee. (d) In the event of Termination of Employment (including termination during an approved leave of absence) of a Participant holding an outstanding option (including options outstanding on April 22, 1987) for any reason other than death, Disability, Early Retirement, or Retirement, the term of the option shall expire on the earlier of 3 months from the date of Termination of Employment or the expiration date set forth in the option. (e) In the event of Termination of Employment due to death, Disability, Early Retirement, or Retirement (including death, Disability, Early Retirement, or Retirement during an approved leave of absence) of a Participant holding an outstanding option (including options outstanding on April 22, 1987), the option shall be fully exercisable until the earlier of 3 years from the date of Termination of Employment due to death, Disability, Early Retirement, or Retirement, or the expiration date set forth in the option. 3.4 Stock Appreciation Rights. The Committee shall have the authority to grant stock appreciation rights to Eligible Employees who are granted options under this Plan upon such terms and conditions as it shall establish, subject in all events to the following limitations and provisions of general application: (a) Each right shall relate to a specific option granted under this Plan and shall be granted to the optionee either concurrently with the grant of such option or at such later time as determined by the Committee. (b) The right shall entitle an optionee to receive a number of shares of Common Stock, without payment to the Company, determined by dividing - -5- 6 (1) the total number of shares which the optionee is eligible to purchase as of the exercise date under the related option multiplied by the amount by which the Fair Market Value of a share of Common Stock on the exercise date of the right exceeds the Fair Market Value of a share of Common Stock on the date, as determined by the Committee, that the right or related option was granted to the optionee; by (2) the Fair Market Value of a share of Common Stock on the exercise date. (c) In lieu of issuing shares on an exercise of a right, the Committee may elect to pay the cash equivalent of the Fair Market Value on the date of exercise of any or all the shares which would otherwise be issuable pursuant to such exercise. (d) Shares under an option to which a right is related shall be used not more than once to calculate a number of shares of cash to be received pursuant to an exercise of such right. (e) The number of shares which may be purchased pursuant to an exercise of the related option will be reduced to the extent such shares are used in calculating the number of shares or cash to be received pursuant to an exercise of a related right; (f) In the event of Termination of Employment of a Participant holding an outstanding right, the right shall be exercisable only to the extent and upon the conditions that its related option is exercisable. 3.5 Restricted Stock Grants. The Committee shall have the authority to award Common Stock to Eligible Employees by grant (a "Grant") upon such terms and conditions as it shall establish, subject in all events to the following limitations, restrictions and provisions of general application: (a) Except as expressly provided below, the Common Stock awarded by a Grant shall not be sold, transferred, assigned, pledged or otherwise disposed of by the Participant during the period or periods established by the Committee (each such period, a "Restricted Period"). Common Stock subject to a Restricted Period may be used to exercise options pursuant to Section 3.3(a). The Committee may establish different Restricted Periods applicable to such number of the shares of Common Stock evidenced by a single Grant as it deems appropriate. At the time of Grant no Restricted Period shall be less than 1 year or more than 10 years from the date of the Grant. -6- 7 (b) The Common Stock awarded by a Grant shall be issued as of the date of the Grant. During the Restricted Period, the Participant shall be entitled to vote the shares. Shares issued as a consequence of stock dividends, splits or reclassifications shall be issued subject to the same limitations, restrictions and provisions applicable to the Common Stock with respect to which they are to be issued. (c) In the event of Termination of Employment of a Participant during a Restricted Period, except Termination Upon a Change of Control or termination by reason of death, Disability, or Retirement, ownership of the Common Stock subject to any Restricted Period at the date of Termination of Employment and all rights therein shall be forfeited to the Company, unless otherwise expressly provided by the Committee. (d) In the event of Termination Upon a Change of Control or Termination of Employment by reason of death, Disability or Retirement of a Participant during a Restricted Period, the Restricted Period applicable to any outstanding Grant at the date of Termination of Employment shall lapse immediately. (e) The effect of approved leaves of absence on the running of applicable Restricted Periods shall be determined by the Committee, provided, however, that no Restricted Period shall lapse during an approved leave of absence unless expressly provided by the Committee. 3.6 Common Stock in Lieu of Cash. The Committee shall have the authority to award an Eligible Employee Common Stock (a "Stock Payment") in lieu of all or a portion (determined by the Committee) of an award otherwise payable in cash pursuant to a Qualifying Incentive Plan. The number of shares of Common Stock comprising the Stock Payment shall have an aggregate Fair Market Value, determined as of the date payment of the award pursuant to the Qualifying Incentive Plan is made or, but for deferral pursuant to paragraph (b) below, would have been made (the "Payment Date"), equal to the amount of cash in lieu of which the Stock Payment is made. All Stock Payments shall be subject to the following limitations and provisions of general application: (a) Stock Payments shall not be made to any Participant whose employment terminates for any reason before the Payment Date or to the heirs of an Eligible Employee who dies before the Payment Date. In any such event, the entire award, in lieu of a portion of which a Stock Payment was to be made, shall be paid to such Participant or his personal representative, as the case may be, in cash. -7- 8 (b) The right to receive all or a portion of Stock Payments may be deferred by a Participant under a Deferred Compensation Plan, subject to the following provisions: (i) the aggregate Fair Market Value of the Stock Payment so deferred shall be hypothetically invested (within the meaning of the Deferred Compensation Plan) in the number of shares of Common Stock (as adjusted to reflect stock dividends, splits and reclassifications) comprising the Stock Payment, (ii) an amount equal to cash dividends which otherwise would have been paid on the Stock Payment if it were not so hypothetically invested, also will be deemed to have been paid and hypothetically invested pursuant to the Deferred Compensation Plan, and (iii) a certificate evidencing the number of shares of Common Stock (as so adjusted) comprising the Stock Payment shall not be issued or delivered to the Participant until payment of his Deferred Compensation Account is made pursuant to the Deferred Compensation Plan. ARTICLE 4 SHARES AUTHORIZED UNDER THE PLAN 4.1 Maximum Number Authorized. The number of shares of Common Stock authorized to be issued pursuant to stock options, rights, Grants or Stock Payments awarded under this Plan is 2,500,000. 4.2 Maximum Number Per Participant. No more than 10% of the maximum number of shares of Common Stock authorized pursuant to this Plan shall be acquired by any one Participant by way of option (including Common Stock subject to option), right, Grant or Stock Payment under this Plan. 4.3 Unexercised Options and Grant Forfeitures. All Common Stock (i) under options granted under this Plan which expire, or (ii) which is forfeited pursuant to Section 3.5, shall be available for further awards upon such expiration and forfeiture. 4.4 No Fractional Shares. No fractional shares of Common Stock shall be issued pursuant to this Plan. 4.5 Source of Shares. Common Stock may be issued from authorized but unissued shares or out of shares held in CIGNA Corporation's treasury, or both. -8- 9 ARTICLE 5 ANTIDILUTION PROVISIONS Except as otherwise expressly provided herein, the following provisions shall apply to all Common Stock authorized for issuance, and options, granted or awarded under this Plan: 5.1 Stock Dividends, Splits, Etc. In the event of a stock dividend, stock split, or other subdivision or combination of the Common Stock, the number of shares of Common Stock authorized under this Plan will be adjusted proportionately. Similarly, in any such event there will be a proportionate adjustment in the number of shares of Common Stock subject to unexercised stock options (but without adjustment to the aggregate option price) and in the number of shares of Common Stock then subject to Restricted Periods under a Grant. 5.2 Merger, Exchange or Reorganization. In the event that the outstanding shares of Common Stock are changed or converted into, exchanged or exchangeable for, a different number of kind of shares or other securities of CIGNA Corporation or of another corporation, by reason of a reorganization, merger, consolidation, reclassification or combination, appropriate adjustment shall be made by the Committee in the number of shares and kind of Common Stock for which options, rights, Grants and Stock Payments may be or may have been awarded under this Plan, to the end that the proportionate interests of Participants shall be maintained as before the occurrence of such event, provided, however, that in the event of any contemplated transaction which may constitute a Change of Control of CIGNA Corporation, the Committee, with the approval of a majority of the members of the Board of Directors who are not then Participants, may modify any and all outstanding options, rights, Grants and Stock Payments (except those deferred pursuant to Section 3.6(b)), so as to accelerate, as a consequence of or in connection with such transaction, the vesting of a Participant's right to exercise any such option or right or the unqualified ownership of Common Stock subject to a Grant. ARTICLE 6 ADMINISTRATION OF PLAN 6.1 General Administration. The Plan is to be administered by the Committee, subject to such requirements for review and approval by the Board of Directors as the Board of Directors may establish. -9- 10 6.2 Administrative Rules. The Committee shall have the power and authority to adopt, amend and rescind administrative guidelines, rules and regulations pertaining to this Plan and to interpret and rule on any questions respecting any provision of this Plan. 6.3 Committee Members Not Eligible. No member of the Committee shall be eligible to participate in this Plan. 6.4 Decisions Binding. Decisions of the Committee concerning this Plan shall be binding on CIGNA Corporation and its Subsidiaries and their respective boards of directors, and on all Eligible Employees and Participants. ARTICLE 7 AMENDMENTS All amendments to this Plan shall be in writing and shall be effective when approved by the Board of Directors, provided, however, that no amendment increasing the number of shares of Common Stock authorized or available under this Plan, providing for the grant of stock options at an option price of less than Fair Market Value, or continuing this Plan in effect beyond the time established in Section 8.2 shall be effective without the prior approval of the shareholders of CIGNA Corporation. The Board of Directors may make any changes required to conform this Plan and option agreements with applicable provisions of the Internal Revenue Code or regulations thereunder pertaining to Incentive Stock Options. Unless otherwise expressly provided by an amendment or the Board of Directors, no amendment to this Plan shall apply to grants of options, rights or Restricted Stock made before the effective date of the amendment. ARTICLE 8 OTHER PROVISIONS 8.1 Effective Date. This Plan is effective on April 1, 1982 (the "Effective Date"). 8.2 Duration of the Plan. The Plan shall remain in effect until all options and rights granted under this Plan have been satisfied by the issuance of Common Stock, or terminated under the terms of this Plan, provided that options, rights, Grants and Stock Payments under this Plan must be awarded within 10 years from the Effective Date. -10- 11 8.3 Early Termination. Notwithstanding the provisions of Section 8.2, the Board of Directors may terminate this Plan at any time; but no such action by the Board of Directors shall adversely affect the rights of Participants under this Plan. 8.4 General Restriction. No Common Stock issued pursuant to this Plan shall be sold or distributed by a Participant until all appropriate listing, registration and qualification requirements and consents and approvals have been obtained, free of any condition unacceptable to the Board of Directors. 8.5 Awards Not Assignable. No right to receive Common Stock pursuant to this Plan shall be assignable or transferable by a Participant except (unless otherwise expressly provided herein) by will or by the laws of descent and distribution. 8.6 Withholding Taxes. Whenever Common Stock is to be issued or delivered in satisfaction of options or other awards granted hereunder, the Company shall have the right to require the Participant to remit an amount sufficient to satisfy federal, state and local withholding taxes prior to delivery of any certificate for such shares. The Committee may require, or permit, the Participant to remit such amount in whole or in part in Common Stock. If the Committee permits a Participant to elect to remit such amount in Common Stock, any such election shall be irrevocable, be made on or prior to the date the withholding obligation arises and be subject to the disapproval of the Committee. The Committee may establish such additional conditions as it deems appropriate. If the Participant remits such amount in Common Stock, the number of shares of Common Stock delivered to or on behalf of a Participant shall be reduced by the number of shares so remitted. Common Stock so remitted shall be valued using the Fair Market Value of Common Stock as of the date the withholding obligation arises. 8.7 Safekeeping of Certificates. The certificate evidencing Common Stock awarded by a restricted stock grant or purchased upon exercise of an option shall be retained for safekeeping by CIGNA Corporation, or by a custodian appointed by CIGNA Corporation, except the Committee may in its discretion cause the certificate to be delivered to the Participant after a restricted stock grant or a purchase upon exercise of an option. CIGNA Corporation will deliver any such retained certificates that are not subject to a Restricted Period to the Participant within a reasonable period after a Participant requests delivery of such certificates. -11- EX-10.5 7 AMENDMENT NO.1 TO EXECUTIVE STOCK INCENTIVE PLAN 1 AMENDMENT NO. 1 TO THE CIGNA CORPORATION EXECUTIVE STOCK INCENTIVE PLAN (AS AMENDED AND RESTATED EFFECTIVE MARCH 23, 1988) WHEREAS, the Board of Directors has retained the right to amend the CIGNA Corporation Executive Stock Incentive Plan (the "Plan") pursuant to Article 7 thereof, and, WHEREAS, by resolution dated September 28, 1988, the Board of Directors of CIGNA Corporation authorized changes in the Plan to extend the period during which retirees may exercise stock options and authorized an Officer of the Corporation to effectuate such changes, NOW, THEREFORE, the Plan is amended effective as of September 28, 1988 as follows: Subsection 3.3(e) of Article 3 shall be amended in its entirety to read as follows: (e) In the event of Termination of Employment due to death, Disability, Early Retirement, or Retirement (including death, Disability, Early Retirement, or Retirement during an approved leave of absence) of a Participant holding an outstanding option, the option shall be fully exercisable until the earlier of 5 years from the date of Termination of Employment due to death, Disability, Early Retirement, or Retirement, or the expiration date set forth in the option. EX-10.6 8 AMENDMENT NO.2 TO EXECUTIVE STOCK INCENTIVE PLAN 1 AMENDMENT NO. 2 TO THE CIGNA CORPORATION EXECUTIVE STOCK INCENTIVE PLAN (AS AMENDED AND RESTATED EFFECTIVE MARCH 23, 1988) WHEREAS, the Board of Directors has retained the right to amend the CIGNA Corporation Executive Stock Incentive Plan (the "Plan") pursuant to Article 7 thereof; and, WHEREAS, by resolution dated March 27, 1991, the Board of Directors of CIGNA Corporation authorized changes in the Plan to extend the period during which retirees and certain other optionholders may exercise stock options and authorized an Officer of the Corporation to effectuate such changes; NOW, THEREFORE, the Plan is amended effective as of March 27, 1991 as follows: 1. Subsection 3.3(e) of Article 3 shall be amended in its entirety to read as follows: (e) In the event of Termination of Employment due to death, Disability, Early Retirement or Retirement (including death, Disability, Early Retirement or Retirement during an approved leave of absence) of a Participant holding an outstanding option, the option shall be fully exercisable only until the earlier of 5 years from the date of Participant's Termination of Employment or the expiration date set forth in the option unless the Chief Executive Officer of the Corporation extends the exercise period of the option up to the expiration date set forth in the option. 2. This amendment shall also apply to grants of options made under the Plan before the effective date of the amendment, provided that, with respect to grants of Incentive Stock Options, such grants were modified, before the effective date of this amendment, to become nonqualified stock options, and further provided that, with respect to any options, they have not been exercised, cancelled or surrendered, and 2 have not expired, before the effective date of this amendment. This amendment shall apply only to the exercise period of options and shall have no effect upon, or in any manner extend the exercise period of, any stock appreciation rights which may have been granted in tandem with, or which may have subsequently been attached to, any options described in the preceding sentence. -2- EX-10.7 9 DESC. KEY MANAGEMENT ANNUAL INCENTIVE BONUS PLAN 1 Description dated March 30, 1990 of CIGNA Corporation Key Management Annual Incentive Bonus Plan The CIGNA Key Management Annual Incentive Bonus Plan is designed to motivate and reward the attainment of annual corporate performance objectives and performance relative to key competitors. The maximum bonus pool for any one year is based on the evaluation by the Board of Directors of corporate results versus corporate financial performance goals and business plans previously approved by the Board. Cash awards to individual participants depend on the extent to which those objectives have been achieved, how corporate results compare to competitor performance and upon the People Resource Committee's assessment of the individual's personal contributions to their achievement. EX-10.8 10 CIGNA CORPORATION STRATEGIC PERFORMANCE PLAN 1 CIGNA CORPORATION STRATEGIC PERFORMANCE PLAN (As Amended and Restated March 25, 1992) STATEMENT OF PURPOSE The CIGNA Corporation Strategic Performance Plan has been adopted by the CIGNA Corporation Board of Directors to serve the following purposes: (a) To supplement and balance CIGNA's salary, incentive bonus and stock program awards in support of CIGNA Corporation's long-term strategic plans; (b) To motivate and reward the maximization of CIGNA Corporation's long-term financial results; (c) To encourage decisions and actions by senior level CIGNA executives that are consistent with the long-range interests of CIGNA Corporation's shareholders; and (d) To assist CIGNA in recruiting outstanding candidates for officer and key employee positions and in retaining those of proven ability and contribution. ARTICLE I. DEFINITIONS The following are defined terms wherever they appear in the Plan. 1.1 Allocation: The assignment of SPP Units to an Eligible Employee for a Performance Period. 1.2 Award: Compensation due a Participant, or Participant's estate, under the provisions of the Plan on account of an Allocation. 1.3 Board: The Board of Directors of CIGNA Corporation. 1.4 CEO: The Chief Executive Officer of CIGNA Corporation. 1.5 Change of Control: The occurrence of one of the following: (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 - 1 - 2 Corporation having voting power which is either (i) more than 50% of the voting power of the shares which voted in the election of directors of CIGNA Corporation at the shareholders' meeting immediately preceding such determination, or (ii) more than 25% of the voting power of CIGNA Corporation's outstanding common shares; or (b) as a result of a merger or consolidation to which CIGNA Corporation is a party, either CIGNA Corporation is not the surviving corporation or 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: (i) were directors at the beginning of such consecutive 24-month period; or (ii) were elected by, or on nomination or recommendation of, at least a majority (consisting of at least nine directors) of the Board. 1.6 CIGNA: CIGNA Corporation and/or its Subsidiaries. 1.7 Committee: The People Resources Committee of the Board or a successor committee. 1.8 Disability: Permanent and total disability as defined in Section 22(e)(3) of the Internal Revenue Code. 1.9 Eligible Employee: An Employee who meets the eligibility requirements of Section 2.1 of the Plan. 1.10 Employee: A salaried employee of CIGNA. 1.11 Participant: An Eligible Employee to whom an Allocation has been made. 1.12 Peer Group: A group of companies, selected by the Committee, whose average financial performance is compared to that of CIGNA to value SPP Units. 1.13 Performance Period: A period of time specified by the Committee as a period with respect to which Allocations may be made and Awards may be paid. 1.14 Plan: The CIGNA Corporation Strategic Performance Plan as it may be amended from time to time. - 2 - 3 1.15 Retirement: Termination of employment with CIGNA, after appropriate notice to CIGNA, (a) on or after age 65 or (b) under such terms and conditions as may be approved by the Committee or its designee. 1.16 SPP Points: The number of points assigned to a particular year of a Performance Period pursuant to Section 3.2 of the Plan. 1.17 SPP Unit: The smallest amount of incentive opportunity available for Allocation to a Participant for a specified Performance Period, with a target value of $75.00 per unit. 1.18 Stock Plan: The CIGNA Corporation Executive Stock Incentive Plan and/or the CIGNA Corporation Stock Plan and/or any successor plan to either of those plans. 1.19 Subsidiary: Any corporation or unincorporated entity of which more than 50% of the voting power in the election of directors, or 50% of any ownership interest, is at the time directly or indirectly owned, held or controlled by CIGNA Corporation. 1.20 Termination for Cause: A termination of employment by CIGNA on account of the conviction of an employee of a felony involving fraud or dishonesty directed against CIGNA. 1.21 Termination Upon a Change of Control: A termination of employment upon or within two years after a Change of Control (i) initiated by CIGNA or a successor other than a Termination for Cause or (ii) initiated by an Employee after determining in his reasonable judgment that there has been a reduction in his authority, duties, responsibilities or title, any reduction in his compensation, or any change caused by CIGNA in his office location of more than 35 miles from its location on the date of the Change of Control. ARTICLE II. PARTICIPATION 2.1 Eligibility. The individuals who are eligible to participate in the Plan are those Employees of CIGNA who either: (a) Occupy officer and key Employee positions which have been designated by the Committee as eligible positions; or (b) Have been specifically authorized by the Committee to participate in the Plan. - 3 - 4 2.2 Allocation (a) The CEO or his designee shall make recommendations to the Committee regarding (i) the positions and Employees to be selected as eligible to participate in the Plan and (ii) Allocations of SPP Units to Eligible Employees, provided that no person can make a recommendation regarding his own eligibility, participation or Allocation. (b) Before or during the Performance Period the Committee shall in its sole discretion make Allocations to those Eligible Employees selected for participation for a Performance Period. (c) In accordance with guidelines approved by the Committee or actions subject to ratification by the Committee prior to any resulting Award payment, the CEO or his designee may adjust the Allocation of SPP Units for Participants whose responsibilities change significantly during a Performance Period. (d) In accordance with guidelines approved by the Committee or actions subject to ratification by the Committee prior to any resulting Award payment, the CEO or his designee may make an Allocation of SPP Units to a person who becomes an Eligible Employee during a Performance Period. ARTICLE III. VALUATION OF SPP UNITS 3.1 Financial Measures. The Committee shall determine, at the time Allocations are made for a particular Performance Period, the financial measurements which shall be used to compare CIGNA's financial results to the average financial results of a Peer Group. The composition of the Peer Group shall be determined by the Committee. 3.2 SPP Points. Using an annual scoring formula or method approved by the Committee at the time Allocations are made and the financial results performance comparison of CIGNA to the Peer Group, a number of SPP Points will be assigned to each year of a Performance Period. Based upon the Committee's assessment of factors which affected financial results, the Committee may adjust the number of SPP Points for each or any year in the Performance Period up or down, but such adjustment shall not exceed 10 points. The SPP Points for each year of a Performance Period will be added to compute the number of SPP Points to be used in valuing SPP Units for the entire Performance Period. - 4 - 5 3.3 Value of SPP Units. The number of SPP Points computed for the Performance Period will determine, in accordance with a Performance Period payout formula approved by the Committee when Allocations are made, the preliminary dollar value of an SPP Unit for the Performance Period. The preliminary value may be adjusted up or down by the Committee based upon the Committee's evaluation of CIGNA's strategic accomplishments over the Performance Period. The maximum amount of the adjustment per SPP Unit shall not exceed $25.00. The final value of each SPP Unit may not exceed $200.00. ARTICLE IV. PAYMENT OF AWARDS 4.1 Time of Payment. As soon as practicable after the close of a Performance Period, the SPP Units shall be valued and Award payments made to those Participants who are eligible to receive an Award. 4.2 Amount of Awards. A Participant's Award with respect to a Performance Period shall equal the value of one SPP Unit, as determined in accordance with Article III, times the number of SPP Units in the Allocation made to the Participant. 4.3 Eligibility for Awards. (a) Except for payments described in paragraphs (b) and (c) of this Section 4.3, and except in the event of a Termination Upon a Change of Control, a Participant shall be eligible to receive an Award for a Performance Period only if the Participant has been employed by CIGNA continuously from the date of Participant's Allocation through the date of payment of the Award. (b) For the purposes of this Section 4.3, a leave of absence of less than three months' duration with the approval of CIGNA is not considered to be a break in continuous employment. In the case of a leave of absence of three months or longer: (i) The Committee, based on the recommendation of the CEO, shall determine whether or not the leave of absence constitutes a break in continuous employment for purposes of payment of the Award; and - 5 - 6 (ii) If a Participant is on a leave of absence on the date that the Award payment is to be made, the Committee may require that the Participant return to active employment with CIGNA at the end of the leave of absence as a condition of receiving an Award payment, and any determination as to eligibility and Award payment may be deferred for a reasonable period after such return. (c) If the employment of a Participant is terminated by reason of Retirement, death or Disability after receipt of an Allocation but before the related Award payment is made, the Committee or its designee shall determine whether an Award shall be paid to or on behalf of such Participant, and whether the Award, if paid, shall be paid in full or prorated based on factors determined in the sole discretion of the Committee, or its designee. Any Award payment shall be made to the Participant or the Participant's estate. (d) In the event of a Termination Upon a Change of Control of a Participant after the Participant receives an Allocation but before the related Award payment is made, an Award payment shall be made to the Participant within 30 days following the Termination Upon a Change of Control. The amount of the Award payment shall be an amount equal to $100.00 multiplied by the number of SPP Units in the most recent Allocation (including any upward adjustments in number of SPP Units made since the date of the Allocation) for a single Performance Period received by the Participant immediately prior to the Change of Control. In case of multiple Allocations made on the same date, the number of SPP Units in the Allocation for the latest-ending Performance Period shall be applicable for purposes of this sub-section 4.3(d). 4.4. Form of Award Payment. (a) Awards shall be paid in cash, except that the Committee may require that all or a portion of the Award be paid in shares of CIGNA Common Stock as provided by the Stock Plan. This Plan is a Qualifying Incentive Plan under the provisions of the Stock Plan. (b) If the Committee requires payment of an Award to be made wholly or partially in shares of CIGNA Common Stock as provided in paragraph (a) above, the payment shall be made in whole shares, the number of which shall have an aggregate market value which most closely approximates, but does not exceed the dollar amount of the Award. For purposes of this paragraph (b), the value of a whole share of Common Stock shall be determined under the provisions of the Stock Plan. - 6 - 7 (c) A Participant's Award payment may be deferred in accordance with the provisions of the Deferred Compensation Plan of CIGNA Corporation and Participating Subsidiaries or a similar or successor plan. ARTICLE V. ADMINISTRATION 5.1 Committee Responsibilities and Authority (a) The Plan shall be administered by the Committee, subject to such requirements for review or approval by the Board as the Board may establish. The Board may act in place of and on behalf of the Committee. The Committee shall have full power and authority to adopt, amend and rescind administrative guidelines, rules and regulations pertaining to the Plan and to interpret the Plan and rule on any questions respecting any of its provisions, terms and conditions. (b) All decisions of the Committee are binding on CIGNA Corporation and its Subsidiaries and the directors, officers and employees of each. 5.2 Amendment and Termination. The Board, Committee, or authorized designee of the Committee, may amend, modify or terminate the Plan at any time, except that the Participant's rights with respect to outstanding Allocations may not be abridged by any amendment, modification or termination without their individual consent and the rights of Participants or other Eligible Employees under paragraph 4.3(d) of the Plan may not be abridged by any amendment, modification or termination, after a Change of Control, without their individual consent. ARTICLE VI. GENERAL PROVISIONS 6.1 Participant's Rights Unsecured. The right of any Participant to receive future payments under the provisions of the Plan shall be an unsecured claim against the general assets of CIGNA. 6.2 Assignability. An Allocation shall not be transferable or assignable by a Participant, except by will or by the laws of descent and distribution. Any other attempted assignment or alienation of an Allocation shall be void and of no force or effect. - 7 - 8 6.3 Future Participation Not Guaranteed. Participation in the Plan with respect to a Performance Period is not in and of itself to be construed as evidence of a right to participate in any subsequent Performance Period. For each successive Performance Period, participation of an Eligible Employee shall be evidenced only by the designation of the Eligible Employee by the Committee as the recipient of an Allocation. 6.4 Termination of Employment. CIGNA Corporation and each Subsidiary retain the right to terminate the employment of any employee at any time for any reason or no reason, and an Allocation to an Eligible Employee is not, and shall not be construed in any manner to be, a waiver of such right. 6.5 Successors. Any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of CIGNA Corporation, shall assume the liabilities of CIGNA Corporation under this Plan and perform any duties and responsibilities in the same manner and to the same extent that CIGNA Corporation would be required to perform if no such succession had taken place. 6.6 Construction. The masculine gender, where appearing in this Plan, shall also include the feminine gender. The singular shall include the plural, where appropriate. - 8 - EX-10.9 11 DESCRIPTION OF CIGNA FINANCIAL SERVICES PROGRAM 1 Description of CIGNA Corporation Financial Services Program The CIGNA Financial Services Program ("Program") is designed to maximize the value of CIGNA'S compensation and benefits program by providing support to key employees in their financial and estate planning. Under the Program, key employees are provided an allowance, related to the employee's job grade, that may be applied to the cost of financial planning provided by a CIGNA subsidiary and used for reimbursement of expenses for tax return preparation and legal services related to estate or financial planning. The allowance for the chief executive officer and employees who report to him covers the full amount of such costs and expenses. EX-10.10 12 DEFERRED COMPENSATION PLAN FOR CIGNA AND SUBS. 1 DEFERRED COMPENSATION PLAN OF CIGNA CORPORATION AND PARTICIPATING SUBSIDIARIES (Amended and Restated as of January 1, 1990) 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. 2 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. 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. 2 3 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. 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 3 4 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 as 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 10 years. (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 tenth year following Termination of Employment. 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 4 5 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. 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. 5 6 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, 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 year, and no modification in the following calendar year shall be allowed, and (C) any such modification shall be effective in the second calendar month following receipt of the request by the Plan Administrator. (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 CIGNA Corporation Executive Stock Incentive 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. 6 7 (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. 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 CIGNA Corporation Executive Stock Incentive 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 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 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. 7 8 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 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. In the event of the Participant's death, the Plan Administrator shall pay the Account balance to the Participant's estate. 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. 8 9 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 9 10 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. 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. 10 EX-10.11 13 DEFERRED COMPENSATION PLAN FOR DIRECTORS 1 DEFERRED COMPENSATION PLAN FOR DIRECTORS OF CIGNA CORPORATION Amended and Restated as of May 1, 1991 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: (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. 2 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 established under the Plan for each Participant, as described in Section 3.1. 1.8 "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, 1991, 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. 1.13 "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. 3 (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. (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: (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 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 10 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 tenth year following Termination of Service. -3- 4 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 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. -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 Committee. With respect to such hypothetical investment: (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 year, and no modification in the following calendar year shall be allowed, and (C) any such modification shall be effective in the second calendar month following receipt of the request 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 -5- 6 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. 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. -6- 7 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 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. -7- 8 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. 4.4 Payments of a Deceased Participant's Account (a) In the event of the participant's death, the Plan Administrator shall pay the balance of the Participant's Account to the Participant's estate. (b) Notwithstanding Section 4.4(a), the Committee may direct that the Plan Administrator make payment from the Account of a deceased Participant according to an election made by the Participant before the Restatement Date, if such payment is necessary to the orderly consummation of the Participant's estate plan, and if such election and payment are valued under applicable state law, and not in conflict with such law. 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. -8- 9 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. 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. -9- 10 5.7 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. -10- EX-10.12 14 RETIREMENT AND CONSULTING PLAN FOR DIRECTORS 1 RETIREMENT AND CONSULTING PLAN FOR DIRECTORS OF CIGNA CORPORATION Amended Effective May 29, 1991 1. Eligibility Each member of the Board of Directors (the "Board") of CIGNA Corporation (the "Corporation") who at the time of Retirement from the Board shall have served five years on the Board or the Board of Directors of Connecticut General Corporation, the Board of Directors of Connecticut General Life Insurance Company, the Board of Directors of INA Corporation, the Board of Directors of Insurance Company of North America, or any combination thereof (the "Boards"), and shall have attained at least age 60 (an "Eligible Director") shall be eligible to receive fees under this Plan. 2. Amount of Fees (a) An Eligible Director who at the time of Retirement from the Board shall have attained age 70 shall be entitled to receive, for the remainder of the Director's lifetime, fees at an annual rate equal to the annual retainer in effect for non-employee directors of the Board at the time of such Retirement. (b) An Eligible director who at the time of Retirement from the Board shall have attained age 60 but not age 70 shall be entitled to receive, for a period of time equal to the number of months such Director served as director of the Boards, fees at an annual rate equal to the annual retainer in effect for non-employee directors of the Board at the time of such Retirement. Concurrent service on Boards shall be counted as service on a single board. 2 (c) Notwithstanding any other provision of this Plan, an Eligible Director who qualifies for the payment of fees under Paragraph 2(b) but not Paragraph 2(a), may, prior to his retirement, request the Board's Committee on Directors approve payment to him upon his Retirement of a lump-sum equal to the discounted present value of the total amount of fees which would be payable to the Eligible Director under Paragraph 2(b). The discounted present value shall be computed using the same mortality and discount rate assumptions used in the measurement of the Corporation's annual pension expense pursuant to Financial Accounting Standards Board Statement No. 87 for the year in which the Director's retirement occurs. (d) Fees paid in any calendar year shall be reduced by any other pension or retirement payment the Director or surviving spouse receives on account of service as a Director or employee under any other retirement plan or arrangement of the Corporation or any entity which controls or is controlled by the Corporation. 3. Time of Payment The fees shall be paid to an Eligible Director commencing upon such Director's Retirement from the Board (a "Retired Director") in as nearly equal as possible quarterly installments at the same time as payments of annual -2- 3 retainers are made to non-employee directors serving on the Board at the time of the payment. If such payments are made to current directors more frequently than quarterly, then amounts due under the Plan shall be paid on such more frequent basis. 4. Services of Retired Director A Retired Director receiving payments under the Plan (a) shall be available at such reasonable times and places as the Chairman of the Board of Directors may request to render consultative services and advice to the Corporation and (b) shall not engage in any activity in competition with the Corporation's business without prior written agreement of the Corporation. If a Retired Director fails to render such services and advice (unless physically unable to do so) or engages in such competition without agreement of the Corporation, the Corporation shall be entitled, at its option after considering all the circumstances, to suspend or terminate future payments to such Director under the Plan or to recover payments already made under the Plan. If an Eligible Director receives fees pursuant to Paragraph 2(c) of this Plan, the Eligible Director's obligations under this Paragraph 4 shall continue for a period of time equal to the number of months such Director served as a Director of the Boards. -3- 4 5. Payments on Death In the event of the death of an Eligible Director (before or after retirement) prior to receiving payments for a period equal to the lesser of (a) the total number of months of such Director's surviving lawful spouse, if any, will be entitled to such payments for the remainder of such lesser period or until such spouse's death, whichever occurs first. No payments shall, however, be made under this Paragraph 5 with respect to any Eligible Director who has received a lump sum payment under Paragraph 2(c). 6. Miscellaneous (a) The right to receive any payment under the Plan shall not be transferrable or assignable. (b) The Corporation shall not be required to set aside funds for the payment of its obligations under the Plan. (c) Nothing in the Plan shall create any benefit, cause of action, right of sale, transfer, assignment, pledge, encumbrance, or other such right in any heirs or the estate of any Retired Director. (d) The Board may at any time amend or terminate the Plan -4- 5 provided that no amendment or termination shall impair the rights of an Eligible Director to receive upon retirement from the Board the payments which would have been made to such Director had the Plan not been amended or terminated (based upon such Director's service on the Board, to the date of such amendment or termination) or the rights of a Retired Director (or such Director's surviving spouse) to receive any remaining payments due under the Plan. (e) Nothing in the Plan shall be deemed to create any obligation on the part of the Board to nominate any Director for reelection by the Corporation's shareholders. (f) Any questions involving entitlement to payments under the Plan shall be referred to the Committee on Directors of the Board or any successor thereto (the "Committee") for resolution. The determination of such Committee shall be conclusive. Such Committee may obtain such advice or assistance as it deems appropriate from persons not serving on the Committee. (g) As used in the Plan, "Retirement" shall include any termination of service (other than by death) of an Eligible Director after the effective date of this Plan except any termination which the Committee determines to have resulted from gross cause. "Gross cause" shall -5- 6 include fraud, misappropriation of or intentional misconduct damaging to the property or business of the Corporation or any of its subsidiaries, or commission of a felony directed against the Corporation. -6- EX-10.13 15 SUPPLEMENTAL RETIREMENT PLAN - KILPATRICK 1 CIGNA CORPORATION SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN AGREEMENT This Agreement made as of the 31st day of October, 1988, between ROBERT D. KILPATRICK ("R.D.K.") and CIGNA Corporation, a Delaware corporation with its principal place of business in Philadelphia, Pennsylvania ("CIGNA") W I T N E S S E T H : WHEREAS, R.D.K. and CIGNA wish to enter into this Agreement in order to supplement any retirement benefits accruing to R.D.K. pursuant to any qualified or non-qualified pension plans of CIGNA ("Pension Plans"). NOW, THEREFORE, in consideration of the premises and intending to be legally bound, the parties hereto agree as follows: 1. Normal Supplemental Retirement Benefit. In consideration of R.D.K.'s long and significant employment, CIGNA agrees that, effective March 1, 1989, R.D.K. will receive pursuant to this Agreement a Supplemental Retirement Benefit payable monthly. The annual amount of this Supplemental Retirement Benefit shall equal: 2 a. $37,000 a year (reflecting both lost salary and incentive-related compensation because of R.D.K.'s early retirement and the salary R.D.K. would have earned in the four-month period of November 1, 1988 to February 28, 1989); plus b. An amount equal to 20% of any excess over $280,000 of any bonus awarded to R.D.K. in March 1989 for 1988 performance. 2. Post-Retirement Surviving Spouse Benefit. If R.D.K. is married on the date of his death to the spouse he had on November 1, 1988, such surviving legal spouse shall be entitled to a supplemental retirement income benefit under this Agreement. This benefit shall be 30% of the annual Supplemental Retirement Benefit R.D.K. was receiving, or entitled to receive, pursuant to Paragraph 1 above, and shall be payable to R.D.K.'s spouse beginning with the month following the later of March 31, 1989 or the date of R.D.K.'s death and shall continue until her death. This benefit shall be paid regardless of whether R.D.K. elects one of the optional forms of supplemental benefits provided in Paragraph 3 below. 3. Optional Forms of Supplemental Benefits. Prior to March 31, 1989 R.D.K. may elect in writing to receive the -2- 3 Supplemental Retirement Benefit provided by this Agreement in one of the optional forms provided under Section 5.04 of the CIGNA Supplemental Pension Plan, as amended. IN WITNESS WHEREOF, the parties have hereto set their hands and seals intending to be legally bound hereby as of the day and year first above written. CIGNA CORPORATION By:__________________________ _____________________________ Robert D. Kilpatrick Date: MARCH 23, 1989 -3- EX-10.14 16 LETTER AGREEMENT - ISOM 1 CIGNA Corporation One Libert Place 1650 Market Street P. O. Box 7716 Philadelphia, PA 19192-1550 (215) 761-6001 LOGO Wilson H. Taylor Chairman and Chief Executive Officer February 9, 1993 Mr. Gerald A. Isom 4421 Alta Tupelo Drive Calabasas, CA 91302 Dear Gerry, It is a pleasure to confirm my offer of employment to you for the position of President, Domestic Property and Casualty Division, reporting to me. Compensation opportunity for this position includes: . Salary, paid bi-weekly, at a pretax annualized rate of $475,000. The salary range for your job is $350,000 to $580,000. You will receive annual consideration for salary increases. . Signing bonus of $50,000 to be paid within the first month after your start date. . Target bonus opportunity of $255,000 for the 1993 performance year. Bonus amounts can vary from 0 to 200% of target based on performance during a calendar year. Bonuses are typically paid in the first quarter of the year following the performance period and are not considered earned until the date paid. Your earned bonus for the 1993 performance year is guaranteed at $150,000 or greater dependent upon performance. . Performance units, under the Strategic Performance Plan, will be awarded to you in 1993. Unit values are determined at the end of a three-year performance period. The target for the award is $210,000, to be valued based on CIGNA's returns over the 1993-1995 period and to be paid in the first quarter of 1996. In addition, you will be given two transition awards, each with a target of $210,000 and payable in 1994 and 1995. These awards are not considered earned until the date paid. 2 February 9, 1993 Page 2 . Stock grants are made annually in the first quarter. Half of the value is in the form of restricted stock (RSGS) and half in options. RSGs vest after five years. During the vesting period, dividends, and interest on those dividends, will accrue. Half of the options are exercisable after one year, and the remaining half, after two years. Options have a 10 year exercise period. The target value of the stock award for your grade is $150,000 and your first regular grant will be in 1994. This year the Board of Directors will award you two special stock grants: (1) a 20,000 share option grant, target value $300,000, and (2) a restricted stock grant, approximately equal to $150,000. Both grants will conform to the guidelines in our current stock program described in the previous paragraph. . Your base salary rate is guaranteed for three years from your start date. If your employment is terminated involuntarily, except for gross misconduct, you will receive a payment equal to the remaining guaranteed salary you would have been paid through the three-year period. The executive compensation program elements described here -- bonus, stock, performance units -- are those of our current program and may be subject to modification or enhancement by the Board of Directors. As an executive of the company, you will be eligible for any future program changes. You will also be eligible for CIGNA's comprehensive employee benefits program, including the defined benefit pension plan and, after one year, the 401(k) savings plan. Under this plan, CIGNA will match your contributions, up to the first 6% of your salary and bonus, at the rate of 50 cents on the dollar - for a maximum match of 3% of your eligible earnings. Beginning in 1994 and each year of your employment thereafter, we will provide a retirement supplement equal to $100,000. This supplement is in addition to our nornal defined benefit plan. Because the form of this supplement and its payout can have varying tax implications for you, we want your involvement in the determination of its final structure. Therefore, once you have joined us, Gerald Meyn, Vice-President, Benefits, will discuss the alternatives with you before finalizing the pension supplement. You will also receive relocation support, including payment of closing costs on the sale of your existing home, home finding and final trip expenses, and movement of your household goods to the Philadelphia area. We will also provide a monthly housing subsidy 3 February 9, 1993 Page 3 for you in the Philadelphia area of $3,000 for a period up to 12 months. Upon the purchase of a new home, closing costs, as defined in our policy, will be reimbursed. At that time, a settling-in allowance of $10,000 will also be paid. Because the majority of these payments will be income to you, we will provide tax gross-up according to the terms of our relocation policy. Payment of closing costs on both homes is available up to two years. Gerry, I'm personally delighted to have you join the CIGNA management team and I am looking forward to working with you. Sincerely, /s/ Bill Please indicate your acceptance of our offer by signing below and returning a copy to me. Acceptance: /s/ Gerald A. Isom Date: 2/10/93 EX-10.15 17 RESTRICTED STOCK PLAN FOR NON-EMPLOYEE DIRECTORS 1 RESTRICTED STOCK PLAN FOR NON-EMPLOYEE DIRECTORS OF CIGNA CORPORATION 1. Purpose. The Restricted Stock Plan for Non-Employee Directors of CIGNA Corporation (the "Plan") is intended to provide directors of CIGNA Corporation (the "Company") with a proprietary interest in the Company's success and progress by granting them shares of the Company's Common Stock ("Common Stock") which are restricted in accordance with the terms and conditions set forth below ("Restricted Shares"). The Plan is intended to increase the alignment of personal economic interest between directors and shareholders generally and to strengthen the Company's ability to continue attracting and retaining highly qualified directors. 2. Administration. The Plan is to be administered by the Committee on Directors (the "Committee") of the Company's Board of Directors (the "Board') or any successor committee with responsibility for compensation of directors. 3. Eligibility and Grants. All current and subsequently elected members of the Company's Board of Directors who have served as directors for at least six months and at the time such service began were not, and for the preceding ten years had not been, officers or employees of the Company or any of its subsidiaries ("Eligible Directors") shall be eligible to participate in the Plan. Each director who is an Eligible Director on the effective date of the Plan (the "Effective Date") shall be granted 1,500 Restricted Shares, effective as of the Effective Date. Each director who becomes an Eligible Director after the Effective Date shall be granted 1,500 Restricted Shares, effective as of the date such director becomes an Eligible Director. 4. Terms and Conditions of Restricted Shares. (a) General. Subject to the provisions of Section 4(c) below, the restrictions set forth in Section 4(b) shall apply to each grant of Restricted Shares for a period (the "Restricted Period") from the date of grant until the later of the expiration of the 2 six-month period immediately following the date of grant or the date on which the Eligible Director's service as a director of the Company terminates. (b) Restrictions. A stock certificate representing the number of Restricted Shares granted shall be registered in each Eligible Director's name but shall be held in custody by the Company for the Eligible Director's account. The Eligible Director shall have all rights and privileges of a shareholder as to such Restricted Shares, including the right to receive dividends and the right to vote such Restricted Shares, except that the following restrictions shall apply: (i) the Eligible Director shall not be entitled to delivery of the certificate until the expiration of the Restricted Period, (ii) none of the Restricted Shares may be sold, transferred, assigned, pledged, or otherwise encumbered or disposed of during the Restricted Period, and (iii) except as provided in Section 4(c), all of the Restricted Shares shall be forfeited and all rights of the Eligible Director to such Restricted Shares shall terminate without further obligation on the part of the Company upon the Eligible Director's ceasing to be a director of the Company. (c) Termination of Directorship. (i) Vesting of Shares. If an Eligible Director ceases to be a director of the Company by reason of Disability, Death, Retirement or Change of Control, the Restricted Shares granted to such Eligible Director shall immediately vest. If an Eligible Director ceases to be a director of the Company for any other reason, the Eligible Director shall immediately forfeit all Restricted Shares, except to the extent that a majority of the Board other than the Eligible Director approves the vesting of such Restricted Shares. Upon vesting, except as provided in Section 5, all restrictions applicable to such Restricted Shares shall lapse and a certificate for such shares shall be delivered to the Eligible Director, or the Eligible Director's beneficiary or estate, in accordance with Section 4(d). (ii) Disability. For purposes of this Section 4(c), "Disability" shall mean a permanent and total disability as defined in Section 22(e)(3) of the Internal Revenue Code. -2- 3 (iii) Retirement. For purposes of this Section 4(c), "Retirement" shall mean ceasing to be a director of the Company (i) on or after age 70, or (ii) on or after age 65 with the consent of a majority of the members of the Board other than the Eligible Director. (iv) Change of Control. For purposes of this Section 4(c), "Change of Control" shall mean: (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 the Company having voting power which is either (i) more than 50% of the voting power of the shares which voted in the election of directors of the Company at the shareholders' meeting immediately preceding such determination, or (ii) more than 25% of the voting power of the Company's outstanding common shares; or (B) as as result of a merger or consolidation to which the Company is a party, either (i) the Company is not the surviving corporation or (ii) Directors of the Company 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: (i) were directors at the beginning of such consecutive 24-month period; or (ii) were elected by, or on nomination or recommendation of, at least a majority (consisting of at least nine directors) of the Board. -3- 4 (d) Delivery of Restricted Shares. At the end of the Restricted Period a stock certificate for the number of Restricted Shares which have vested shall be delivered free of all such restrictions to the Eligible Director or the Eligible Director's beneficiary or estate, as the case may be. 5. Regulatory Compliance. No Common Stock granted pursuant to this Plan shall be sold or distributed by an Eligible Director or an Eligible Director's beneficiary or estate until all appropriate listing, registration and qualification requirements and consents and approvals have been satisfied or obtained, free of any condition unacceptable to the Board of Directors. 6. Adjustment in Event of Changes in Capitalization. In the event of a recapitalization, stock split, stock dividend, combination or exchange of shares, merger, consolidation, rights offering, separation, reorganization or liquidation, or any other change in the corporate structure or shares of the Company, the Committee may make such equitable adjustments, to prevent dilution or enlargement of rights, as it may deem appropriate in the number and class of shares authorized to be granted as Restricted Shares. Shares issued as a consequence of any such change in the corporate structure or shares of the Company shall be issued subject to the same restrictions and provisions applicable to the Restricted Shares with respect to which they are issued. 7. Termination or Amendment of the Plan. The Board may at any time terminate the Plan and may from time to time alter or amend the Plan or any part hereof (including any amendment deemed necessary to ensure that the Company may comply with any regulatory requirement referred to in Section 5) without shareholder approval, unless otherwise required by law or by the rules of the Securities and Exchange Commission or New York Stock Exchange. No termination or amendment of the Plan may, without the consent of an Eligible Director impair the rights of such director with respect to shares of Common Stock granted under the Plan. 8. Miscellaneous. (a) Nothing in the Plan shall be deemed to create any obligation on the part of the Board to nominate any director for reelection by the Company's shareholders. -4- 5 (b) The Company shall have the right to require, prior to the issuance or delivery of any Restricted Shares, payment by an Eligible Director of any taxes required by law with respect to the issuance or delivery of such shares, or the lapse of restrictions thereon. (c) The shares of Common Stock granted as Restricted Shares under the Plan may be either authorized but unissued shares or shares which have been or may be reacquired by the Company, as determined from time to time by the Board. 9. Effective Date. Provided that the Company's Shareholders shall have approved the Plan at the Company's 1989 Annual Meeting of Shareholders, the Plan shall become effective as of September 30, 1989, or such later date as may be fixed by the Board. -5- EX-10.16 18 1ST AMEND./RESTRICTED STOCK PLAN/NON-EMPLOYEES 1 Description of First Amendment to Restricted Stock Plan for Non-Employee Directors of CIGNA Corporation This statement is being filed pursuant to the requirements of Securities and Exchange Commission Rule 411(c). By resolution of the Board of Directors of CIGNA Corporation, adopted at a regular meeting held October 30, 1991, Section 7 of the Restricted Stock Plan for Non-Employee Directors of CIGNA Corporation was amended, effective immediately, by adding the following provision at the close of such section: "Notwithstanding the foregoing provisions of this Section 7, the provisions of the Plan governing eligibility of a Director and the amount, timing and pricing of an award hereunder shall not be amended more than once every six months, other than to comport with changes in the Internal Revenue Code, the Employee Retirement Income Security Act, or the rules thereunder." EX-10.17 19 RESTRICTED STOCK COMP. PLAN/NON-EMPLOYEE DIRECTORS 1 Description of Stock Compensation Plan for Non-Employee Directors of CIGNA Corporation (as amended) The Stock Compensation Plan for Non-Employee Directors of CIGNA Corporation, as amended (the "Plan"), provides certain stock compensation arrangements to members of CIGNA Corporation's Board of Directors (the "Board") who are not in the employ of the company. The Plan has been established by Board resolutions but has not been set forth in a formal document. The Plan provides that at least $8,000 of the annual retainer paid to Directors for their services as Directors (and as members of committees of the Board) must be taken either in shares of CIGNA Corporation Common Stock or deferred pursuant to the terms of the Deferred Compensation Plan for Directors of CIGNA Corporation. If payment is made in shares of Common Stock, the shares are issued in four equal installments within 30 days of the end of each calendar quarter. The number of shares in each payment is determined by the closing price at which the Common Stock trades on the last trade date for Common Stock in the quarter for which payment is being made. The above provisions relating to amount, price and timing of Common Stock payments may not be amended more than once every six months (except where an amendment is necessary to comply with certain federal laws). In addition, the Plan provides that Directors may, with respect to any other fees paid to them for services as Directors, defer receipt of all or any portion thereof or elect to receive all or any portion thereof in either cash or an equivalent amount of Common Stock (provided that no fractional shares may be issued). EX-11 20 COMPUTATION EARNINGS PER SHARE 1 EXHIBIT 11 CIGNA CORPORATION COMPUTATION OF PRIMARY EARNINGS PER SHARE (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
FOR THE YEAR ENDED DECEMBER 31, -------------------------------------- 1993 1992 1991 ---------- ---------- ---------- INCOME AVAILABLE TO COMMON SHARES - ------------------------------------------------------- PRIMARY: Income before extraordinary item and cumulative effect of accounting changes...................... $ 234 $ 337 $ 453 Extraordinary loss: Loss from early extinguishment of debt............ -- -- (4) Cumulative effect of accounting changes for postemployment and postretirement benefits other than pensions, net of taxes....................... -- (530) -- Cumulative effect of accounting change for income taxes............................................. -- 504 -- ---------- ---------- ---------- Net income available to common shares................ $ 234 $ 311 $ 449 ---------- ---------- ---------- ---------- ---------- ---------- WEIGHTED AVERAGE SHARES - ------------------------------------------------------- PRIMARY: Common shares........................................ 71,933,241 71,694,059 71,470,589 Common share equivalents applicable to stock options........................................... 88,710 42,716 20,658 ---------- ---------- ---------- Total............................................. 72,021,951 71,736,775 71,491,247 ---------- ---------- ---------- ---------- ---------- ---------- EARNINGS PER SHARE - ------------------------------------------------------- PRIMARY: Income before extraordinary loss and cumulative effect of accounting changes...................... $ 3.25 $ 4.70 $ 6.34 Loss from early extinguishment of debt............... -- -- (.06) Cumulative effect of accounting changes for postemployment and postretirement benefits other than pensions, net of taxes....................... -- (7.39) -- Cumulative effect of accounting change for income taxes............................................. -- 7.03 -- ---------- ---------- ---------- Net income........................................... $ 3.25 $ 4.34 $ 6.28 ---------- ---------- ---------- ---------- ---------- ----------
2 CIGNA CORPORATION COMPUTATION OF FULLY DILUTED EARNINGS PER SHARE (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
FOR THE YEAR ENDED DECEMBER 31, ----------------------------------------- 1993 1992 1991 ----------- ----------- ----------- INCOME AVAILABLE TO COMMON SHARES FULLY DILUTED: Income before extraordinary item and cumulative effect of accounting changes................... $ 234 $ 337 $ 453 Adjusted for: Interest expense (net of tax) on convertible subordinated debentures...................... 13 13 13 ----------- ----------- ----------- Income before extraordinary item and cumulative effect of accounting changes................... 247 350 466 Extraordinary loss: Loss from early extinguishment of debt......... -- -- (4) Cumulative effect of accounting changes for postemployment and postretirement benefits other than pensions, net of taxes.............. -- (530) -- Cumulative effect of accounting change for income taxes.......................................... -- 504 -- ----------- ----------- ----------- Net income available to common shares............. $ 247 $ 324 $ 462 ----------- ----------- ----------- ----------- ----------- ----------- WEIGHTED AVERAGE SHARES FULLY DILUTED: Common shares..................................... 71,933,241 71,694,059 71,470,589 Common share equivalents applicable to stock options........................................ 97,177 57,728 43,631 Assumed conversion of convertible subordinated debentures..................................... 3,626,395 3,626,395 3,626,395 ----------- ----------- ----------- Total.......................................... 75,656,813 75,378,182 75,140,615 ----------- ----------- ----------- ----------- ----------- ----------- EARNINGS PER SHARE FULLY DILUTED: Income before extraordinary loss.................. $ 3.26 $ 4.65 $ 6.20 Loss from early extinguishment of debt............ -- -- (.05) Cumulative effect of accounting changes for postemployment and postretirement benefits other than pensions, net of taxes.............. -- (7.03) -- Cumulative effect of accounting change for income taxes.......................................... -- 6.69 -- ----------- ----------- ----------- Net income........................................ $ 3.26 $ 4.31 $ 6.15 ----------- ----------- ----------- ----------- ----------- -----------
EX-12 21 COMPUTATION OF RATIOS 1 EXHIBIT 12 CIGNA CORPORATION COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES AND TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS (DOLLARS IN MILLIONS)
YEAR ENDED DECEMBER 31, ---------------------------------------------- 1993 1992 1991 1990 1989 ------ ------ ------ ------ ------ Income from continuing operations before income tax............................................. $ 165 $ 179 $ 584 $ 352 $ 592 ------ ------ ------ ------ ------ Fixed charges included in operations: Interest expense................................ 124 100 106 115 96 Interest portion of rental expense.............. 114 113 123 116 82 ------ ------ ------ ------ ------ Total fixed charges included in operations.............................. 238 213 229 231 178 ------ ------ ------ ------ ------ Income available for fixed charges................ $ 403 $ 392 $ 813 $ 583 $ 770 ------ ------ ------ ------ ------ Combined fixed charges and preferred stock dividend requirements: Preferred stock dividends....................... -- $ -- $ -- $ -- $ 13 Ratio of pre-tax income from continuing operations to income after tax............... -- -- -- -- 1.293 ------ ------ ------ ------ ------ Preferred stock dividend requirement............ -- -- -- -- 17 Total fixed charges............................. 238 213 229 231 178 ------ ------ ------ ------ ------ Total combined fixed charges and preferred stock dividend requirements............. $ 238 $ 213 $ 229 $ 231 $ 195 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Ratio of earnings to fixed charges................ 1.7 1.8 3.6 2.5 4.3 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Ratio of earnings to combined fixed charges and preferred stock dividends....................... 1.7 1.8 3.6 2.5 3.9 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
EX-13 22 PORTIONS OF 1993 ANNUAL REPORT TO SHAREHOLDERS 1 HIGHLIGHTS
- ----------------------------------------------------------------------------------------------------------------------------- (Dollars in millions, except per share amounts) 1993 1992 1991 1990 1989 - ----------------------------------------------------------------------------------------------------------------------------- REVENUES: Premiums and fees $ 13,712 $ 13,924 $ 14,295 $ 13,986 $ 11,494 Net investment income and other revenues 4,408 4,493 4,373 4,198 4,001 Realized investment gains (losses) 282 165 82 (20) 159 - ----------------------------------------------------------------------------------------------------------------------------- Total $ 18,402 $ 18,582 $ 18,750 $ 18,164 $ 15,654 - --------------------------------------------------------===================================================================== INCOME (LOSS) FROM CONTINUING OPERATIONS: Employee Life and Health Benefits $ 589 $ 483 $ 329 $ 291 $ 233 Employee Retirement and Savings Benefits 159 216 167 161 158 Individual Financial Services 110 86 76 67 82 Property and Casualty (530) (374) (7) (104) 27 Other Operations (94) (74) (112) (97) (42) - ----------------------------------------------------------------------------------------------------------------------------- Total $ 234 $ 337 $ 453 $ 318 $ 458 - --------------------------------------------------------===================================================================== NET INCOME $ 234 $ 311 $ 449 $ 330 $ 562 Per share: Income from continuing operations 3.25 4.70 6.34 4.20 5.68 Net income 3.25 4.34 6.28 4.36 7.00 Dividends declared 3.04 3.04 3.04 3.04 2.96 Total assets 84,975 77,681 74,100 70,899 65,085 Long-term debt 1,235 929 848 832 640 Shareholders' equity 6,575 5,744 5,863 5,242 5,520 Per share 91.30 80.09 81.93 73.51 70.59 Common shares outstanding (thousands) 72,015 71,720 71,563 71,313 78,203 Shareholders of record 17,491 18,581 19,380 20,234 21,153 Employees 50,624 52,255 55,961 56,973 47,677 - -----------------------------------------------------------------------------------------------------------------------------
See Note 1 to the Financial Statements for information regarding the effect of adopting accounting pronouncements. Results for CIGNA include EQUICOR since the acquisition date of March 29, 1990. 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CONSOLIDATED RESULTS OF OPERATIONS (In millions) - ------------------------------------------------------------ FINANCIAL SUMMARY 1993 1992 1991 - ------------------------------------------------------------ Premiums and fees $ 13,712 $13,924 $14,295 Net investment income 3,902 3,914 3,860 Other revenues 506 579 513 Realized investment gains 282 165 82 -------- ------- ------- Total revenues 18,402 18,582 18,750 Benefits and expenses 18,237 18,403 18,166 -------- ------- ------- Income before taxes, extraordinary item and cumulative effect of accounting changes 165 179 584 Income taxes (benefits) (69) (158) 131 ------- ------- ------- Income before extraordinary item and cumulative effect of accounting changes 234 337 453 Extraordinary item, net of taxes -- -- (4) Cumulative effect of accounting changes -- (26) -- ------- ------- ------- Net income $ 234 $ 311 $ 449 - ---------------------------------=========================== Realized investment gains, net of taxes $ 224 $ 192 $ 52 - ---------------------------------===========================
CIGNA's consolidated net income decreased 25% for 1993, compared with 1992, and declined 31% for 1992, compared with 1991. The decrease for 1993 reflects a third quarter $244 million after-tax charge for legal and associated expenses for reported asbestos-related, environmental pollution and other long-term exposure claims and $107 million in after-tax restructuring charges. In addition, 1993 reflects a benefit of $48 million resulting from the effect on CIGNA's net deferred tax asset of an increase in the federal tax rate. Results for 1992 include a $140 million net after-tax charge for London reinsurance exposures and a $182 million tax benefit (including $24 million related to realized investment results), reflecting a reduction in income tax expense from federal tax audits of CIGNA ("tax adjustment"). Excluding the above items and after-tax realized investment gains, income before extraordinary item and cumulative effect of accounting changes was $313 million, $127 million and $401 million for 1993, 1992 and 1991, respectively. The 1993 increase primarily reflects overall improvement in the Employee Life and Health Benefits and Individual Financial Services segments as well as lower catastrophe losses in the Property and Casualty segment. The 1992 decrease primarily reflects significant increases in underwriting losses for the Property and Casualty segment, partially offset by improvement in the Employee Life and Health Benefits segment. After-tax realized investment gains for 1993 increased compared with 1992, primarily due to higher gains from the sale of equity securities resulting from a restructuring of the portfolio into less volatile investments. Partially offsetting these gains was a higher effective tax rate in 1993, compared with 1992. The higher effective tax rate for 1993, compared with 1992, was primarily due to the $24 million benefit for the favorable tax adjustment in 1992. Also affecting 1993 were higher loss reserves on mortgage loans resulting from continued adverse real estate market conditions. After-tax realized investment results increased in 1992, compared with 1991, reflecting gains on the sales of equity securities and fixed maturities (including actively traded fixed maturities, which were included in short-term investments) due to favorable security prices. Partially offsetting these gains were increased loss reserves for fixed maturities and real estate due to adverse economic and real estate market conditions. Realized investment results for 1992 also benefitted from a lower effective tax rate in 1992 than in 1991. Consolidated revenues decreased slightly in both 1993 and 1992. The decrease for both years primarily reflects lower premiums and fees for the Property and Casualty segment, partially offset in 1993 by higher premiums and fees for the Employee Life and Health Benefits segment and realized investment gains. The declines in Property and Casualty premiums and fees reflect the continuation of intense price competition in the property and casualty industry and CIGNA's decision to de-emphasize, or substantially withdraw from, certain property and casualty product lines. Net income for 1994 (including the adverse effect of the Los Angeles earthquake and the severe winter weather currently estimated at $85 million after-tax) is expected to improve, compared with 1993's results. However, such improvement could be materially affected by a continued adverse property and casualty environment, additional major catastrophes and significant deterioration in real estate market conditions. 14 3 OTHER MATTERS In connection with the federal tax audits discussed above, an adjustment has been proposed that could result in an assessment of approximately $205 million. CIGNA is currently contesting in court the issue giving rise to such proposed adjustment and, although the outcome is uncertain, management believes that CIGNA should prevail. See Note 8 to the Financial Statements for additional information. CIGNA's businesses are subject to a changing social, economic, legal, legislative and regulatory environment which could adversely affect them. Some of the changes include initiatives to restrict insurance pricing and the application of underwriting standards; reform health care; restrict investment practices; expand regulation; and to reinterpret insurance contracts long after the policies were written to provide coverage unanticipated by CIGNA. Some of the more significant issues are discussed below. Federal reform of the United States health care system has been proposed to address issues of availability, affordability and quality. A number of proposals have emerged that could change the way in which health care is financed and provided. Most proposals include some form of managed care, of which CIGNA is a major provider, and the administration's proposal includes price controls. Federal reform could provide flexibility for the states to adopt their own programs, and the reform could result in more stringent regulation for CIGNA's health care business. CIGNA is not able to determine what effect, if any, such enacted reform would have on its future results. The Federal Comprehensive Environmental Response, Compensation and Liability Act ("Superfund"), which was passed in 1980, is subject to re-authorization by Congress in 1994; any changes in Superfund's system of allocating responsibility or funding clean-up costs could affect the liability of policyholders and insurers. The proposals being considered by Congress to reform Superfund are in the early stages of development; therefore, CIGNA is not able to determine what effect, if any, such enacted reform would have on its future results. The National Association of Insurance Commissioners (NAIC) has developed model solvency-related guidelines ("risk-based capital" rules) to strengthen regulation of insurance companies. Depending on the ratio of the insurer's surplus to its risk-based capital, the insurer could be subject to various regulatory actions ranging from increased scrutiny to conservatorship. Risk-based capital rules for the domestic life and property and casualty industries were finalized during 1992 and 1993, respectively. As of December 31, 1993, CIGNA's life insurance and property and casualty insurance subsidiaries were adequately capitalized under the guidelines. However, as the guidelines for property and casualty become more stringent in the future and depending on the future results of the property and casualty operations, additional capital for the property and casualty subsidiaries may be necessary. Also, the NAIC is developing risk-based capital guidelines for health maintenance organizations (HMOs) and a proposal that would limit the types and amounts of investment assets that an insurance company can hold. These initiatives are in the preliminary stages and, therefore, CIGNA cannot predict what effect, if any, such guidelines will have on its operations. Unfavorable economic conditions have contributed to an increase in the number of insurance companies that are impaired or insolvent. 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. The eventual effect on CIGNA of the changing environment in which it operates remains uncertain. For additional information, see Note 17 to the Financial Statements. Moody's has recently informed CIGNA that the rating agency is reviewing the debt ratings of CIGNA Corporation and the claims-paying ratings of its insurance companies. The outcome of this review is not expected to have a material adverse effect on CIGNA's financial condition. RECENT ACCOUNTING PRONOUNCEMENTS Several accounting pronouncements have recently been issued. In 1993, CIGNA adopted Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity Securities," and SFAS No. 113, "Accounting and Reporting for Reinsurance of Short-Duration and Long-Duration Contracts." In 1992, several pronouncements were adopted, principally affecting employee benefits and income taxes, which resulted in the recording of an adverse cumulative effect adjustment for accounting changes of $26 million. The following segment discussions exclude the cumulative effect adjustment in 1992, which increased (decreased) net income for Employee Life and Health Benefits, ($146) million; Employee Retirement and Savings Benefits, ($25) million; Individual Financial Services, ($37) million; Property and Casualty, $179 million; and Other Operations, $3 million. See Notes 1 and 12 to the Financial Statements for a detailed discussion of recently issued accounting pronouncements and their effect on CIGNA and its business segments. 15 4
EMPLOYEE LIFE AND HEALTH BENEFITS (In millions) - ------------------------------------------------------------ FINANCIAL SUMMARY 1993 1992 1991 - ------------------------------------------------------------ Premiums and fees $ 7,438 $ 7,174 $ 7,137 Net investment income 503 504 488 Other revenues 286 290 314 Realized investment gains 165 53 44 ----- ----- ----- Total revenues 8,392 8,021 7,983 Benefits and expenses 7,541 7,506 7,501 ----- ----- ----- Income before taxes 851 515 482 Income taxes 262 32 153 ----- ----- ----- Income $ 589 $ 483 $ 329 - ----------------------------------========================== Realized investment gains, net of taxes $ 126 $ 63 $ 28 - ----------------------------------==========================
Income for the Employee Life and Health Benefits segment increased 22% in 1993, compared with an increase of 47% in 1992. Results for 1992 include a significant tax benefit of $108 million related to federal tax audits for the years 1982 through 1987 and a $20 million after-tax charge related to a review of account balances. Excluding the above items and after-tax realized investment gains, income for 1993 was $463 million, compared with $332 million for 1992 and $301 million for 1991. The increase for 1993 reflects an improvement of $71 million in the segment's HMO operations. The HMO improvement reflects approximately $30 million attributable to membership growth, with the balance attributable to rate increases and medical cost management. Also contributing to the 1993 growth in income were improved operating results of $60 million in the group indemnity business primarily reflecting: (1) more favorable claim experience due, in part, to lower medical care cost inflation; and (2) an improvement of $22 million for long-term disability (LTD), primarily due to favorable claim experience as well as rate increases. The 1992 improvement, excluding the 1992 items noted above and after-tax realized investment gains, reflects increased income for group indemnity business and HMO operations of $27 million and $4 million, respectively. Favorable group indemnity claim experience combined with HMO enrollment growth and rate increases in excess of medical care cost inflation were primarily responsible for this improvement. Adverse LTD claim experience, resulting in a $21 million reduction in earnings, partially offset the group indemnity improvement. Premiums and fees increased 4% in 1993 and 1% in 1992. The 1993 improvement reflects: (1) increased premiums and fees for HMOs of $180 million, primarily reflecting rate increases; and (2) an increase of $84 million in group indemnity businesses (life, $47 million, and medical, $37 million). Growth in the medical indemnity business has been constrained by cancellations and increasing penetration into the indemnity market by prepaid health care providers, and the effect on existing business of customer-influenced changes (including conversions to CIGNA's HMOs and alternative funding programs, reductions in employment levels and benefit plan changes). The slight increase in 1992 reflects growth in premiums and fees for group life business of $196 million, primarily resulting from new sales, and for HMOs of $129 million resulting from rate increases. The improvement in 1992 was constrained by a decline in medical and dental indemnity premiums and fees of $252 million due to customer cancellations and customer-influenced changes, including reductions in employment levels, benefit plan changes and conversions to alternative funding programs. Management believes that adding premium equivalents to premiums and fees (adjusted premiums and fees) produces a more meaningful measure of business volume. Premium equivalents generally represent paid claims 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 $17.5 billion, $17.0 billion and $16.5 billion in 1993, 1992 and 1991, respectively. Premium equivalents, as a percentage of total adjusted premiums and fees, were 57% in 1993, 58% in 1992 and 57% in 1991. ASO plans accounted for 45%, 40% and 36% of total adjusted premiums and fees in 1993, 1992 and 1991, respectively. The increase in premium equivalents since 1991 reflects continued sales of, as well as conversions of existing traditional business to, ASO plans (principally HMO programs). The adjusted premium mix in 1993 was approximately 54% medical insurance, 24% prepaid health and dental care, 8% dental insurance, 9% life, 3% long-term disability and 2% other 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) 1993 1992 1991 - ------------------------------------------------------------ Insured plans $ 3,465 $ 3,378 $ 3,151 Alternative funding programs 9,917 9,606 9,187 - ------------------------------------------------------------ Total $ 13,382 $ 12,984 $ 12,338 - ---------------------------------===========================
16 5
EMPLOYEE RETIREMENT AND SAVINGS BENEFITS (In millions) - ------------------------------------------------------------ FINANCIAL SUMMARY 1993 1992 1991 - ------------------------------------------------------------ Premiums and fees $ 296 $ 248 $ 300 Net investment income 1,846 1,893 1,879 Realized investment gains (losses) (31) 7 -- ----- ----- ----- Total revenues 2,111 2,148 2,179 Benefits and expenses 1,888 1,892 1,937 ----- ----- ----- Income before taxes 223 256 242 Income taxes 64 40 75 -- -- -- Income $ 159 $ 216 $ 167 - -------------------------------------======================= Realized investment gains (losses), net of taxes $ (23) $ 16 $ -- - -------------------------------------=======================
Income for the Employee Retirement and Savings Benefits segment decreased 26% in 1993, compared with an increase of 29% in 1992. Included in the results for both years were favorable tax adjustments resulting from federal tax audits of $3 million (including a $3 million charge related to realized investment results) in 1993, compared with $41 million (including a $14 million benefit related to realized investment results) in 1992. Excluding after-tax realized investment results and the favorable tax adjustments, income for 1993 was $176 million, compared with $173 million for 1992 and $167 million in 1991. Earnings growth for 1993 principally reflects higher earnings from an increased asset base, while the 1992 growth reflects lower operating expenses as well as higher earnings from an increased asset base. Earnings growth during 1993 and 1992 was constrained by lower investment yields due to lower interest rates and, for 1992, the effect of non-accruals. 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) 1993 1992 - ------------------------------------------------------------ Balance at January 1 $ 32,736 $31,826 Premiums and deposits 2,960 2,716 Investment income 2,876 2,785 Appreciation (depreciation) in fair value of securities 626 (277) Customer withdrawals (2,915) (2,441) Benefit payments and other (1,814) (1,873) - ------------------------------------------------------------ Balance at December 31 $ 34,469 $32,736 - -------------------------------------------=================
Approximately 45% and 42% of the premiums and deposits for 1993 and 1992, respectively, were from new customers. Appreciation in the fair value of securities for 1993 includes $521 million resulting from the implementation of SFAS No. 115. See Note 1 to the Financial Statements for additional information. Asset growth in 1993 was constrained by increased customer withdrawals. The withdrawals in 1993 reflect approximately $840 million for payment to two large customers under contracts that were terminated prior to 1993. Management expects that asset growth will continue to be constrained by withdrawals and lower deposits resulting from decisions by plan sponsors to diversify assets and fund management. Premiums and fees increased 19% in 1993 and decreased 17% in 1992. The increase in 1993 was due primarily to higher group annuity sales. The decrease in 1992 primarily reflects lower sales of single premium annuities. Net investment income decreased 2% in 1993, compared with a modest increase in 1992. The decline for 1993 reflects the effects of lower yields on invested assets. The 1992 increase reflects growth in assets under management, partially offset by lower yields. 17 6
INDIVIDUAL FINANCIAL SERVICES (In millions) - ------------------------------------------------------------ FINANCIAL SUMMARY 1993 1992 1991 - ------------------------------------------------------------ Premiums and fees $ 814 $ 710 $ 699 Net investment income 583 457 380 Other revenues 65 98 68 Realized investment losses (15) (15) (7) ------- ----- ------ Total revenues 1,447 1,250 1,140 Benefits and expenses 1,283 1,142 1,023 ------- ----- ------ Income before taxes 164 108 117 Income taxes 54 22 41 ------- ----- ----- Income $ 110 $ 86 $ 76 - -----------------------------------========================= Realized investment losses, net of taxes $ (13) $ -- $ (6) - -----------------------------------=========================
Income for the Individual Financial Services segment increased 28% and 13% in 1993 and 1992, respectively. Included in 1992 results were: (1) an after-tax loss of $39 million, primarily related to litigation associated with syndicated investment products, (2) an after-tax gain of $20 million from the sale of a significant portion of CIGNA's mutual fund advisory business and (3) an after-tax gain of $12 million relating to the termination of a reinsurance contract. Excluding after-tax realized investment results and the above items for 1992, income for 1993 was $123 million, compared with $93 million for 1992 and $82 million for 1991. The increase for 1993 primarily reflects: (1) $20 million from improved margins and higher sales for interest-sensitive business (particularly corporate-owned life insurance) and (2) improved reinsurance earnings. Results for 1992, compared with 1991, reflect more favorable mortality and improved margins on interest-sensitive products. Premiums and fees increased 15% and 2% in 1993 and 1992, respectively. Universal life deposits, which are not included in revenues, and direct individual life premiums and fees totaled $2.7 billion, $1.2 billion and $1.1 billion in 1993, 1992 and 1991, respectively. Net investment income increased 28% and 20% in 1993 and 1992, respectively. These increases, as well as the increase in benefits and expenses, primarily reflect increased sales and overall growth in interest-sensitive business. Also, the growth in premiums and fees in 1992 was partially offset by the effects of a 1991 cancellation of a large unprofitable contract.
PROPERTY AND CASUALTY (In millions) - ------------------------------------------------------------ FINANCIAL SUMMARY 1993 1992 1991 - ------------------------------------------------------------ Premiums and fees $ 5,136 $ 5,760 $ 6,114 Net investment income 753 842 898 Other revenues 254 254 220 Realized investment gains 185 119 55 ----- ----- ----- Total revenues 6,328 6,975 7,287 Benefits and expenses 7,290 7,604 7,412 ----- ----- ----- Loss before tax benefits (962) (629) (125) Income tax benefits (432) (255) (118) ----- ----- ----- Loss $ (530) $ (374) $ (7) - ------------------------------------======================== Realized investment gains, net of taxes $ 150 $ 111 $ 36 - ------------------------------------========================
Losses for the Property and Casualty segment have risen substantially since 1991. Included in the losses were the following items that affect the year-over-year comparisons. * Charges of $244 million after-tax ($375 million pre-tax) were recorded in the third quarter of 1993 for future legal and associated expenses for reported asbestos-related, environmental pollution and other long-term exposure claims. * An after-tax charge of $97 million for restructuring initiatives in the domestic and international operations was included in 1993 results. Results for 1992 include an after-tax charge of $16 million for restructuring initiatives in the international operations. * A $24 million tax benefit resulting from the effect on CIGNA's net deferred tax asset of an increase in the federal income tax rate was recorded in 1993. * A charge of approximately $40 million after-tax ($60 million pre-tax) for a reserve increase for CIGNA's self-insurance programs (primarily errors and omissions and workers' compensation) was reflected in 1993's results. * Results for 1992 include a net after-tax charge of $140 million, reflecting a $290 million charge to underwriting losses for London reinsurance exposures, partially offset by a reduction in other operating expenses of $150 million for a closed book of reinsurance business. Additional reserves were established in 1993 for London reinsurance exposures totaling $16 million after-tax ($25 million pre-tax). * A $22 million benefit was recorded in 1992 reflecting the favorable tax adjustment related to federal tax audits for the years 1982 through 1987. 18 7 Excluding the items noted above and after-tax realized investment results, losses for 1993, 1992 and 1991 were $307 million, $351 million and $43 million, respectively. The decline in losses for 1993 primarily reflects lower underwriting losses due principally to lower catastrophes. The increased loss for 1992 was primarily due to higher underwriting losses. Underwriting losses, excluding the asbestos and environmental, London reinsurance and self-insurance reserve items noted above, were $1.2 billion, $1.3 billion and $973 million in 1993, 1992 and 1991, respectively, and continue to be adversely affected by the highly competitive pricing environment. Also affecting underwriting losses in 1993, compared with 1992, were lower catastrophes, partially offset by higher losses for insured events of prior years. In addition to the competitive pricing environment, losses for 1992, compared with 1991, reflect large catastrophe losses, partially offset by reduced operating costs resulting from cost reduction initiatives and reduced losses resulting from de-emphasis of workers' compensation business that involves standard risk transfer. Included in underwriting results for 1993, 1992 and 1991 were catastrophe losses, net of reinsurance, of $145 million (before reinsurance ("gross"), $308 million), $251 million (gross, $402 million) and $68 million (gross, $79 million), respectively. Catastrophe losses for 1993 included $41 million (gross, $173 million) for the World Trade Center bombing and $36 million (gross, $38 million) for the East Coast blizzard. Catastrophe losses for 1992 included $95 million (gross, $194 million) for Hurricane Andrew, $56 million (gross, $88 million) for Hurricane Iniki and $42 million (gross, $53 million) for the Los Angeles riots. CIGNA's principal property catastrophe reinsurance program provides approximately 95% recovery of losses between $70 million and $350 million, except for international losses, for which recovery begins at $40 million. As a result of the increased cost and decreased availability of reinsurance coverages, effective July 1, 1993, CIGNA increased its retention limits on catastrophe reinsurance coverages from $50 million to $70 million per occurrence for its domestic operations and from $20 million to $40 million for international operations. Catastrophe losses below the lower end of the program coverage are retained by CIGNA. As a result of these coverage changes, CIGNA's future results of operations could be more volatile, depending on the frequency and severity of future catastrophes. Results for 1991 reflect fresh start benefits of $38 million and Section 847 benefits of $48 million. For 1993 and 1992, such benefits were not recognized in accordance with SFAS No. 109, "Accounting for Income Taxes." Premiums and fees decreased 11% in 1993 and 6% in 1992. Approximately half of these declines was attributable to reduced writings of workers' compensation that involves risk transfer and writing workers' compensation policies with higher customer risk retention. The remaining decrease primarily reflects reduced writings due to worldwide price competition in CIGNA's core commercial lines, particularly domestic commercial packages and casualty lines and the international property lines. The 1992 decline also reflects CIGNA's decision to substantially withdraw from the personal automobile insurance market. The decline in premiums and fees for both years was partially offset by growth in international life business. Premiums and fees are expected to continue to decrease through 1994 as a result of these factors. Net investment income decreased 11% and 6% in 1993 and 1992, respectively. The decrease for 1993 reflects an overall decline in interest rates, negative cash flows due to underwriting losses, and a decline in business volume. The 1992 decrease primarily reflects an overall decline in interest rates and changes in investment asset mix. CIGNA has taken steps to improve its results by reorganizing its domestic property and casualty operations under new management and by adopting initiatives to improve the quality of its underwriting. The domestic operations' strategy is to emphasize specialty lines of business and in certain commercial lines write business on a group basis, as opposed to individual risks. In addition, the domestic operations intend to emphasize writings of workers' compensation that involve standard risk transfer in states with regulatory climates where CIGNA believes it can operate profitably. Also, CIGNA has reduced writings of voluntary personal automobile and reinsurance coverages and has revised its underwriting guidelines for its European property business in an attempt to improve its results. 19 8 During the third quarter of 1993, CIGNA recorded an after-tax charge of $97 million ($150 million pre-tax) for Property and Casualty restructuring initiatives. The restructuring charge consisted of the following on a pre-tax basis: 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 restructuring initiatives; and other costs -- $22 million, primarily for employee relocation and outplacement services. The cash outlays associated with the restructuring initiatives began in the fourth quarter of 1993 and will continue through 1995, with the majority of the cash outlays occurring in 1994. CIGNA will fund the restructuring cost through liquid assets, and such funding will not have a material adverse effect on its liquidity. CIGNA expects that the restructuring initiatives, when completed, will result in annual cost savings of approximately $50 million to $70 million after-tax. RESERVES 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 16 to the Financial Statements. In summary, property and casualty reserves are an estimate of future amounts needed to pay claims and related expenses for insured events that have occurred, including events that have not been reported to CIGNA. The basic assumption underlying the many standard 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. Estimating property and casualty reserves thus relies heavily on judgment and is subject to uncertainties that are normal, recurring and inherent. CIGNA revises its estimate of the liability for insured events of prior years as new data become available. 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 estimating losses have grown in the last decade 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. In management's judgment, based on known facts and current law, reserves are appropriate. However, future changes in estimates of CIGNA's liability for insured events may adversely affect results in future periods. The following table shows the adverse pre-tax effects on CIGNA's results of operations from insured events of prior years (prior year development) for the year ended December 31:
- ------------------------------------------------------------------- (Dollars in millions) 1993 % 1992 % 1991 % - ------------------------------------------------------------------- Asbestos-related $ 171 22 $ 69 11 $ 45 13 Environmental pollution 394 50 127 19 83 25 Other long-term exposure 76 10 16 2 21 6 Unrecoverable reinsurance 28 3 89 14 28 8 London reinsurance 31 4 228 35 -- -- - ------------------------------------------------------------------- 700 89 529 81 177 52 All other 89 11 127 19 164 48 - ------------------------------------------------------------------- Total $ 789 100 $ 656 100 $341 100 - -------------------------------====================================
20 9 ASBESTOS-RELATED, ENVIRONMENTAL POLLUTION AND OTHER LONG-TERM EXPOSURE CLAIMS CIGNA continues to receive asbestos and environmental pollution claims asserting a right to recovery under insurance policies issued by CIGNA. In addition, other long-term exposure claims, such as those resulting from breast implants, are beginning to increase. CIGNA re-evaluated its reported asbestos-related and environmental pollution claims to determine if legal costs could be reasonably estimated and reserves established. As a result, prior year development for 1993 includes a pre-tax charge of $375 million for future legal and associated expenses for reported asbestos-related ($72 million) and environmental pollution ($268 million) claims, and $35 million for other long-term exposure claims. For the reasons discussed in Note 16 to the Financial Statements and in the Description of Business section of the Form 10-K, CIGNA expects that its future results will continue to be adversely affected by losses and legal expenses for these types of claims. Because of the significant uncertainties involved and the likelihood that they will not be resolved in the near future, CIGNA is unable to reasonably estimate the additional losses and expenses and, therefore, is unable to determine whether such amounts will be material to its future results of operations, liquidity or financial condition. UNRECOVERABLE REINSURANCE 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. Losses for unrecoverable reinsurance for 1992 included $62 million for London reinsurance exposures. Additional charges for unrecoverable reinsurance are likely to affect future results adversely, although the amounts and timing cannot be reasonably estimated. LONDON REINSURANCE Losses for London reinsurance in 1992 resulted from a review of CIGNA's London property and casualty reinsurance exposures related to large catastrophes occurring in recent years. The losses in 1993 resulted from an update of that review. ALL OTHER The 1993 prior year development was primarily for commercial packages. Prior year development in 1992 was primarily attributable to domestic and international reinsurance, commercial packages and workers' compensation. The 1991 development was primarily for workers' compensation and commercial packages. OTHER OPERATIONS Other Operations primarily includes unallocated investment income, expenses and taxes. Also included in Other Operations are the results of CIGNA's settlement annuity business, non-insurance operations engaged primarily in investment and real estate activities, and the California personal automobile and homeowners insurance businesses that CIGNA retained from the 1989 sale of the Horace Mann companies. On January 15, 1994, the California business was sold, resulting in a gain of approximately $20 million after-tax that will be recognized in 1994. Net losses for Other Operations were $94 million, $74 million and $112 million for 1993, 1992 and 1991, respectively. After-tax realized investment results included in these amounts were losses of $16 million, gains of $2 million and losses of $6 million for 1993, 1992 and 1991, respectively. Included in the losses were: (1) a $6 million tax benefit in 1993 from the effect of the tax rate change; (2) the unfavorable tax adjustment of $3 million in 1992; and (3) gains of $11 million after-tax and $4 million after-tax on the sales of CIGNA's equity interest in Paine Webber Group, Inc. in 1992 and 1991, respectively. Excluding after-tax realized investment results and the above items, losses for both 1993 and 1992 were $84 million and $110 million for 1991. Losses for 1993 were level with 1992 primarily reflecting higher net interest expense of $4 million after-tax, offset by reduced losses on investment and real estate operations. The decreased loss for 1992, compared with 1991, primarily reflects reductions in operating expenses of $14 million, due in part to lower interest expense; and reduced losses on investment and real estate operations of $7 million. 21 10
LIQUIDITY AND CAPITAL RESOURCES (In millions) - ------------------------------------------------------------ FINANCIAL SUMMARY 1993 1992 1991 - ------------------------------------------------------------ Short-term investments $ 1,357 $ 3,133 $ 2,890 Cash and cash equivalents 1,211 1,011 1,863 Short-term debt 351 475 385 Long-term debt 1,235 929 848 Shareholders' equity 6,575 5,744 5,863 - ------------------------------------------------------------
CIGNA's operations have liquidity requirements that vary among the principal product lines. Life insurance and pension plan reserves are primarily long-term liabilities. Accident and health, as well as property and casualty reserves, consist of both short-term and long-term liabilities. Life insurance 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. Generally, CIGNA has met its operating requirements by maintaining appropriate levels of liquidity in its investment portfolio and through utilization of overall positive cash flows. Overall cash flows have been constrained by negative cash flows in the property and casualty operations, resulting from underwriting losses. Liquidity for CIGNA and its insurance subsidiaries has remained strong, as evidenced by significant amounts of short-term investments and cash equivalents in the aggregate. The decrease in short-term investments in 1993 reflects the reclassification of amounts previously included in short-term investments to fixed maturities as a result of implementing SFAS No. 115. During 1993, cash and cash equivalents increased $200 million from $1.0 billion as of December 31, 1992. This increase primarily reflects deposits and interest credited, net of withdrawals, to contractholder deposit funds; issuance of long-term debt; and cash flows from operating activities, primarily 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. The 1992 decline in cash and cash equivalents reflects net investment purchases, primarily of longer-term securities; and payments of dividends on CIGNA common stock, partially offset by deposits and interest credited, net of withdrawals, to contractholder deposit funds; issuance of long-term debt; proceeds from sales of equity interests in MBIA and Paine Webber, and a mutual fund advisory business; and cash flows from operating activities. Cash flows from operating activities primarily resulted from earnings; timing of cash receipts reflecting, in part, an increased emphasis on receivable collections; and timing of cash disbursements, including income tax payments and payment of insurance and other liabilities relating to lines of business that are being de-emphasized. The 1991 decrease in cash and cash equivalents primarily reflects investment purchases net of investments sold, including proceeds from Crusader and affiliate sales. The decrease also reflects a net reduction in short- and long-term debt and payments of dividends on CIGNA common stock. The above factors were partially offset by deposits and interest credited, net of withdrawals, to contractholder deposit funds, and cash flows from operating activities, primarily resulting from earnings and the timing of cash receipts and disbursements. 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, 1993, 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. 22 11 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 business. CIGNA had $1.2 billion of long-term debt outstanding at December 31, 1993, compared with $929 million at December 31, 1992. This increase primarily reflects issuances in 1993 of $100 million of 7.4% unsecured Notes due in 2003, $100 million of 8.3% unsecured Notes due in 2023, $100 million of 7.65% unsecured Notes due in 2023 and $27 million of Medium-term Notes. The proceeds from these issues were used for general corporate purposes, including the repayment of certain debt at maturity. In 1992, CIGNA issued $100 million of 8-1/4% unsecured Notes due in 2007 and $11 million of Medium-term Notes, the proceeds of which were used for general corporate purposes, including the repayment at maturity of Medium-term Notes. In 1991, CIGNA issued $100 million of 8-3/4% unsecured Notes due in 2001 and $119 million of Medium-term Notes. Substantially all of CIGNA's 13% Sterling Foreign Currency Loan Stock, with an outstanding principal balance of approximately $53 million, was repurchased in 1991. The effect of this early extinguishment of debt, an after-tax loss of approximately $4 million, has been reflected in the financial statements as an extraordinary item. At December 31, 1993, CIGNA had approximately $950 million remaining under shelf registration statements that may be issued as debt and equity securities, depending upon market conditions and CIGNA's capital requirements. In January 1994, CIGNA issued $100 million of unsecured 6-3/8% Notes due in 2006 under one of the shelf registration statements. As a result of property and casualty underwriting losses, CIGNA contributed $150 million of capital in 1993 to enhance the capital base of the domestic property and casualty operations. Additional capital contributions may be needed as a result of continued property and casualty losses; however, such amounts are not reasonably estimable at this time. During 1993, CIGNA restructured the investment portfolio supporting its Property and Casualty segment in order to reduce its investment risk by selling equity securities and reinvesting the proceeds in fixed maturities. Realized gains for the Property and Casualty segment of $185 million pre-tax primarily reflect gains resulting from the portfolio restructuring activities and the sale of short-term investments.
INVESTMENT ASSETS - ------------------------------------------------------------ As of December 31, (In millions) 1993 1992 - ------------------------------------------------------------ Fixed maturities: at amortized cost $ 12,375 $ 25,095 Fixed maturities: at fair value 19,380 -- Equity securities 1,849 2,321 Mortgage loans 10,021 10,918 Real estate 1,780 1,452 Other 5,323 5,562 - ------------------------------------------------------------ Total investment assets $ 50,728 $ 45,348 - -------------------------------------=======================
CIGNA's investment assets are generally managed to reflect the underlying characteristics of the related insurance and contractholder liabilities. Additional information regarding CIGNA's investment assets and related accounting policies is included in Notes 1, 3 and 4 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:
- ------------------------------------------------------------ 1993 1992 - ------------------------------------------------------------ Fixed maturities 33% 38% Mortgage loans 59% 60% Real estate 56% 54% - ------------------------------------------------------------
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. 23 12 FIXED MATURITIES Investments in fixed maturities (bonds) include publicly traded and private placement debt securities; mortgage-backed securities, including collateralized mortgage obligations (CMOs); and redeemable preferred stocks. In accordance with SFAS No. 115, fixed maturities classified as held to maturity are carried at amortized cost, net of impairments, and those classified as available for sale are carried at fair value, with unrealized appreciation or depreciation included in Shareholders' Equity. QUALITY RATINGS The quality ratings of bonds classified as available for sale (primarily public bonds) and as held to maturity (primarily private placement investments) as of December 31, 1993 were as follows:
- ------------------------------------------------------------- Available Held to (In millions) for Sale Maturity Total - ------------------------------------------------------------- Aaa $ 8,802 $ 1,172 $ 9,974 Aa 2,410 1,536 3,946 A 5,205 2,646 7,851 Baa 2,589 5,613 8,202 - ------------------------------------------------------------- Investment grade 19,006 10,967 29,973 - ------------------------------------------------------------- Ba 233 1,027 1,260 B 118 353 471 C 15 28 43 In/near default 8 123 131 - ------------------------------------------------------------- Below investment grade 374 1,531 1,905 - ------------------------------------------------------------- Total bonds before cumulative write-downs and valuation reserves 19,380 12,498 31,878 Less cumulative write-downs and valuation reserves -- 123 123 - ------------------------------------------------------------- Total $19,380 $12,375 $31,755 - ---------------------------------============================
Public bonds were rated by outside rating agencies; private placement investments were rated by CIGNA on a basis that it believes is generally consistent with methodologies of outside rating agencies. As of December 31, 1993, the NAIC rated approximately 7% of CIGNA's bonds as below investment grade, compared with 6% based on the above ratings. Approximately 36% of the 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 earnings, although such effects are not expected to be material to CIGNA's financial condition. 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, problem bonds, including amounts attributable to policyholder contracts, and related cumulative write-downs were as follows:
- ------------------------------------------------------------ (In millions) 1993 1992 - ------------------------------------------------------------ Delinquent bonds $131 $296 Less cumulative write-downs 52 82 --- --- 79 214 --- --- Restructured bonds 383 401 Less cumulative write-downs 55 37 --- --- 328 364 - ------------------------------------------------------------ Problem bonds $407 $578 - ---------------------------------------------===============
Problem bonds attributable to policyholder contracts represented 35% and 45% of total problem bonds at December 31, 1993 and 1992, respectively. POTENTIAL PROBLEM BONDS* Potential problem bonds are fully current but judged by management to have certain characteristics that increase the likelihood of problem classification. As of December 31, potential problem bonds, including amounts attributable to policyholder contracts, and related cumulative write-downs and valuation reserves were as follows:
- ------------------------------------------------------------ (In millions) 1993 1992 - ------------------------------------------------------------ Potential problem bonds $225 $616 Less cumulative write-downs and valuation reserves 11 47 - ------------------------------------------------------------ Potential problem bonds $214 $569 - ---------------------------------------------===============
Potential problem bonds attributable to policyholder contracts represented 30% and 43% of total potential problem bonds at December 31, 1993 and 1992, respectively. *Bonds in these categories are principally classified as held to maturity. 24 13 CUMULATIVE WRITE-DOWNS AND VALUATION RESERVES FOR BONDS The activity in cumulative write-downs and valuation reserves for bonds for the year ended December 31 was as follows:
- ----------------------------------------------------------------------------------------------------------------------------- 1993 1992 - ----------------------------------------------------------------------------------------------------------------------------- Policyholder Policyholder (In millions) Contracts CIGNA Total Contracts CIGNA Total - ----------------------------------------------------------------------------------------------------------------------------- Beginning balance -- January 1 $ 89 $ 81 $170 $ 74 $ 57 $131 Additions to cumulative write-downs 23 37 60 41 43 84 Net increase (decrease) in valuation reserves (8) (10) (18) -- 1 1 Charge-offs upon sales, repayments and other (2) (1) (3) (26) (20) (46) Transfers to equity securities (48) (38) (86) -- -- -- - ----------------------------------------------------------------------------------------------------------------------------- Ending balance -- December 31 $ 54 $ 69 $123 $ 89 $ 81 $170 - ----------------------------------------------------------===================================================================
Included in the total ending balances above as of December 31, 1993 and 1992 were $5 million and $4 million of cumulative write-downs, respectively, for bonds no longer classified as problem or potential problem bonds. The after-tax adverse effect of write-downs and net increase (decrease) in valuation reserves on CIGNA's net income was $18 million, $29 million and $25 million for 1993, 1992 and 1991, respectively. In 1993, certain bonds were restructured into equity securities. Accordingly, assets of $102 million, which were net of cumulative write-downs of $86 million, were transferred from bonds to equity securities. In addition, during 1993 and 1992, $15 million and $3 million of write-downs were established for equity securities, including $1 million attributable to policyholder contracts for 1993. As of December 31, 1993 and 1992, CIGNA had cumulative write-downs for equity securities of $78 million and $22 million, respectively, including $39 million and $12 million attributable to policyholder contracts. 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 (in total and by type) on policyholder contracts and on CIGNA's net income for the year ended December 31 is shown in the following table:
- ----------------------------------------------------------------------------------------------------------------------------- 1993 1992 1991 - ----------------------------------------------------------------------------------------------------------------------------- Policyholder Policyholder Policyholder (In millions) Contracts CIGNA Contracts CIGNA Contracts CIGNA - ----------------------------------------------------------------------------------------------------------------------------- Net investment income under original contract terms $ 35 $ 46 $ 46 $ 50 $ 31 $ 36 Less net investment income received 19 27 22 19 11 11 ---- ---- ---- ---- ---- ---- Forgone investment income 16 19 24 31 20 25 Tax effect -- (7) -- (11) -- (8) - ----------------------------------------------------------------------------------------------------------------------------- Net effect of non-accruals $ 16 $ 12 $ 24 $ 20 $ 20 $ 17 - ------------------------------------------------------======================================================================= Forgone investment income by type: Delinquent bonds $ 4 $ 8 $ 11 $ 16 $ 13 $ 11 Restructured bonds 12 11 13 15 7 14 ---- ---- ---- ---- ---- ---- Forgone investment income 16 19 24 31 20 25 Tax effect -- (7) -- (11) -- (8) - ----------------------------------------------------------------------------------------------------------------------------- Net effect of non-accruals $ 16 $ 12 $ 24 $ 20 $ 20 $ 17 - ------------------------------------------------------=======================================================================
25 14
MORTGAGE LOANS - -------------------------------------------------------------- As of December 31, 1993 1992 - -------------------------------------------------------------- Mortgage loans (in millions) $10,021 $10,918 By type: Office buildings 40% 42% Retail facilities 37 35 Hotels 7 8 Apartment buildings 10 9 Other 6 6 - -------------------------------------------------------------- Total 100% 100% - --------------------------------------------==================
CIGNA's investment strategy calls for diversification of the mortgage loan portfolio. CIGNA follows guidelines relative to property type, location, borrower and loan size 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. Continued adverse conditions in real estate markets and more stringent lending practices by financial institutions have affected scheduled maturities of mortgage loans. During 1993, approximately $1.2 billion of mortgage loans was scheduled to mature, of which $194 million was paid in full, $183 million was extended at existing loan rates for a weighted average of six months and $493 million was refinanced at current market rates. Mortgage loan extensions and refinancings are loans in good standing. The remainder of the scheduled maturities relate to problem investments, including $129 million that was foreclosed or was in the process of foreclosure. The effect of not receiving timely cash payments on maturing mortgage loans is not expected to have a material adverse effect on CIGNA's results of operations, liquidity or capital resources. 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. As of December 31, 1993, restructured mortgage loans with a carrying value of approximately $276 million had their original maturity date extended, with an average extension of four years. Restructured mortgage loans generated annualized cash returns averaging approximately 6% as of December 31, 1993. As of December 31, problem mortgage loans, including amounts attributable to policyholder contracts, and related valuation reserves were as follows:
- ------------------------------------------------------------ (In millions) 1993 1992 - ------------------------------------------------------------ Delinquent mortgage loans $ 162 $ 238 Less valuation reserves 32 20 ---- ----- 130 218 ---- ----- Restructured mortgage loans 839 962 Less valuation reserves 105 79 ---- ----- 734 883 - ------------------------------------------------------------ Problem mortgage loans $ 864 $ 1,101 - ----------------------------------------------==============
Problem mortgage loans attributable to policyholder contracts represented 56% and 52% of total problem mortgage loans at December 31, 1993 and 1992, respectively. As of December 31, delinquent and restructured mortgage loans by type and by region, including amounts attributable to policyholder contracts, were as follows:
- ------------------------------------------------------------------ 1993 1992 - ------------------------------------------------------------------ (In millions) Delinquent Restructured Delinquent Restructured - ------------------------------------------------------------------ Concentration by type: Office buildings $105 $376 $ 99 $506 Hotels 13 237 72 215 Apartment buildings 2 51 20 83 Retail facilities 2 41 2 41 Other 8 29 25 38 - ------------------------------------------------------------------ Total $130 $734 $218 $883 - ------------------------========================================== Concentration by region: Central $ 22 $245 $ 12 $311 Middle Atlantic 67 181 150 134 Pacific 30 84 45 161 South Atlantic 9 110 9 111 New England 1 85 1 129 Other 1 29 1 37 - ------------------------------------------------------------------ Total $130 $734 $218 $883 - ------------------------==========================================
26 15 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. As of December 31, 1993, approximately 80% of potential problem mortgage loans were fully current under their original terms. As of December 31, potential problem mortgage loans, including amounts attributable to policyholder contracts, and related valuation reserves were as follows:
- ----------------------------------------------------------------------------------------------------------------------------- (In millions) 1993 1992 - ----------------------------------------------------------------------------------------------------------------------------- Potential problem mortgage loans $ 627 $ 745 Less valuation reserves 79 74 - ----------------------------------------------------------------------------------------------------------------------------- Potential problem mortgage loans $ 548 $ 671 - -------------------------------------------------------------------------------------------------------======================
Potential problem mortgage loans attributable to policyholder contracts represented 59% and 60% of total potential problem mortgage loans at December 31, 1993 and 1992, respectively. VALUATION RESERVES FOR MORTGAGE LOANS The activity in valuation reserves for mortgage loans during the year ended December 31 was as follows:
- ----------------------------------------------------------------------------------------------------------------------------- 1993 1992 - ----------------------------------------------------------------------------------------------------------------------------- Policyholder Policyholder (In millions) Contracts CIGNA Total Contracts CIGNA Total - ----------------------------------------------------------------------------------------------------------------------------- Beginning balance -- January 1 $ 106 $ 78 $ 184 $ 109 $ 61 $ 170 Net increase in valuation reserves 48 62 110 51 32 83 Charge-offs upon sales, repayments and other (13) (10) (23) (10) 1 (9) Transfers to real estate (36) (19) (55) (44) (16) (60) - ----------------------------------------------------------------------------------------------------------------------------- Ending balance -- December 31 $ 105 $ 111 $ 216 $ 106 $ 78 $ 184 - ----------------------------------------------------------===================================================================
The after-tax adverse effect of the net increase in valuation reserves on CIGNA's net income was $40 million, $21 million and $30 million for 1993, 1992 and 1991, respectively. Valuation reserves for mortgage loans include reserves for loans which are in-substance foreclosures (classified as problem mortgage loans) and such loans are carried at the fair value of the underlying property. As of December 31, 1993, such loans amounted to approximately $17 million and are net of valuation reserves of approximately $17 million. The carrying value of such loans, net of valuation reserves of $45 million, was $121 million as of December 31, 1992. 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 (in total and by type) on policyholder contracts and on CIGNA's net income for the year ended December 31 is shown in the following table:
- ----------------------------------------------------------------------------------------------------------------------------- 1993 1992 1991 - ----------------------------------------------------------------------------------------------------------------------------- Policyholder Policyholder Policyholder (In millions) Contracts CIGNA Contracts CIGNA Contracts CIGNA - ----------------------------------------------------------------------------------------------------------------------------- Net investment income under original contract terms $ 96 $ 54 $ 135 $ 55 $ 112 $ 44 Less net investment income received 68 30 80 31 63 23 --- --- --- --- --- --- Forgone investment income 28 24 55 24 49 21 Tax effect -- (8) -- (8) -- (8) - ----------------------------------------------------------------------------------------------------------------------------- Net effect of non-accruals $ 28 $ 16 $ 55 $ 16 $ 49 $ 13 - -----------------------------------------------------======================================================================== Forgone investment income by type: Delinquent mortgage loans $ 13 $ 11 $ 33 $ 16 $ 24 $ 8 Restructured mortgage loans 15 13 22 8 25 13 --- --- --- --- --- --- Forgone investment income 28 24 55 24 49 21 Tax effect -- (8) -- (8) -- (8) - ----------------------------------------------------------------------------------------------------------------------------- Net effect of non-accruals $ 28 $ 16 $ 55 $ 16 $ 49 $ 13 - -----------------------------------------------------========================================================================
27 16 REAL ESTATE Investment real estate includes real estate held for the production of income and 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) 1993 1992 - ------------------------------------------------------------ Foreclosure properties $ 1,289 $ 930 Less cumulative write-downs 301 213 Less valuation reserves 59 37 ------ ----- 929 680 ------ ----- Real estate held for the production of income 890 814 Less valuation reserves 39 42 ------ ----- 851 772 - ------------------------------------------------------------ Investment real estate $ 1,780 $ 1,452 - ----------------------------------------====================
Foreclosure properties attributable to policyholder contracts represented 56% and 64% of total foreclosure properties as of December 31, 1993 and 1992, respectively. As of December 31, foreclosure properties by type and by region, including amounts attributable to policyholder contracts, were as follows:
- ------------------------------------------------------------ (In millions) 1993 1992 - ------------------------------------------------------------ Concentration by type: Office buildings $ 638 $ 445 Hotels 202 139 Retail facilities 62 78 Other 27 18 - ------------------------------------------------------------ Total $ 929 $ 680 - -------------------------------------------================= Concentration by region: South Atlantic $ 201 $ 214 Central 212 192 Pacific 232 60 Middle Atlantic 128 84 New England 85 61 Other 71 69 - ------------------------------------------------------------ Total $ 929 $ 680 - -------------------------------------------=================
28 17 RESERVES FOR REAL ESTATE The activity in cumulative write-downs and valuation reserves for real estate during the year ended December 31 was as follows:
- ----------------------------------------------------------------------------------------------------------------------------- 1993 1992 - ----------------------------------------------------------------------------------------------------------------------------- Policyholder Policyholder (In millions) Contracts CIGNA Total Contracts CIGNA Total - ----------------------------------------------------------------------------------------------------------------------------- Beginning balance -- January 1 $ 184 $ 108 $ 292 $ 73 $ 76 $ 149 Additions to cumulative write-downs 30 29 59 53 31 84 Net increase in valuation reserves 21 8 29 29 8 37 Charge-offs upon sales and other (32) (4) (36) (15) (23) (38) Transfers from mortgage loans 36 19 55 44 16 60 - ----------------------------------------------------------------------------------------------------------------------------- Ending balance -- December 31 $ 239 $ 160 $ 399 $ 184 $ 108 $ 292 - ----------------------------------------------------------===================================================================
The after-tax adverse effect of write-downs and the net increase in valuation reserves on CIGNA's net income was $24 million, $26 million and $7 million for 1993, 1992 and 1991, respectively. SUMMARY The adverse effects of non-accruals, write-downs and changes in valuation reserves ("write-downs and reserves") on policyholder contracts and on CIGNA's net income for the year ended December 31 were as follows:
- ----------------------------------------------------------------------------------------------------------------------------- 1993 1992 1991 - ----------------------------------------------------------------------------------------------------------------------------- Policyholder Policyholder Policyholder (In millions) Contracts CIGNA Contracts CIGNA Contracts CIGNA - ----------------------------------------------------------------------------------------------------------------------------- Write-downs and reserves: Bonds $ 15 $ 18 $ 41 $ 29 $ 51 $ 25 Mortgage loans 48 40 51 21 97 30 Real estate 51 24 82 26 18 7 - ----------------------------------------------------------------------------------------------------------------------------- Net effect of write-downs and reserves $ 114 $ 82 $ 174 $ 76 $ 166 $ 62 - -----------------------------------------------------======================================================================== Effect of non-accruals: Bonds $ 16 $ 12 $ 24 $ 20 $ 20 $ 17 Mortgage loans 28 16 55 16 49 13 - ----------------------------------------------------------------------------------------------------------------------------- Net effect of non-accruals $ 44 $ 28 $ 79 $ 36 $ 69 $ 30 - -----------------------------------------------------========================================================================
The effect of adverse economic conditions on certain industry segments and adverse real estate market conditions is expected to continue, resulting in additional problem investments and foreclosures. Investments in California and in office buildings are particularly vulnerable to deterioration. Although additional non-accruals, write-downs and reserves will adversely affect future results, the amounts and timing cannot be reasonably estimated. CIGNA currently does not expect such non-accruals, write-downs and reserves to result in a significant decline in the aggregate carrying value of its assets or a material adverse effect on its financial condition. 29 18 CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
- ----------------------------------------------------------------------------------------------------------------------------- (In millions, except per share amounts) - ----------------------------------------------------------------------------------------------------------------------------- For the year ended December 31, 1993 1992 1991 - ----------------------------------------------------------------------------------------------------------------------------- REVENUES Premiums and fees $ 13,712 $ 13,924 $ 14,295 Net investment income 3,902 3,914 3,860 Other revenues 506 579 513 Realized investment gains 282 165 82 ------ ------ ------ Total revenues 18,402 18,582 18,750 ------ ------ ------ BENEFITS, LOSSES AND EXPENSES Benefits, losses and settlement expenses 13,419 13,857 13,712 Policy acquisition expenses 1,210 1,280 1,268 Other operating expenses 3,608 3,266 3,186 ------ ------ ------ Total benefits, losses and expenses 18,237 18,403 18,166 ------ ------ ------ INCOME BEFORE INCOME TAXES, EXTRAORDINARY ITEM AND CUMULATIVE EFFECT OF ACCOUNTING CHANGES 165 179 584 ------ ------ ------ Income taxes (benefits): Current 413 136 215 Deferred (482) (294) (84) ------ ------ ------ Total taxes (69) (158) 131 ------ ------ ------ INCOME BEFORE EXTRAORDINARY ITEM AND CUMULATIVE EFFECT OF ACCOUNTING CHANGES 234 337 453 Extraordinary loss from early extinguishment of debt, net of taxes -- -- (4) Cumulative effect of accounting changes for postemployment and postretirement benefits other than pensions, net of taxes -- (530) -- Cumulative effect of accounting change for income taxes -- 504 -- ------ ------ ------ NET INCOME 234 311 449 Common dividends declared (219) (218) (217) Retained earnings, beginning of year 3,702 3,609 3,377 - ----------------------------------------------------------------------------------------------------------------------------- RETAINED EARNINGS, END OF YEAR $ 3,717 $ 3,702 $ 3,609 - ---------------------------------------------------------------------------------------====================================== EARNINGS PER SHARE Income before extraordinary item and cumulative effect of accounting changes $ 3.25 $ 4.70 $ 6.34 Extraordinary loss from early extinguishment of debt, net of taxes -- -- (.06) Cumulative effect of accounting changes for postemployment and postretirement benefits other than pensions, net of taxes -- (7.39) -- Cumulative effect of accounting change for income taxes -- 7.03 -- ------ ------ ------ NET INCOME $ 3.25 $ 4.34 $ 6.28 - ---------------------------------------------------------------------------------------======================================
The Notes to Financial Statements are an integral part of these statements. 30 19 CONSOLIDATED BALANCE SHEETS
- ----------------------------------------------------------------------------------------------------------------------------- (In millions, except per share amounts) - ----------------------------------------------------------------------------------------------------------------------------- As of December 31, 1993 1992 - ----------------------------------------------------------------------------------------------------------------------------- ASSETS Investments: Fixed maturities: at amortized cost (fair value, $13,807; $27,184) $ 12,375 $ 25,095 Fixed maturities: at fair value (amortized cost, $17,618) 19,380 -- Equity securities: at fair value (cost, $1,626; $2,028) 1,849 2,321 Mortgage loans 10,021 10,918 Policy loans 3,663 2,086 Real estate 1,780 1,452 Other long-term investments 303 343 Short-term investments 1,357 3,133 ----- ----- Total investments 50,728 45,348 Cash and cash equivalents 1,211 1,011 Accrued investment income 764 734 Premiums, accounts and notes receivable 4,065 3,634 Reinsurance recoverables 8,338 8,365 Deferred policy acquisition costs 1,085 1,061 Property and equipment, net 930 945 Deferred income taxes, net 1,703 1,720 Goodwill 1,262 1,384 Other assets 1,209 1,236 Separate account assets 13,680 12,243 - ----------------------------------------------------------------------------------------------------------------------------- Total $ 84,975 $ 77,681 - ------------------------------------------------------------------------------------------------------======================= LIABILITIES Future policy benefits $ 9,935 $ 9,380 Contractholder deposit funds 25,328 22,598 Unpaid claims and claim expenses 20,144 19,412 Unearned premiums 2,711 2,594 ------- ------- Total insurance and contractholder liabilities 58,118 53,984 Short-term debt 351 475 Accounts payable, accrued expenses and other liabilities 4,555 4,117 Current income taxes 468 193 Long-term debt 1,235 929 Separate account liabilities 13,673 12,239 - ----------------------------------------------------------------------------------------------------------------------------- Total liabilities 78,400 71,937 - ----------------------------------------------------------------------------------------------------------------------------- CONTINGENCIES -- NOTE 17 SHAREHOLDERS' EQUITY Common stock (shares issued, 83 and 82) 83 82 Additional paid-in capital 2,222 2,206 Net unrealized appreciation -- fixed maturities 961 12 Net unrealized appreciation -- equity securities 211 325 Net translation of foreign currencies (74) (46) Retained earnings 3,717 3,702 Less treasury stock, at cost (545) (537) - ----------------------------------------------------------------------------------------------------------------------------- Total shareholders' equity 6,575 5,744 - ----------------------------------------------------------------------------------------------------------------------------- Total $ 84,975 $ 77,681 - ------------------------------------------------------------------------------------------------------======================= SHAREHOLDERS' EQUITY PER SHARE $ 91.30 $ 80.09 - ------------------------------------------------------------------------------------------------------=======================
The Notes to Financial Statements are an integral part of these statements. 31 20 CONSOLIDATED STATEMENTS OF CASH FLOWS
- ----------------------------------------------------------------------------------------------------------------------------- (In millions) For the year ended December 31, 1993 1992 1991 - ----------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Income before extraordinary item and cumulative effect of accounting changes $ 234 $ 337 $ 453 Adjustments to reconcile income before extraordinary item and cumulative effect of accounting changes to net cash provided by (used in) operating activities: Insurance liabilities 928 1,077 506 Reinsurance recoverables 27 (398) (208) Premiums, accounts and notes receivable 94 239 154 Accounts payable, accrued expenses, other liabilities and current income taxes 608 (77) (97) Deferred income taxes, net (479) (335) (86) Realized investment gains (282) (165) (82) Gain on sale of subsidiaries and other equity interests (29) (85) (12) Other, net 19 103 116 ------- ------- ------- Net cash provided by operating activities 1,120 696 744 ------- ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from investments sold: Fixed maturities 1,012 1,420 2,242 Mortgage loans 1,182 435 433 Equity securities 2,259 1,199 1,276 Other (primarily short-term investments) 19,317 16,064 17,509 Investment maturities and repayments: Fixed maturities 5,162 4,517 2,977 Mortgage loans 210 298 177 Investments purchased: Fixed maturities (8,553) (7,440) (6,437) Mortgage loans (1,005) (946) (769) Equity securities (1,587) (1,395) (1,272) Other (primarily short-term investments) (21,133) (16,775) (18,840) Proceeds from sale of subsidiaries and other equity interests 36 147 203 Other, net (105) (154) (254) ------- ------- ------- Net cash used in investing activities (3,205) (2,630) (2,755) ------- ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES Deposits and interest credited to contractholder deposit funds 7,565 5,344 6,136 Withdrawals from contractholder deposit funds (5,166) (4,080) (3,755) Net change in commercial paper (48) 92 (281) Issuance of long-term debt 327 111 219 Repayment of debt (148) (135) (120) Dividends paid (219) (218) (217) ------- ------- ------- Net cash provided by financing activities 2,311 1,114 1,982 ------- ------- ------- Effect of foreign currency rate changes on cash (26) (32) (4) - ----------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents 200 (852) (33) Cash and cash equivalents, beginning of year 1,011 1,863 1,896 - ----------------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents, end of year $ 1,211 $ 1,011 $ 1,863 - --------------------------------------------------------------------------------------======================================= Supplemental Disclosure of Cash Information: Income taxes paid, net of refunds $ 121 $ 319 $ 155 Interest paid $ 116 $ 96 $ 103 - -----------------------------------------------------------------------------------------------------------------------------
The Notes to Financial Statements are an integral part of these statements. 32 21 NOTES TO FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A) BASIS OF PRESENTATION: The consolidated financial statements include the accounts of CIGNA Corporation (CIGNA) and all significant subsidiaries. These consolidated financial statements have been prepared in conformity with generally accepted accounting principles. Certain reclassifications have been made to 1992 and 1991 amounts to conform with the 1993 presentation. B) RECENT ACCOUNTING PRONOUNCEMENTS: In the fourth quarter of 1993, CIGNA implemented Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity Securities," which was issued by the Financial Accounting Standards Board (FASB) in May 1993. SFAS No. 115 requires that debt and equity securities be classified into different categories and carried at fair value if they are not classified as held to maturity. SFAS No. 115 does not permit retroactive application of its provisions. The effect of implementing SFAS No. 115 as of December 31, 1993 resulted in an increase in investment assets of $1.6 billion and an increase in shareholders' equity of approximately $900 million resulting from the classification of certain fixed maturities previously carried at amortized cost to available for sale. The increase in shareholders' equity is net of policyholder share of $307 million and deferred income taxes of $452 million. See Note 3 for additional information. In 1993, CIGNA implemented SFAS No. 113, "Accounting and Reporting for Reinsurance of Short-Duration and Long-Duration Contracts," which requires reinsurance recoverables previously netted against insurance reserves to be reclassified and reported as assets, and earned premiums ceded and recoveries recognized under reinsurance contracts to be disclosed. Upon adoption of SFAS No. 113, total assets and total liabilities as of December 31, 1992 were restated and increased by approximately $7.9 billion. The statement also requires gains on certain reinsurance contracts to be deferred and recognized over the contract settlement period. The effect on net income from implementation of the income recognition provisions of SFAS No. 113 was not material. In 1993, the FASB issued SFAS No. 114, "Accounting by Creditors for Impairment of a Loan," which provides guidance on valuing impaired loans, and must be implemented by the first quarter of 1995, with the cumulative effect of implementation included in net income. The FASB has recently added to its agenda a project to amend the income recognition provisions of SFAS No. 114. As a result, CIGNA cannot determine the timing or effect on results of operations or financial condition of adopting SFAS No. 114. In 1992, CIGNA implemented SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions"; SFAS No. 109, "Accounting for Income Taxes"; and SFAS No. 112, "Employers' Accounting for Postemployment Benefits." These accounting changes were implemented as of January 1, 1992 through cumulative effect adjustments. Prior year financial statements were not restated. SFAS No. 106 requires employers to recognize the costs and obligations of postretirement benefits other than pensions over the period ending with the date an employee is fully eligible to receive benefits. Previously, such costs were generally recognized as expense when paid. The cumulative effect of implementing SFAS No. 106 as of January 1, 1992 resulted in a non-cash after-tax charge to net income of $517 million. In addition, the implementation of SFAS No. 106 increased 1992 other operating expenses by $52 million ($34 million after-tax). Implementation of SFAS No. 106 for non-U.S. plans is not required until 1995. CIGNA has not determined the amount or timing of implementation of SFAS No. 106 for its non-U.S. plans. However, the effect on net income is not expected to be material. See Note 9 for additional information. SFAS No. 109 establishes new accounting and reporting standards for income taxes and requires adopting the liability method, which replaces the deferred method required by Accounting Principles Board Opinion (APB) No. 11. The liability method recognizes, as of the date of the financial statements, the amount of current and deferred tax assets and liabilities utilizing currently enacted tax laws and rates. SFAS No. 109 requires that changes in tax laws and rates that affect the deferred tax asset and liability accounts be reflected in the income statement. In addition, SFAS No. 109 allows recognition of deferred tax assets that are more likely than not to be realized in future years. The standard also eliminates the requirement to report the utilization of net operating loss carryforwards as an extraordinary item and requires the tax effect of a change in tax laws or rates associated with unrealized investment and foreign currency gains and losses be reflected in the income statement. The cumulative effect of implementing SFAS No. 109 as of January 1, 1992 resulted in a non-cash increase to net income of $504 million. In addition, implementation of SFAS No. 109 resulted in a $29 million decrease to income tax expense for 1992, net of a tax benefit of $59 million related to realized investment results. See Note 8 for additional information. SFAS No. 112 requires employers to recognize the costs and obligations of severance, disability, and related life insurance and health care benefits to be paid to inactive or former employees. If these benefits accumulate or vest as a result of employee service and future payments are probable and estimable, the obligation must be recognized over the service period of the employees. If these benefits do not accumulate 33 22 or vest, the estimated cost of such benefits is accrued when determined to be probable and estimable. Prior to adoption, CIGNA had recognized expense for the cost of these benefits either on an accrual or a paid basis, depending on the plan. The cumulative effect of implementing SFAS No. 112 as of January 1, 1992 was a non-cash after-tax charge to net income of $13 million. There was no incremental effect on 1992 net income from adopting SFAS No. 112. See Note 9 for additional information. The increase (decrease) in 1992 net income for the segments due to the cumulative effect for prior years and the incremental effect, respectively, for the implementation of SFAS Nos. 106, 109 and 112 was as follows: Employee Life and Health Benefits, ($146) million and $5 million; Employee Retirement and Savings Benefits, ($25) million and ($1) million; Individual Financial Services, ($37) million and ($3) million; Property and Casualty, $179 million and ($5) million; and Other Operations, $3 million and ($1) million. In 1992, CIGNA adopted Statement of Position (SOP) 92-3, "Accounting for Foreclosed Assets," issued by the American Institute of Certified Public Accountants, which resulted in a realized investment loss of $8 million ($6 million after-tax). C) FINANCIAL INSTRUMENTS: In the normal course of business, CIGNA enters into transactions involving various types of financial instruments, including debt; investments such as fixed maturities and equity securities; and off-balance-sheet financial instruments such as investment and loan commitments, financial guarantees, and interest rate swap and futures contracts. These instruments have credit risk and may also be subject to risk of loss due to interest rate fluctuations. CIGNA evaluates and monitors each financial instrument individually and, where appropriate, obtains collateral or other forms of security to minimize risk of loss. Financial instruments that are subject to fair value disclosure requirements (insurance contracts, real estate, goodwill and taxes are excluded) are carried in the financial statements at amounts that approximate fair value, unless otherwise indicated in the Notes to Financial Statements. The fair values used for financial instruments are estimates, which in many cases may differ significantly from the amounts which 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. Fair values of off-balance-sheet financial instruments as of December 31, 1993 and 1992 were not material. D) INVESTMENTS: Investments in fixed maturities include bonds; mortgage-backed securities, including collateralized mortgage obligations (CMOs); and redeemable preferred stocks. As of December 31, 1993, in accordance with SFAS No. 115, fixed maturities classified as held to maturity are carried at amortized cost, net of impairments, and those classified as available for sale are carried at fair value, with unrealized appreciation or depreciation included in Shareholders' Equity. Prior to SFAS No. 115 implementation, fixed maturities were carried principally at amortized cost, net of impairments. Fixed maturities are considered impaired and written down when a decline in value is considered to be other than temporary. CIGNA also establishes a valuation reserve for potential problem bonds, when they are considered impaired. Mortgage loans are carried principally at unpaid principal balances, net of valuation reserves. Mortgage loans are considered impaired and a valuation reserve is established when a decline in value is considered to be other than temporary. 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. CIGNA considers real estate investments acquired through the foreclosure of mortgage loans as assets held for sale and values the asset received at its fair value at the time of foreclosure. The fair value is established as the new cost basis and the investment asset 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. As of December 31, 1993, equity securities and short-term investments are classified as available for sale. Policy loans are carried principally at unpaid principal balances. 34 23 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 share and net of deferred income taxes, if applicable, for investments carried at fair value are included in Shareholders' Equity. 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. Failure of reinsurers to indemnify CIGNA, as a result of reinsurer insolvencies or disputes, could result in losses. Consequently, allowances are established for amounts deemed 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 determined to be unrecoverable, they are expensed at the time of determination. 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 $862 million and $922 million at December 31, 1993 and 1992, respectively. I) 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 expected to be derived from the acquisition. CIGNA evaluates the carrying amount of goodwill by analyzing historical and expected future income and undiscounted cash flows of the related businesses. Write-downs of goodwill are recognized when it is determined that the amount has been impaired. Also, amortization periods are revised if it is determined that the remaining period of benefit of the goodwill has changed. Accumulated amortization was $778 million and $656 million at December 31, 1993 and 1992, respectively. J) OTHER ASSETS: Other Assets consists of various insurance-related assets, principally ceded unearned premiums and reinsurance deposits. K) SEPARATE ACCOUNTS: Separate account assets and liabilities are principally carried at market value, with less than 4% 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) INSURANCE AND CONTRACTHOLDER LIABILITIES: Future policy benefits are liabilities for life, health and annuity products, excluding investment-related and universal life 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 12%, generally graded down after 10 to 30 years. Mortality, morbidity and withdrawal assumptions for all policies are based on either CIGNA's own experience or various actuarial tables. Contractholder Deposit Funds are liabilities for investment-related and universal life products which were $19.3 billion and $6 billion as of December 31, 1993, respectively, compared with $18.7 billion and $3.9 billion as of December 31, 1992, respectively. 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 and surrender charges. The fair value of liabilities for investment-related products as of December 31, 1993 and 1992 was $20.5 billion and $19.7 billion, respectively. The fair value was estimated using the amount payable on demand and, for those not payable on demand, discounted cash flow analyses. Liabilities for unpaid claims and claim expenses are estimates of payments to be made on property and casualty and health insurance and prepaid health and dental claims for reported losses and estimates of losses incurred but not reported, except as discussed further in Note 16. Estimated amounts of salvage and subrogation are deducted from the liability for unpaid claims. 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. 35 24 M) OTHER LIABILITIES: Other Liabilities consists principally of postretirement and postemployment benefits and various insurance-related liabilities, including amounts related to reinsurance contracts and the present value of obligations related to a closed book of reinsurance business. Also included in Other liabilities are liabilities for guaranty fund assessments that can be reasonably estimated. N) 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. Revenues and expenses are translated at average rates of exchange prevailing during the year. The translation gain or loss on such functional currencies is generally reflected in Shareholders' Equity, net of applicable taxes. O) PREMIUM AND FEE REVENUE AND RELATED EXPENSES: Premiums for individual life and health insurance and individual and group annuity products, excluding universal life and investment-related products, are considered revenue when due. Insurance premiums for property and casualty, group life, accident and health, and premiums for prepaid health and dental coverages are recognized as revenue over the related contract periods. Benefits, losses and related expenses are matched with premiums, resulting in their recognition over the term of the contracts. This matching is accomplished through the provision for future benefits, estimated unpaid losses and amortization of deferred policy acquisition costs. Revenues for investment-related products consist of net investment income and contract charges assessed against the fund values. Related benefit expenses primarily consist of net investment income credited to the fund values after deduction for investment and risk charges. Revenues for universal life products consist of net investment income and mortality, administration and surrender charges assessed against the fund values. Related benefit expenses include universal life benefit claims in excess of fund values and net investment income credited to universal life fund values. P) 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 3.2% of total insurance in force at December 31, 1993, compared with 0.4% at December 31, 1992 and 1991. Q) INCOME TAXES: CIGNA and its domestic subsidiaries file a consolidated United States federal income tax return. 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. These differences result primarily from loss reserves, policy acquisition expenses, reserves for postretirement benefits and unrealized appreciation or depreciation on investments. NOTE 2 - ACQUISITIONS AND DISPOSITIONS During 1993, CIGNA sold all, or a portion, of its equity interest in certain of its businesses. Total assets and premiums and fees of these businesses were not material to CIGNA. The gain realized in 1993 from these sales was approximately $20 million after-tax. During 1992 and 1991, CIGNA had acquisitions and dispositions that were not material to the financial statements. CIGNA sold on January 15, 1994 the California personal automobile and homeowners insurance business that CIGNA retained from the 1989 sale of the Horace Mann insurance companies. A gain on the sale of approximately $20 million after-tax will be recognized in 1994. NOTE 3 - INVESTMENTS A) FIXED MATURITIES: Fair values are based upon market prices, when available, or discounted cash flow analyses. Fixed maturities are net of cumulative write-downs and valuation reserves of $123 million and $170 million, including policyholder share, as of December 31, 1993 and 1992, respectively. The amortized cost and fair value by contractual maturity periods for fixed maturities as of December 31, 1993 were as follows:
HELD TO MATURITY (CARRIED AT AMORTIZED COST) - ------------------------------------------------------------ Amortized Fair (In millions) Cost Value - ------------------------------------------------------------ Due in one year or less $ 113 $ 114 Due after one year through five years 3,148 3,417 Due after five years through ten years 4,346 4,831 Due after ten years 2,979 3,547 Mortgage-backed securities 1,789 1,898 - ------------------------------------------------------------ Total $ 12,375 $ 13,807 - -------------------------------------------=================
Available for Sale (Carried at Fair Value) - ------------------------------------------------------------ Amortized Fair (In millions) Cost Value - ------------------------------------------------------------ Due in one year or less $ 423 $ 451 Due after one year through five years 4,321 4,564 Due after five years through ten years 4,897 5,227 Due after ten years 3,907 4,653 Mortgage-backed securities 4,070 4,485 - ------------------------------------------------------------ Total $17,618 $19,380 - --------------------------------------------================
Actual maturities could differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Also, CIGNA may extend maturities in some cases. 36 25 As of December 31, 1993, gross unrealized appreciation (depreciation) for fixed maturities by type of issuer was as follows:
HELD TO MATURITY (CARRIED AT AMORTIZED COST) - --------------------------------------------------------------------- Amortized Fair (In millions) Cost Appreciation Depreciation Value - --------------------------------------------------------------------- State and local government bonds $ 82 $ 13 $ (2) $ 93 Foreign government bonds 43 2 -- 45 Corporate securities 10,461 1,318 (8) 11,771 Mortgage-backed securities 1,789 127 (18) 1,898 - --------------------------------------------------------------------- Total $ 12,375 $ 1,460 $(28) $ 13,807 - --------------------=================================================
- --------------------------------------------------------------------- AVAILABLE FOR SALE (CARRIED AT FAIR VALUE) - --------------------------------------------------------------------- Amortized Fair (In millions) Cost Appreciation Depreciation Value - --------------------------------------------------------------------- Federal government bonds $ 1,124 $ 57 $ (5) $ 1,176 State and local government bonds 1,527 313 (1) 1,839 Foreign government bonds 1,620 109 (9) 1,720 Corporate securities 9,277 924 (41) 10,160 Mortgage-backed securities 4,070 446 (31) 4,485 - --------------------------------------------------------------------- Total $ 17,618 $ 1,849 $(87) $ 19,380 - --------------------=================================================
For fixed maturities carried at amortized cost, gross unrealized appreciation (depreciation) by type of issuer as of December 31, 1992 was as follows:
- --------------------------------------------------------------------- Amortized Fair (In millions) Cost Appreciation Depreciation Value - --------------------------------------------------------------------- Federal government bonds $ 901 $ 139 $ (2) $ 1,038 State and local government bonds 1,643 386 (11) 2,018 Foreign government bonds 435 30 (10) 455 Corporate securities 16,817 1,522 (290) 18,049 Mortgage-backed securities 5,299 398 (73) 5,624 - --------------------------------------------------------------------- Total $ 25,095 $ 2,475 $ (386) $ 27,184 - --------------------=================================================
At December 31, 1992, fixed maturities carried at fair value, primarily foreign government bonds, were included in short-term investments and totaled $2.1 billion (amortized cost, $2.1 billion). Gross unrealized appreciation and depreciation on such investments were $39 million and $21 million, respectively. Mortgage-backed securities include investments in CMOs as of December 31, 1993 of $2.6 billion carried at fair value (amortized cost, $2.5 billion) and $316 million carried at amortized cost (fair value, $356 million). As of December 31, 1992, investments in CMOs were carried at amortized cost and totaled approximately $2.0 billion, with a fair value of $2.1 billion. Certain of these securities are backed by Aaa/AAA-rated government agencies. All other CMO securities have high quality standards through use of credit enhancement provided by subordinated securities or mortgage insurance from a 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, represent approximately 8% of total CMO investments at December 31, 1993 and 1992. CIGNA has minimized the risks resulting from significant interest rate fluctuations associated with interest-only and principal-only investments by holding positions in both types of instruments. At December 31, 1993, contractual fixed maturity investment commitments approximated $200 million. The majority of investment commitments are for the purchase of investment grade fixed maturities 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 1994. B) SHORT-TERM INVESTMENTS: As of December 31, 1993, short-term investments include debt securities, principally corporate securities, $954 million; federal government securities, $257 million; and foreign government securities, $104 million. 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, borrower and loan size. Mortgage loans are collateralized by the related properties 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 were as follows:
- ------------------------------------------------------------ (In millions) 1993 1992 - ------------------------------------------------------------ Mortgage loans $ 10,021 $ 10,918 ------ ------ Real estate: Held for sale 929 680 Held for production of income 851 772 ------ ------ Total real estate 1,780 1,452 - ------------------------------------------------------------ Total $ 11,801 $ 12,370 - ------------------------------------------==================
37 26 The fair value of mortgage loans as of December 31, 1993 and 1992 was $10.2 billion and $11.1 billion, respectively. Fair values were estimated primarily using discounted cash flow analyses. Valuation reserves for mortgage loans, including policyholder share, were $216 million and $184 million as of December 31, 1993 and 1992, respectively. Valuation reserves and cumulative write-downs related to real estate, including policyholder share, were $399 million and $292 million as of December 31, 1993 and 1992, respectively. During 1993, 1992 and 1991, non-cash investing activities included real estate acquired through foreclosure of mortgage loans, which totaled $460 million, $461 million and $348 million, respectively. At December 31, mortgage loans and real estate investments comprised the following property types and geographic regions:
- ------------------------------------------------------------ (In millions) 1993 1992 - ------------------------------------------------------------ Property type: Office buildings $ 4,868 $ 5,283 Retail facilities 4,225 4,302 Apartment buildings 1,056 998 Hotels 909 1,025 Other 743 762 - ------------------------------------------------------------ Total $ 11,801 $ 12,370 - ------------------------------------------================== Geographic region: Central $ 3,493 $ 3,871 Pacific 3,049 2,819 Middle Atlantic 1,896 2,041 South Atlantic 1,780 1,935 New England 1,095 1,175 Other 488 529 - ------------------------------------------------------------ Total $ 11,801 $ 12,370 - ------------------------------------------==================
At December 31, 1993, scheduled mortgage loan maturities were as follows: 1994 -- $926 million; 1995 -- $1 billion; 1996 -- $1.3 billion; 1997 -- $1.4 billion; 1998 -- $791 million; and $4.6 billion thereafter. Actual maturities could differ from contractual maturities because borrowers may have the right to prepay obligations with or without prepayment penalties and loans may be refinanced. During 1993 and 1992, CIGNA refinanced approximately $900 million and $1.0 billion of its mortgage loans relating to borrowers that were unable to obtain alternative financing. At December 31, 1993, contractual commitments to extend credit under commercial mortgage loan agreements amounted to approximately $257 million. These commitments generally expire within one year and are diversified by property type and geographic region. D) NET UNREALIZED APPRECIATION OF INVESTMENTS: Unrealized appreciation and depreciation for investments carried at fair value as of December 31, 1993 and 1992 were as follows:
- ------------------------------------------------------------ (In millions) 1993 1992 - ------------------------------------------------------------ Unrealized appreciation: Fixed maturities $ 1,849 $ 39 Equity securities 287 477 Other investments 14 5 -------- ------ 2,150 521 -------- ------ Unrealized depreciation: Fixed maturities (87) (21) Equity securities (64) (184) -------- ------ (151) (205) -------- ------ 1,999 316 Policyholder share (310) 27 Deferred income taxes (517) (6) - ------------------------------------------------------------ Net unrealized appreciation $ 1,172 $ 337 - -------------------------------------------=================
The increase (decrease) in net unrealized appreciation included in Shareholders' Equity for investments carried at fair value, excluding policyholder share, was $835 million, ($149) million and $379 million for the years ended December 31, 1993, 1992 and 1991, respectively. The increase (decrease) in net unrealized appreciation on fixed maturities that are carried at fair value was $949 million, ($14) million and $26 million in 1993, 1992 and 1991, respectively. Such amounts are included as a separate component of Shareholders' Equity, net of policyholder share and deferred income taxes. The increase in unrealized appreciation in 1993 reflects the implementation of SFAS No. 115, which requires certain fixed maturities to be carried at fair value. The net unrealized appreciation on fixed maturities that are carried at amortized cost is not reflected in the financial statements. The increase (decrease) in such net unrealized appreciation was ($657) million, $110 million and $1.3 billion in 1993, 1992 and 1991, respectively. The decrease in unrealized appreciation in 1993 reflects the implementation of SFAS No. 115 as discussed above. 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) 1993 1992 - ------------------------------------------------------------ Fixed maturities $ 375 $ 132 Mortgage loans 91 144 Real estate 356 457 Other long-term investments 5 67 - ------------------------------------------------------------ Total $ 827 $ 800 - ----------------------------------------------==============
38 27 F) FUTURES CONTRACTS: CIGNA purchases and sells futures contracts on margin to hedge against interest rate fluctuations and their effect on the net cash flows from the investment portfolio supporting its annuity and investment businesses. Such futures contracts outstanding were $129 million and $524 million at December 31, 1993 and 1992, respectively. Because CIGNA purchases and sells futures contracts through brokers who assume the risk of loss, CIGNA's exposure to credit risk under futures contracts is limited to the amount of margin deposited with the broker, generally 1% of the contractual amount. Changes in the market value of the futures contracts that qualify as hedges are recorded as adjustments to the carrying value of the investment portfolio, and amortization to income begins at the time of reinvestment. Futures contracts that do not qualify as hedges relate to policyholder contracts; therefore, changes in the market value are recorded in contractholder liabilities. G) INTEREST RATE SWAP CONTRACTS: CIGNA enters into interest rate swap contracts, which are agreements to exchange interest rate payments at future dates, to manage exposure to interest rate fluctuations. Under CIGNA's swap contracts, fixed rate interest payments are generally received in exchange for variable rate interest payments associated with underlying principal amounts. Because the underlying principal of interest rate swap contracts is not exchanged, CIGNA's maximum exposure to credit risk is the difference in interest payments exchanged. Net interest received or paid is recognized over the life of the swap contract as an adjustment to net investment income. Underlying principal amounts associated with interest rate swap contracts outstanding were $781 million and $628 million at December 31, 1993 and 1992, respectively. The increase in net investment income related to interest rate swap contracts was $26 million, $25 million and $16 million for the years ended December 31, 1993, 1992 and 1991, respectively. H) OTHER: As of December 31, 1993 and 1992, CIGNA had no concentration of investments in a single investee exceeding 10% of Shareholders' Equity. NOTE 4 - 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) 1993 1992 1991 - ------------------------------------------------------------ Fixed maturities $ 2,257 $ 2,301 $ 2,167 Equity securities 80 71 69 Mortgage loans 1,006 1,065 1,114 Policy loans 255 165 126 Real estate 287 173 122 Other long-term investments 62 57 83 Short-term investments 291 313 349 ----- ----- ----- 4,238 4,145 4,030 Less investment expenses 336 231 170 - ------------------------------------------------------------ Net investment income $ 3,902 $ 3,914 $ 3,860 - ---------------------------------===========================
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 $1.6 billion for 1993, 1992 and 1991. Net investment income for separate accounts, which is not reflected in CIGNA's revenues, was $611 million, $660 million and $686 million for 1993, 1992 and 1991, respectively. As of December 31, 1993, fixed maturities and mortgage loans on non-accrual status, including policyholder share, were $407 million and $864 million, including restructured investments of $328 million and $734 million, respectively. Amounts on non-accrual status as of December 31, 1992 were $578 million of fixed maturities and $1.1 billion of mortgage loans, including restructurings of $364 million and $883 million, respectively. Excluding policyholder share, the effect of non-accruals, compared with amounts that would have been recognized in accordance with the original terms of the investments, was to reduce net income by $28 million, $36 million and $30 million in 1993, 1992 and 1991, 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) 1993 1992 1991 - ------------------------------------------------------------ Realized investment gains (losses): Fixed maturities $ 50 $ 48 $ 8 Equity securities 257 142 105 Mortgage loans (51) (29) (38) Real estate (46) (38) 1 Other 72 42 6 -- -- - 282 165 82 Income taxes (benefits) 58 (27) 30 - ------------------------------------------------------------ Net realized investment gains $ 224 $ 192 $ 52 - ---------------------------------===========================
Impairments in the value of investments, net of recoveries, that are included in realized investment gains and losses were $100 million, $97 million and $78 million in 1993, 1992 and 1991, respectively. Realized investment gains for separate accounts, which are not reflected in CIGNA's revenues, were $612 million, $244 million and $273 million for the years ended December 31, 1993, 1992 and 1991, respectively. Realized investment gains (losses) attributable to policyholder contracts, which also are not reflected in CIGNA's revenues, were $3 million, ($103) million and ($49) million for the years ended December 31, 1993, 1992 and 1991, respectively. Proceeds from voluntary sales of investments in fixed maturities, including policyholder share, were $1.0 billion, $1.4 billion and $2.2 billion in 1993, 1992 and 1991, respectively. Including policyholder share, realized investment gains on such sales were $44 million, $80 million and $113 million, and realized investment losses were $22 million, $18 million and $33 million for 1993, 1992 and 1991, respectively. These amounts exclude the effects of sales of fixed maturities that were previously classified as short-term investments but are classified as of December 31, 1993 as fixed maturities available for sale in accordance with SFAS No. 115. 39 28 NOTE 5 - DEBT Short- and long-term debt consisted of the following at December 31:
- ------------------------------------------------------------ (In millions) 1993 1992 - ------------------------------------------------------------ SHORT-TERM Commercial paper $ 304 $ 352 Current maturities of long-term debt 47 123 - ------------------------------------------------------------ Total short-term debt $ 351 $ 475 - ---------------------------------------------=============== LONG-TERM Unsecured Debt: 8.2% Convertible Subordinated Debentures due 2010 $ 248 $ 248 8% Notes due 1996 150 150 8-3/4% Notes due 2001 100 100 7.4% Notes due 2003 100 -- 8-1/4% Notes due 2007 100 100 7.65% Notes due 2023 100 -- 8.3% Notes due 2023 100 -- Medium-term Notes* 202 218 - ------------------------------------------------------------ Total unsecured debt 1,100 816 - ------------------------------------------------------------ Secured Debt (principally by real estate): Capitalized leases 8 8 Other secured obligations 127 105 - ------------------------------------------------------------ Total secured debt 135 113 - ------------------------------------------------------------ Total long-term debt $1,235 $ 929 - ---------------------------------------------===============
*Interest rates on medium-term notes range from 5-3/4% to 10% with original maturity dates ranging from approximately two to ten years. The fair value of long-term debt as of December 31, 1993 and 1992 was $1.3 billion and $966 million, respectively. The fair value was estimated by using market quotes, when available, and when not available, discounted cash flow analyses. 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, 1993, CIGNA had approximately $650 million in unused 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. In 1993, CIGNA issued $100 million of unsecured 7.4% Notes due in 2003, $100 million of unsecured 8.3% Notes due in 2023 and $100 million of unsecured 7.65% Notes due in 2023. The proceeds from these issues were used for general corporate purposes, including the repayment of certain debt at maturity. In addition, in 1993, CIGNA issued $27 million in medium-term notes. As of December 31, 1993, CIGNA had approximately $950 million remaining under effective shelf registration statements filed with the Securities and Exchange Commission that may be issued as debt and equity securities, depending upon market conditions and CIGNA's capital requirements. In January 1994, CIGNA issued $100 million of unsecured 6-3/8% Notes due in 2006 under one of the shelf registration statements. In 1992, CIGNA issued $100 million of unsecured 8-1/4% Notes due in 2007 and $11 million of medium-term notes. In 1991, CIGNA repurchased substantially all of its 13% Sterling Foreign Currency Loan Stock due in 2008, with an outstanding principal balance of $53 million at the time of repurchase. The repurchase resulted in a loss of $6 million; the after-tax effect of $4 million has been reflected in CIGNA's net income as an extraordinary loss. The 8.2% Convertible Subordinated Debentures are subject to sinking fund provisions and are convertible into CIGNA common stock at the rate of .7326 shares for each $50 of principal. Maturities of long-term debt for each of the next five years are as follows: 1994 -- $47 million; 1995 -- $5 million; 1996 -- $160 million; 1997 -- $43 million; 1998 -- $85 million. Interest expense was $124 million, $100 million and $106 million in 1993, 1992 and 1991, respectively. NOTE 6 - COMMON AND PREFERRED STOCK
- ------------------------------------------------------------ (Shares in thousands) 1993 1992 1991 - ------------------------------------------------------------ Common: Par value $1 200,000 shares authorized Outstanding--January 1 71,720 71,563 71,313 Issued for stock option and benefit plans 295 157 250 --- --- --- Outstanding--December 31 72,015 71,720 71,563 Treasury shares 10,615 10,612 10,516 - ------------------------------------------------------------ Issued--December 31 82,630 82,332 82,079 - ----------------------------------==========================
Stock issued under benefit plans resulted in increases in Additional Paid-in Capital of $16 million in 1993 and $13 million in both 1992 and 1991. Such stock issuances also resulted in net increases in Treasury Stock of $8 million, $3 million and $8 million in 1993, 1992 and 1991, 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 40 29 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, 1993, 1992 and 1991. NOTE 7 - 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. The amounts of statutory net income (loss) for the year ended, and surplus as of, December 31 were as follows:
- ------------------------------------------------------------ (In millions) 1993 1992 1991 - ------------------------------------------------------------ Life Insurance Companies: Net income $ 668 $ 512 $ 588 Surplus 2,920 2,460 2,258 Property and Casualty Insurance Companies: Net loss $ (428) $ (132) $ (15) Surplus 1,285 1,320 1,898 - ------------------------------------------------------------
As a result of property and casualty underwriting losses, CIGNA contributed $150 million of capital in 1993 to enhance the capital base of the domestic property and casualty operations. Also during 1993, management expanded the use of discounting for certain statutory loss reserves and modified the assumptions used to discount other reserves, in accordance with state insurance regulations, which increased statutory surplus by approximately $290 million. Additional capital contributions may be needed as a result of continued property and casualty losses; however, such amounts are not reasonably estimable at this time. CIGNA's insurance subsidiaries are subject to various regulatory restrictions that limit the maximum amount of annual dividends or other distributions, including 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 1994 without prior approval is approximately $900 million. The amount of restricted net assets as of December 31, 1993 is approximately $5.7 billion. NOTE 8 - INCOME TAXES In accordance with SFAS No. 109, CIGNA adopted the liability method of accounting for income taxes as discussed in Note 1. In conjunction with the implementation of SFAS No. 109, CIGNA increased its net deferred tax asset by $1.0 billion to $1.4 billion as of January 1, 1992. As of December 31, 1993 and 1992 the net deferred tax asset was $1.7 billion. Management believes, based on CIGNA's earnings history and its future expectations, that CIGNA's taxable income in future years will be sufficient to realize the net deferred tax asset. 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. The deferred tax asset was net of valuation allowances of $53 million and $82 million as of December 31, 1993 and 1992, 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 are made if there is a change in management's assessment of the amount of the deferred tax asset that is realizable. During 1993, the valuation allowance was decreased by $29 million and during 1992 it increased by $44 million, to reflect management's assessment of changes related to certain foreign operations. Deferred taxes of $165 million for unrealized appreciation on investments established with the adoption of SFAS No. 109 at January 1, 1992 were included in the cumulative effect adjustment. Included in 1993 and 1992 deferred income taxes were benefits of $63 million and $59 million, respectively, attributable to unrealized appreciation on individual securities held as of January 1, 1992 and sold during the respective years. Deferred tax benefits of $43 million will be recognized in future years as securities held as of January 1, 1992 are sold. As of December 31, 1993 and 1992, the net deferred tax asset included a benefit of $97 million and $87 million, respectively, resulting from tax basis net operating loss carryforwards of $278 million and $256 million, respectively. Subject to statutory limitations, these carryforwards are available to offset taxable income through the year 2008. Income for 1991 includes a benefit of $48 million for taxes recoverable associated with Section 847 of the Internal Revenue Code (Section 847). For 1993 and 1992, Section 847 benefits have not been recognized in accordance with SFAS No. 109. 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. 41 30 The balance in the account of approximately $450 million at December 31, 1993 would result in a tax liability of $158 million (at a 35% rate), 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 substantially completed audits of the years 1982 through 1988 and has proposed an adjustment which could result in an assessment of approximately $205 million for those years. CIGNA is currently contesting in court the issue giving rise to such proposed adjustment and, although the outcome is uncertain, management believes that CIGNA should prevail. CIGNA resolved all other issues, other than the contested issue, arising out of the audits for 1982 through 1988, which resulted in an increase to net income of $182 million for 1992 and $3 million for 1993. 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) 1993 1992 - ------------------------------------------------------------ Deferred tax assets: Loss reserve discounting $ 716 $ 645 Other insurance and contractholder liabilities 870 554 Employee and retiree benefit plans 384 355 Investments, net 126 156 Operating loss carryforwards 97 87 Bad debt expense 62 45 Other 351 330 --- --- Deferred tax assets before valuation allowance 2,606 2,172 Valuation allowance for deferred tax assets (53) (82) --- --- Deferred tax assets, net of valuation allowance 2,553 2,090 ----- ----- Deferred tax liabilities: Policy acquisition expenses 71 136 Depreciation 117 114 Unrealized appreciation on investments 584 117 Other 78 3 ----- ----- Total deferred tax liabilities 850 370 - ------------------------------------------------------------ Deferred income taxes, net $ 1,703 $ 1,720 - --------------------------------------------================
The components of income tax expense for each year were as follows:
- ------------------------------------------------------------ (In millions) 1993 1992 1991 - ------------------------------------------------------------ Current Taxes: U.S. income $ 373 $ 121 $ 178 Foreign income 40 15 37 ---- ---- ---- 413 136 215 ---- ---- ---- Deferred Taxes (Benefits): U.S. income (499) (296) (74) Foreign income 17 2 (10) ----- ----- ----- (482) (294) (84) - ------------------------------------------------------------ Total income tax expense (benefit) $ (69) $ (158) $ 131 - -----------------------------------=========================
As a result of the Omnibus Budget Reconciliation Act of 1993 (OBRA), the federal corporate income tax rate increased by one percent to 35% retroactive to January 1, 1993. Deferred tax benefits for 1993 included $48 million related to an increase in CIGNA's net deferred tax asset as of January 1, 1993 due to the effect of the tax rate increase. Total income tax expense was less than the amount computed using the nominal federal income tax rate for the following reasons:
- ------------------------------------------------------------ (In millions) 1993 1992 1991 - ------------------------------------------------------------ Tax expense at nominal rate (35% for 1993, 34% for 1992 and 1991) $ 58 $ 61 $ 198 Tax-exempt interest income (45) (45) (45) Dividends received deduction (14) (14) (14) Fresh start adjustment -- -- (39) Amortization of goodwill 43 34 17 Interest on provisions 9 10 20 Resolved federal tax audit issues (3) (182) -- Other foreign 24 -- -- Valuation allowance (29) 44 -- Realized investment gains (63) (59) -- Federal tax rate change (48) -- -- Other (1) (7) (6) - ------------------------------------------------------------ Total income tax expense (benefits) $ (69) $ (158) $ 131 - -----------------------------------=========================
Temporary and other differences which resulted in the deferred tax benefit for the year ended December 31 were as follows:
- ------------------------------------------------------------ (In millions) 1993 1992 - ------------------------------------------------------------ Operating loss carryforwards $ (10) $ (87) Loss reserve discounting (71) 12 Other insurance and contractholder liabilities (316) (131) Realized investment gains (63) (59) Policy acquisition expenses (65) (51) Investments, net 36 (42) Other foreign 24 -- Valuation allowance (29) 44 Other 12 20 - ------------------------------------------------------------ Deferred tax benefit $ (482) $ (294) - ---------------------------------------------===============
42 31 During 1991, deferred income taxes were provided for significant timing differences in the recognition of revenues and expenses for tax and financial statement purposes, as follows:
- ------------------------------------------------------------ (In millions) 1991 - ------------------------------------------------------------ Utilization of tax loss carryforwards $ 98 Loss reserve discounting (66) Unearned premium reserve (6) Other property and casualty underwriting (54) Policy acquisition expenses 13 Benefit and other reserves 9 Bonds/mortgages (5) Depreciation 8 Foreign subsidiary losses (41) Investments, net (28) Other (12) - ------------------------------------------------------------ Total $ (84) - -------------------------------------------------------=====
NOTE 9 - 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 single integrated plan (the Plan) covering most domestic employees 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. Components of net pension cost for the year ended December 31 were as follows:
- ------------------------------------------------------------ (In millions) 1993 1992 1991 - ------------------------------------------------------------ Service cost--benefits earned during the year $94 $83 $82 Interest accrued on projected benefit obligation 138 122 119 Actual return on assets (194) (64) (245) Net amortization and deferral 55 (73) 119 - ------------------------------------------------------------ Net pension cost $93 $68 $75 - --------------------------------------======================
The following table summarizes the status as of December 31 of pension plans for which assets exceeded accumulated benefit obligations:
- -------------------------------------------------------------- (In millions) 1993 1992 - -------------------------------------------------------------- Actuarial present value of benefit obligations: Vested benefit obligation $ (1,533) $ (1,326) --------- -------- Accumulated benefit obligation $ (1,570) $ (1,362) --------- -------- Pension liability included in Other Liabilities: Projected benefit obligation $ (2,028) $ (1,837) Plan assets at fair value 1,752 1,571 --------- -------- Plan assets less than projected benefit obligation (276) (266) Unrecognized net loss from past experience 298 301 Unrecognized prior service cost 54 58 Unamortized SFAS 87 transition asset (79) (90) - --------------------------------------------------------------- Pension asset (liability) $ (3) $ 3 - -----------------------------------------======================
At December 31, 1993 and 1992, plans under which accumulated benefits exceeded assets had projected benefit obligations of $143 million and $130 million and related assets at fair value of $27 million and $24 million, respectively. The accumulated benefit obligation as of December 31, 1993 and 1992 related to these plans was $115 million and $105 million, respectively. The pension liability included in Other Liabilities related to these plans was $94 million and $84 million, respectively. Determination of the projected benefit obligation was based on an assumed discount rate of 7.1% and 7.3% for 1993 and 1992, respectively. The assumed long-term rate of compensation increase was 4.7% and 5.2% for 1993 and 1992, respectively. The assumed long-term rate of return on assets was 9% for 1993 and 1992. 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 1.1 million shares of CIGNA common stock with a market value of $69 million and $65 million at December 31, 1993 and 1992, 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 43 32 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. As of January 1, 1992, the health care benefit plans required nominal contributions by retirees. In August 1992, CIGNA amended its plans effective January 1, 1993, whereby CIGNA's contributions for health care benefits will depend upon a retiree's date of retirement, age and years of service. In addition, the plan amendments increased the level of other cost-sharing features, such as deductibles and coinsurance. The effect of the plan amendments was to reduce the accumulated benefit obligation by approximately $195 million. The reduction of the liability is being amortized into income over the average remaining employee service period, approximately 19 years. Under the terms of the benefit plans, benefit provisions and cost-sharing features can continue to 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. Effective January 1, 1992, CIGNA adopted SFAS No. 106 for its domestic postretirement benefit plans (See Note 1). SFAS No. 106 does not provide for the restatement of previously presented financial information. Therefore, expense for 1991 of $25 million, which generally reflects other postretirement benefit costs when paid, is not comparable with the 1993 and 1992 amounts. Components of net periodic other postretirement benefit cost for the year ended December 31 were as follows:
- ------------------------------------------------------------ (In millions) 1993 1992 - ------------------------------------------------------------ Service cost--benefits earned during the year $ 27 $ 24 Interest accrued on benefit obligation 47 58 Actual return on assets (5) (4) Net amortization and deferral (9) (4) - ------------------------------------------------------------ Net other postretirement benefit cost $ 60 $ 74 - -----------------------------------------------=============
Under SFAS No. 106, 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) 1993 1992 - ------------------------------------------------------------ Actuarial present value of benefit obligations: Retirees $ (397) $ (492) Other fully eligible plan participants (58) (54) Other active plan participants (269) (194) ---- ---- Total accumulated benefit obligations (724) (740) Plan assets at fair value 49 44 ---- ---- Plan assets less than accumulated benefit obligations (675) (696) Unrecognized prior service cost (185) (189) Unrecognized net (gain) loss from past experience (9) 51 - ------------------------------------------------------------ Other postretirement benefit liability $ (869) $ (834) - --------------------------------------------================
At December 31, 1993 and 1992, plan assets funded retiree life insurance plans with accumulated benefit obligations of $113 million and $117 million and were invested in the general account assets of CGLIC with an expected long-term rate of return of 7% for both 1993 and 1992. Determination of the accumulated other postretirement benefit obligations for 1993 and 1992 was based on an assumed discount rate of 7.1% and 7.3% and a long-term rate of compensation increase of 4.7% and 5.2%. The assumed rate of future increases in per capita cost of health care benefits (the health care cost trend rate) was 14.6% decreasing ratably to 5.5% over nine years, which reflects CIGNA's current claim experience and management's expectation 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 $110 million and the annual service and interest cost by $15 million, before taxes. Gains and losses that occur because actual experience differs from that assumed are amortized over the average future service period of employees. 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. Those plans are unfunded and noncontributory, except for the life insurance and health care 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 1 for additional information regarding implementation of SFAS No. 112. D) CAPITAL ACCUMULATION PLANS: CIGNA sponsors various capital accumulation plans in which employee contributions on a before-tax basis (401(k)) are supplemented by CIGNA matching contributions. Contributions are invested, at the election of the employee, in CIGNA common stock, non-CIGNA stock portfolios and a fixed-income fund. CIGNA's expense for such plans totaled $33 million for both 1993 and 1992, and $32 million for 1991. 44 33 NOTE 10 - EMPLOYEE INCENTIVE PLANS The People Resources Committee of the Board of Directors can award to certain 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, 1993, 1992 and 1991, stock available for award aggregated 3,020,098 shares, 3,365,402 shares and 3,836,160 shares, respectively. The decline in 1992 is partly due to the expiration of a plan. Grants of restricted shares of CIGNA common stock during 1993, 1992 and 1991 totaled 164,994 shares, 182,228 shares and 238,799 shares, respectively. Restricted stock grants of 580,989 shares for 929 employees were outstanding at December 31, 1993. Options to purchase CIGNA common stock are awarded at market price on the date of grant. Non-qualified stock options expire 10 years after the date of grant. 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:
- ------------------------------------------------------------ 1993 1992 1991 - ------------------------------------------------------------ Outstanding at January 1 776,617 744,727 845,857 Granted 183,550 238,650 -- Expired or canceled (25,895) (109,963) (72,742) Exercised (188,658) (96,797) (28,388) - ------------------------------------------------------------ Outstanding at December 31 745,614 776,617 744,727 - --------------------------------============================ Average exercise price of options exercised $ 49.45 $ 47.82 $ 46.73 - --------------------------------============================
All outstanding options were exercisable except for 269,280 and 228,810 at December 31, 1993 and 1992, respectively. As of December 31, 1993, the exercise price for options outstanding (covering 745,614 shares of common stock held by 677 individuals) ranged from $43.44 to $73.88. NOTE 11 - EARNINGS PER SHARE Earnings per share were based on income before extraordinary item and cumulative effect of accounting changes, and net income amounts divided by weighted average common shares, including common share equivalents, of 72.0 million, 71.7 million and 71.5 million for 1993, 1992 and 1991, respectively. There was no significant difference between earnings per share on a primary and a fully diluted basis. NOTE 12 - 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 includes unallocated investment income, expenses and taxes. Also included in Other Operations are the results of CIGNA's settlement annuity business, non-insurance subsidiaries engaged primarily in investment and real estate activities, and the California personal automobile and homeowners insurance businesses that CIGNA retained from the 1989 sale of the Horace Mann insurance companies and sold to Horace Mann in January 1994. Summarized financial information with respect to the business segments for the year ended and as of December 31 was as follows:
- ------------------------------------------------------------ (In millions) 1993 1992 1991 - ------------------------------------------------------------ REVENUES Property and Casualty: Domestic $ 3,275 $ 3,970 $ 4,342 International 2,365 2,277 2,196 Other, primarily reinsurance 688 728 749 ----- ----- ----- Total Property and Casualty 6,328 6,975 7,287 Employee Life and Health Benefits 8,392 8,021 7,983 Employee Retirement and Savings Benefits 2,111 2,148 2,179 Individual Financial Services 1,447 1,250 1,140 Other Operations 124 188 161 - ------------------------------------------------------------ Total $ 18,402 $ 18,582 $ 18,750 - ---------------------------------=========================== INCOME (LOSS) BEFORE INCOME TAXES, EXTRAORDINARY ITEM AND CUMULATIVE EFFECT OF ACCOUNTING CHANGES Property and Casualty: Domestic $ (884)$ (302)$ (45) International 4 (78) (80) Other, primarily reinsurance (82) (249) -- --- ---- --- Total Property and Casualty (962) (629) (125) Employee Life and Health Benefits 851 515 482 Employee Retirement and Savings Benefits 223 256 242 Individual Financial Services 164 108 117 Other Operations (111) (71) (132) - ------------------------------------------------------------ Total $ 165 $ 179 $ 584 - ---------------------------------=========================== IDENTIFIABLE ASSETS Property and Casualty: Domestic $ 16,968 $ 16,862 $ 16,754 International 6,192 5,148 5,146 Other, primarily reinsurance 3,309 3,462 2,997 ----- ----- ----- Total Property and Casualty 26,469 25,472 24,897 Employee Life and Health Benefits 11,398 10,058 9,398 Employee Retirement and Savings Benefits 34,384 32,654 31,777 Individual Financial Services 9,368 6,789 5,618 Other Operations 3,356 2,708 2,410 - ------------------------------------------------------------ Total $ 84,975 $ 77,681 $ 74,100 - ---------------------------------===========================
45 34 During 1993, CIGNA announced restructuring 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. Income (loss) before income taxes, extraordinary item and cumulative effect of accounting changes for 1993 reflects a pre-tax charge of $165 million for the estimated costs of these restructuring actions, of which $80 million and $70 million relate to Domestic and International Property and Casualty operations, respectively. The remaining $15 million relates to the Employee Life and Health Benefits segment. As discussed in Note 1, CIGNA implemented SFAS No. 115, which increased segment identifiable assets as of December 31, 1993 as follows: Property and Casualty, $370 million (primarily Domestic); Employee Life and Health Benefits, $90 million; Employee Retirement and Savings Benefits, $444 million; Individual Financial Services, $43 million; and Other Operations, $241 million. Also, as discussed in Note 1, CIGNA adopted new accounting pronouncements in 1992. Implementation resulted in a charge to income (loss) before income taxes, extraordinary item and cumulative effect of accounting changes in 1992 with respect to the business segments reported above as follows: Property and Casualty, $20 million (primarily Domestic); Employee Life and Health Benefits, $29 million; Employee Retirement and Savings Benefits, $4 million; and Individual Financial Services, $7 million. NOTE 13 - FOREIGN OPERATIONS CIGNA provides international property and casualty and life and health insurance coverages on a direct and reinsured basis, primarily in Canada, Europe, Japan, Latin America and the Pacific Rim. The change in Net Translation of Foreign Currencies reflects increases (decreases) of ($28) million (net of tax benefit of $7 million), ($73) million (net of tax benefit of $8 million) and $5 million (no net tax effect) for the years ended December 31, 1993, 1992 and 1991, respectively. Summary financial data of CIGNA's foreign operations for the year ended and as of December 31 were as follows:
- ------------------------------------------------------------ (In millions) 1993 1992 1991 - ------------------------------------------------------------ Revenues $ 2,821 $ 2,711 $ 2,680 Income (loss) before income taxes, extraordinary item and cumulative effect of accounting changes $ 40 $ (271) $ (75) Identifiable assets $ 8,941 $ 8,005 $ 7,449 - ------------------------------------------------------------
CIGNA's income (loss) before income taxes, extraordinary item and cumulative effect of accounting changes included aggregate foreign exchange transaction losses of $6 million, $5 million and $10 million in 1993, 1992 and 1991, respectively. NOTE 14 - 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, 1993 and 1992, approximately 9% and 6%, respectively, of reinsurance recoverables were due from certain syndicates affiliated with Lloyd's of London. The effects of reinsurance on net earned premiums and fees for the year ended December 31 were as follows:
- ------------------------------------------------------------ (In millions) 1993 1992 1991 - ------------------------------------------------------------ Premiums and Fees: Direct $ 13,128 $ 13,495 $ 13,946 Assumed 2,780 3,004 3,048 Ceded (2,196) (2,575) (2,699) - ------------------------------------------------------------ Net earned premiums and fees $ 13,712 $ 13,924 $ 14,295 - --------------------------------============================
The effects of reinsurance on written premiums and fees were not materially different from the amounts shown above. Benefits, losses and settlement expenses for 1993, 1992 and 1991 were net of reinsurance recoveries of $2.8 billion, $3.4 billion and $3.0 billion, respectively. Note 15 - LEASES AND RENTALS Rental expenses for operating leases, principally with respect to buildings, amounted to $284 million, $283 million and $308 million in 1993, 1992 and 1991, respectively. As of December 31, 1993, future net minimum rental payments under non-cancelable operating leases were approximately $1 billion, payable as follows: 1994 -- $172 million; 1995 -- $152 million; 1996 -- $136 million; 1997 -- $104 million; 1998 -- $82 million; and $359 million thereafter. 46 35 NOTE 16 - PROPERTY AND CASUALTY UNPAID CLAIMS AND CLAIM EXPENSE RESERVES As described in Note 1, CIGNA establishes loss reserves, which are estimates of future payments of reported and unreported claims for losses and the related expenses, with respect to insured events that have occurred. The process of establishing loss reserves is subject to uncertainties that are normal, recurring and inherent in the property and casualty business. The process requires reliance upon estimates based on available data that reflect past experience, current trends and other information, and the exercise of informed judgment. As information develops that varies from experience, provides additional data or, in some cases, augments data that previously were not considered sufficient for use in determining reserves, changes in CIGNA's estimate of ultimate liabilities may be required. The effects of these changes, net of reinsurance, are charged or credited to income for the periods in which they are determined. Charges to income for increases in the Property and Casualty segment's liability for insured events of prior years (prior year development) other than for asbestos-related, environmental pollution and other long-term exposure claims and charges for unrecoverable reinsurance, were $120 million, $355 million and $164 million for the years ended December 31, 1993, 1992 and 1991, respectively. The 1992 charges include $290 million ($62 million for unrecoverable reinsurance) for losses in the London reinsurance market arising from large catastrophes occurring in recent years. The charge resulted from an extensive review of CIGNA's London property and casualty reinsurance exposures. This review also related to obligations (reported in Other Liabilities) of a closed book of reinsurance business acquired in 1984, which resulted in a decrease in such liabilities of $150 million (reported as a reduction in Other Operating Expenses). Prior year development for asbestos-related, environmental pollution and other long-term exposure losses and charges for unrecoverable reinsurance in the aggregate were $669 million, $301 million and $177 million for the years ended December 31, 1993, 1992 and 1991, respectively. 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 $375 million 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. Reserving for asbestos-related, environmental pollution and certain other long-term exposure claims is subject to significant uncertainties that are not generally present for other types of claims. Developed case law and adequate claim history do not exist for such claims. CIGNA and the insurance industry dispute coverage for the environmental pollution and some asbestos-related liabilities of their policyholders. In addition to the coverage lawsuits, CIGNA shares in the expense of defending underlying litigation against its policyholders. The outcome of the coverage litigation will assist in the determination of amounts that might be paid in the future for similar claims. These claims differ from almost all others in that it is often not clear that an insurable event has occurred and which, if any, of multiple policy years and insurers may be liable. These uncertainties prevent identification of applicable policies and policy limits until after a claim is reported to CIGNA and substantial time is spent (many years in some cases), resolving contract issues and determining facts necessary to evaluate the claim. Estimating liabilities and recoveries for asbestos-related, environmental pollution and other long-term exposure claims that will be asserted under reinsurance policies is also subject to similar uncertainties as those affecting such claims under direct policies. CIGNA expects recoveries from ceded reinsurance to reduce its future losses, although the amount of recoveries cannot be reasonably estimated. Under current law, CIGNA expects asbestos-related, environmental pollution and other long-term exposure claims to continue to be reported for the foreseeable future. The claims to be paid, if any, and timing of any such payments, depend on resolution of the uncertainties associated with them, and could extend over several decades under current law. For asbestos-related claims, CIGNA carries reserves related to certain insurance policies issued for certain major asbestos manufacturers ("targets"), under which CIGNA expects to pay the full limits of liability. These reserves (including amounts for unreported claims) are equal to the policy limits of liability, minus payments made to date, plus an estimate of the associated future legal expenses, and were approximately $256 million and $272 million, before reinsurance, at December 31, 1993 and 1992, respectively. In addition, CIGNA establishes reserves for reported asbestos-related, environmental pollution and other long-term exposure claims as information permits and, during 1993, established reserves for future legal and associated expenses for such reported claims. Total reserves, including amounts attributable to targets, were $1.5 billion ($832 million, net of reinsurance) and $875 million ($394 million, net of reinsurance) at December 31, 1993 and 1992, respectively. Except for asbestos-related claims under the target policies discussed above, CIGNA does not establish reserves for unreported asbestos-related, environmental pollution or certain other long-term exposure claims or for future legal and associated expenses related to such unreported claims because of the uncertainties involved. CIGNA expects that its future results will continue to be adversely affected by losses and legal expenses for these types of claims. Because of the significant uncertainties involved as discussed above, and the likelihood that these uncertainties will not be resolved in the near future, CIGNA is unable to reasonably estimate the additional losses and expenses and therefore is unable to determine whether such amounts will be material to its future results of operations, liquidity or financial condition. In management's judgment, information currently available has been appropriately considered in estimating CIGNA's loss reserves. However, future changes in estimates of CIGNA's liability for insured events will adversely affect results in future periods, although such effects can not be reasonably estimated. 47 36 NOTE 17 - CONTINGENCIES FINANCIAL GUARANTEES CIGNA Corporation, 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 22 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, 1993 and 1992 was $323 million and $368 million, respectively. Revenues in connection with industrial revenue bond guarantees are derived principally from equity participations in the related projects and are included in Net Investment Income as earned. During 1992 and 1991, losses for industrial revenue bonds were $4 million and $6 million, respectively. There were no such losses in 1993. In addition, CIGNA is liable for guarantee business of $2.2 billion and $2.8 billion at December 31, 1993 and 1992, 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 40 years. The nature of this guarantee business is similar to the reinsurance transactions described in Note 14. 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. Other debt instruments guaranteed by CIGNA consist of commercial paper and any subsequent rollovers, as well as obligations of limited partnerships and other notes. Such insured obligations generally are guaranteed for periods of up to 22 years. The principal amount guaranteed was $16 million and $19 million at December 31, 1993 and 1992, respectively. 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, 1993 and 1992. 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 $3 million and $5 million at December 31, 1993 and 1992, 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, 1993 and 1992, the amount of minimum benefit guarantees for separate account contracts was $4.9 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. As of December 31, 1993, reserves of $6 million were recorded. Reserves were not required as of December 31, 1992. 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 financial condition. 48 37 REGULATORY AND INDUSTRY DEVELOPMENTS CIGNA's businesses are subject to a changing social, economic, legal, legislative and regulatory environment. Some of the changes include initiatives to restrict insurance pricing and the application of underwriting standards; to reform health care; to restrict investment practices; to expand regulation; and to reinterpret insurance contracts long after the policies were written to provide coverage unanticipated by CIGNA. Current proposals on national health care reform could significantly change the way health care is financed and delivered in the United States. CIGNA is not able to predict the outcome of any legislative or other changes resulting from health care reform and the effect on its business. The Federal Comprehensive Environmental Response, Compensation and Liability Act ("Superfund"), which was passed in 1980, is subject to re-authorization by Congress in 1994; any changes in Superfund's system of allocating responsibility or funding clean-up costs could affect the liability of policyholders and insurers. The proposals being considered by Congress to reform Superfund are in the early stages of development; therefore, CIGNA is not able to determine what effect, if any, such enacted reform would have on its future results. The National Association of Insurance Commissioners (NAIC) has developed model solvency-related guidelines ("risk-based capital" rules) to strengthen solvency regulation of insurance companies. Risk-based capital rules for the domestic life and property and casualty industries were finalized during 1992 and 1993, respectively. At December 31, 1993, CIGNA's life insurance and property and casualty insurance subsidiaries were adequately capitalized under the guidelines. However, as the guidelines for property and casualty become more stringent in the future and depending on the future results of the property and casualty operations, additional capital for the property and casualty subsidiaries may be necessary. Also, the NAIC is addressing risk-based capital guidelines for health maintenance organizations (HMOs) and a proposal that would limit the types and amounts of investment assets that an insurance company can hold. CIGNA cannot currently predict what effect, if any, such guidelines will have on its operations. Unfavorable economic conditions have contributed to an increase in the number of insurance companies that are impaired or insolvent. 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. Assessments against CIGNA's insurance subsidiaries were $28 million, $23 million and $32 million for 1993, 1992 and 1991, respectively, before giving effect to premium tax offsets. 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 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. A number of state attorneys general and private plaintiffs filed lawsuits against a number of insurance companies and others, including CIGNA, alleging violations of federal and state antitrust laws. These cases are currently being contested in court. While the outcome of litigation involving CIGNA cannot be determined, litigation (other than that related to asbestos-related, environmental pollution and other long-term exposure claims, which is discussed below), net of reserves and giving effect to reinsurance, is not expected to have a material effect on CIGNA. CIGNA is involved in lawsuits regarding policy coverage and judicial interpretation of legal liability for asbestos-related, environmental pollution and other long-term exposure claims. The lack of developed case law, as evidenced by the coverage lawsuits, is one of the significant uncertainties that affects CIGNA's ability to estimate future losses for these types of claims. Litigation involving asbestos-related, environmental pollution and other long-term exposure claims is discussed in Note 16. 49 38 REPORT OF INDEPENDENT ACCOUNTANTS PRICE WATERHOUSE [PRICE WATERHOUSE LOGO] THE BOARD OF DIRECTORS AND SHAREHOLDERS CIGNA CORPORATION FEBRUARY 14, 1994 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, 1993 and 1992, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 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. The Company implemented certain new accounting pronouncements as discussed in Note 1 to the consolidated financial statements. /S/ PRICE WATERHOUSE - ---------------------- PRICE WATERHOUSE Philadelphia, Pennsylvania 50 39 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, 1993 and 1992. 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 1993 * Total revenues $ 4,374 $ 4,563 $ 4,525 $ 4,940 Income (loss) before income taxes 40 122 (261) 264 Net income (loss) 46 88 (94) 194 Per share: Net income (loss) 0.64 1.22 (1.31) 2.70 1992 ** Total revenues $ 4,648 $ 4,652 $ 4,491 $ 4,791 Income (loss) before income taxes and cumulative effect of accounting changes 134 148 (142) 39 Income before cumulative effect of accounting changes 107 130 50 50 Net income 81 130 50 50 Per share: Income before cumulative effect of accounting changes 1.49 1.81 .70 .70 Net income 1.13 1.81 .70 .70 STOCK AND DIVIDEND DATA 1993 Price range of common stock $ 68-57-1/4 $63-1/2-56-7/8 $65-7/8-56-1/2 $68-3/8-61-5/8 Dividends declared per common share .76 .76 .76 .76 1992 Price range of common stock $60-7/8-50-1/2 $57-3/4-47-1/4 $57-1/4-47-1/8 $59-7/8-49-3/4 Dividends declared per common share .76 .76 .76 .76 - -----------------------------------------------------------------------------------------------------------------------------
* The third quarter of 1993 reflects a $244 million after-tax charge for future legal and associated expenses for reported claims related to asbestos-related, environmental pollution and other long-term exposures, and $107 million in after-tax restructuring charges. In addition, third quarter 1993 reflects a benefit of $48 million relating to the effect of the federal income tax rate change on CIGNA's net deferred tax asset. ** The third quarter of 1992 reflects a net after-tax charge of $140 million related to a review of CIGNA's London property and casualty reinsurance exposures. Also in the third quarter of 1992, net income was increased by $182 million, reflecting a reduction in income tax expense from federal tax audits of CIGNA. 51 40 FINANCIAL INFORMATION If you would like a copy of the Form 10-K, to be filed by March 31, 1994 with the Securities and Exchange Commission, please contact: CIGNA Corporation Shareholder Services Department Two Liberty Place 1601 Chestnut Street P.O. Box 7716 Philadelphia, PA 19192-2378 (215) 761-3516 STOCK LISTING CIGNA's common shares are listed on the New York, Pacific and Philadelphia Stock exchanges. The ticker symbol is CI. EX-21 23 SUBSIDIARIES OF THE REGISTRANT 1 EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT Listed below are subsidiaries of CIGNA Corporation as of December 31, 1993 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. CIGNA Investment Group, Inc. (Delaware) A. CIGNA International Finance Inc. (Delaware) (1) CIGNA International Investment Advisors, Ltd. (Delaware) (a) CIGNA Fund Managers Limited (Bermuda) (b) CIGNA International Investment Advisors Australia Limited (Australia) (c) CIGNA International Investment Advisors K.K. (Japan) B. CIGNA Investment Advisory Company, Inc. (Delaware) C. CIGNA Investments, Inc. (Delaware) (1) CIGNA Advisory Partners, Inc. (Delaware) (2) CIGNA Financial Futures, Inc. (Delaware) (3) CIGNA Funding Limited Partnership (Delaware) (87.625%) (4) CIGNA Leveraged Capital Fund, Inc. (Delaware) (5) CIGNA Mezzanine Partners III, Inc. D. CIGNA Mezzanine Capital, Inc. (Delaware) E. Philadelphia Investment Corporation of Delaware (Delaware) II. Connecticut General Corporation (Connecticut) A. CG Trust Company (Illinois) B. CIGNA Associates, Inc. (Connecticut) C. CIGNA Dental Health, Inc. (Florida) (1) CIGNA Dental Health of California, Inc. (California) (2) CIGNA Dental Health of Colorado, Inc. (Colorado) (3) CIGNA Dental Health of Delaware, Inc. (Delaware) (4) CIGNA Dental Health of Florida, Inc. (Florida) (5) CIGNA Dental Health of Illinois, Inc. (Illinois) (6) CIGNA Dental Health of Kansas, Inc. (Kansas) (7) CIGNA Dental Health of Kentucky, Inc. (Kentucky) (8) CIGNA Dental Health of Maryland, Inc. (Delaware) (9) CIGNA Dental Health of New Jersey, Inc. (New Jersey) (10) CIGNA Dental Health of New Mexico, Inc. (New Mexico) (11) CIGNA Dental Health of North Carolina, Inc. (North Carolina) (12) CIGNA Dental Health of Ohio, Inc. (Ohio) (13) CIGNA Dental Health of Pennsylvania, Inc. (Pennsylvania) (14) CIGNA Dental Health of Texas, Inc. (Texas) D. CIGNA Financial Partners, Inc. (Connecticut) E. CIGNA Health Corporation (Delaware) (1) CIGNA HealthCare, Inc. (Delaware) (a) CIGNA HealthCare Mid-Atlantic, Inc. (Maryland) (b) CIGNA HealthCare of Arizona, Inc. (Arizona) (c) CIGNA HealthCare of California, Inc. (California) (i) Ross-Loos Healthplan of California, Inc. (California) (d) CIGNA HealthCare of Colorado, Inc. (Colorado) (e) CIGNA HealthCare of Connecticut, Inc. (Connecticut) (f) CIGNA HealthCare of Delaware, Inc. (Delaware)
2 (g) CIGNA HealthCare of Florida, Inc. (Florida) (h) CIGNA HealthCare of Georgia, Inc. (Georgia) (i) CIGNA HealthCare of Illinois, Inc. (Delaware) (99.6%) (j) CIGNA HealthCare of Kansas/Missouri, Inc. (Kansas) (k) CIGNA Healthplan of Louisiana, Inc. (Louisiana) (l) CIGNA HealthCare of Massachusetts, Inc. (Massachusetts) (m) CIGNA HealthCare of New Jersey, Inc. (New Jersey) (n) CIGNA HealthCare of North Carolina, Inc. (North Carolina) (o) CIGNA HealthCare of North Louisiana, Inc. (Louisiana) (p) CIGNA HealthCare of Northern New Jersey, Inc. (New Jersey) (q) CIGNA HealthCare of Ohio, Inc. (Ohio) (r) CIGNA HealthCare of Oklahoma, Inc. (Oklahoma) (s) CIGNA HealthCare of Pennsylvania, Inc. (Pennsylvania) (t) CIGNA HealthCare of South Florida, Inc. (Florida) (u) CIGNA HealthCare of St. Louis, Inc. (Missouri) (v) CIGNA HealthCare of Tennessee, Inc. (Tennessee) (w) CIGNA HealthCare of Texas, Inc. (Texas) (x) CIGNA HealthCare of Utah, Inc. (Utah) (y) CIGNA HealthCare of Virginia, Inc. (Virginia) (z) CIGNA HealthCare of Washington, Inc. (Washington) (aa) Lovelace Health Systems, Inc. (New Mexico) (bb) Ross-Loos Hospital, Inc. (California) (cc) Temple Insurance Company Limited (Bermuda) (dd) Total Health Systems, Inc. (New York) (i) CIGNA HealthCare of New York, Inc. (New York) (ii) Total Health of New Jersey, Inc. (Delaware) F. CIGNA RE Corporation (Delaware) G. CIGNA Financial Advisors, Inc. (Connecticut) H. Connecticut General Life Insurance Company (Connecticut) (1) Capitol Outdoor Acquisition Co., Inc. (Delaware) (2) CIGNA Life Insurance Company (Connecticut) (3) First EQUICOR Life Insurance Company (California) (4) ICO, INC. (Delaware) (5) Quebec Street Investments, Inc. (Delaware) I. Connecticut General Pension Services, Inc. (Connecticut) J. INA Life Insurance Company of New York (New York) K. International Rehabilitation Associates, Inc. (Delaware) L. Life Insurance Company of North America (Pennsylvania) (1) AIC Holdings, Inc. (California) (a) Allegiance Insurance Company (California) (2) CIGNA Direct Marketing Company, Inc. (Delaware) (3) CIGNA Life Insurance Company of Canada (Canada) (4) CIGNA Road & Travel Club, Inc. (Texas) (5) INA Life Insurance Co., Ltd. (Japan) (90%) M. MCC Behavioral Care, Inc. (Minnesota) (1) MCC Managed Behavioral Care of California, Inc. (California) N. Trilog, Inc. (Pennsylvania) O. Tel-Drug, Inc. (South Dakota) III. INA Corporation (Pennsylvania) A. INA Financial Corporation (Delaware) (1) Allied Insurance Company (California) (2) CIGNA International Holdings, Ltd. (Delaware) (a) Afia Finance Corporation (Delaware)
3 (i) CIGNA Reinsurance New Zealand Limited (New Zealand) (ii) Delaware Reinsurance Company (Delaware) (100% of Common Stock with 100% of Preferred Stock owned by other CIGNA subsidiary) (b) CIGNA Brasil Empreendimentos Ltda. (Brazil) (i) CIGNA Seguradora S.A. (Brazil) (85.8% with 13.792% owned by other CIGNA subsidiaries) (c) CIGNA Compania de Seguros (Chile) S.A. (Chile) (99.06%) (d) CIGNA G.B. Holdings, Ltd. (Delaware) (i) CIGNA Reinsurance Company (UK) Limited (United Kingdom) (ii) Insurance Company of North America (U.K.) Limited (United Kingdom) (e) CIGNA Insurance Australia Limited (Australia) (i) CIGNA Life Insurance Australia Limited (Australia) (f) CIGNA Insurance Company (Hellas) S.A. (Greece) (99.58% with balance owned by other CIGNA subsidiary) (g) CIGNA Insurance Company of Puerto Rico (Puerto Rico) (h) CIGNA Insurance New Zealand Limited (New Zealand) (i) CIGNA Life Insurance New Zealand Limited (New Zealand) (i) CIGNA International Reinsurance Company Ltd. (Bermuda) (i) CIGNA Insurance Company of Europe S.A.-N.V. (Belgium) (A) CIGNA Life Insurance Company of Europe S.A.-N.V. (Belgium) (B) CIGNA SICAV I (France) (99.97% with balance owned by other CIGNA subsidiary) (j) CIGNA Overseas Finance N.V. (Netherlands Antilles) (k) CIGNA Worldwide, Incorporated (Delaware) (l) Delpanama S.A. (Panama) (i) CIGNA Compania de Seguros de Panama S.A. (Panama) (m) Inversiones INA Limitiada (Chile) (98.805% with balance owned by other CIGNA subsidiary) (i) Administradora de Fondes de Pensiones Qualitas S.A. (Chile) (99.9% with balance owned by other CIGNA subsidiary) (ii) CIGNA Salud Isapre S.A. (Chile) (99.994% with balance owned by other CIGNA subsidiary) (iii) CIGNA Compania de Seguros de Vida (Chile) S.A. (Chile) (97.277%) (n) LATINA Holdings, Ltd. (Delaware) (i) CIGNA Seguros de Columbia S.A. (Columbia) (86.918% with 12.924% owned by other CIGNA subsidiaries) (ii) Colina Insurance Company Limited (Bahamas) (iii) Empresa Guatemalteca CIGNA de Seguros, Sociedad Anonima (Guatemala) (o) Seguros CIGNA, S.A. (Mexico) (49%) (3) CIGNA Property and Casualty Insurance Company (Connecticut) (a) AFIA (CIGNA) Corporation, Limited (Delaware) (b) ALIC, Incorporated (Texas) (Management Company and Attorney-In-Fact) (i) CIGNA Lloyds Insurance Company (A sponsored Lloyds association) (Texas) (c) Century Indemnity Company (Connecticut) (d) Century Reinsurance Company (Delaware) (e) CIGNA Fire Underwriters Insurance Company (Connecticut) (f) CIGNA Insurance Company (California) (i) Pacific Employers Insurance Company (California) (A) CIGNA Insurance Company of Texas (Texas) (B) Illinois Union Insurance Company (Illinois)
4 (g) CIGNA Insurance Company of the Midwest (Indiana) (h) CIGNA Real Estate, Inc. (Delaware) (i) Congen Properties, Inc. (Delaware) (i) Connecticut General Fire and Casualty Insurance Company (Connecticut) (4) CIGNA Reinsurance Company (Delaware) (a) Bankers Standard Insurance Company (Florida) (i) Bankers Standard Fire and Marine Company (Texas) (b) CIGNA Worldwide Insurance Company (Delaware) (i) CIGNA Reinsurance Company S.A.-N.V. (Belgium) (5) Cravens, Dargan & Company, Pacific Coast (Delaware) (6) ESIS, Inc. (California) (7) ESIS International, Inc. (Delaware) (8) INAC Corp. (Delaware) (9) INAC Corp. of California (California) (10) Insurance Company of North America (Pennsylvania) (a) AFIA (INA) Corporation, Limited (Delaware) (i) AFIA (Unincorporated Association) (60% with balance owned by AFIA (CIGNA) Corporation, Limited) (b) Atlantic Employers Insurance Company (New Jersey) (c) CIGNA Employers Insurance Company (Delaware) (d) CIGNA Insurance Company of Ohio (Ohio) (e) Coast to Coast Corporation (Texas) (i) INA County Mutual Insurance Company (Managed Mutual Insurer) (Texas) (f) INACAN Holdings Ltd. (Canada) (i) CIGNA Insurance Company of Canada (Ontario) (g) Indemnity Insurance Company of North America (New York) (i) Alaska Pacific Assurance Company (Alaska) (ii) California Union Insurance Company (California) (iii) CIGNA Insurance Company of Illinois (Illinois) (11) MarketDyne International, Inc. (Delaware) (12) Montgomery and Collins, Inc. (California) (sold to non-affiliate in January 1994) (a) CIGNA Excess and Surplus Insurance Services, Inc. (California) (As of January 1994, a subsidiary of INA Financial Corporation (IV.A.)) (b) Railroad Insurance Brokers, Inc. (California) (As of January 1994, a subsidiary of INA Financial Corporation (IV.A.)) (13) Recovery Services International, Inc. (Delaware) (14) Trans Asian Insurance Services, Inc. (California)
EX-23 24 CONSENT OF INDEPENDENT ACCOUNTANTS 1 EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (No. 2-77343, No. 2-91972, No. 2-97899, No. 2-98673, No. 33-39269 and No. 33-65396) and Form S-8 (No. 2-76445, No. 2-76444, No. 33-44371 and No. 33-51791) of CIGNA Corporation, of our report dated February 14, 1994 appearing on Page 50 of the 1993 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 Philadelphia, Pennsylvania March 25, 1994 EX-24.1 25 POWERS OF ATTORNEY 1 POWER OF ATTORNEY NOW ALL MEN 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 1933 or the Securities Exchange Act of 1934, both as amended, of: (i) CIGNA's Annual Report on Form 10-K and all amendments thereto (collectively, "CIGNA's Form 10-K"); (ii) any and all registration statements pertaining to employee benefit or director compensation plans of CIGNA or its subsidiaries or pertaining to the secondary offering of CIGNA securities by its officers and directors, and all amendments thereto, including, without limitation, amendments to CIGNA's registration statements on Form S-8 (Registration Numbers 2-76444, 2-76445, 33-51791 and 33-44371), 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; (v) all amendments to CIGNA's registration statement on Form S-3 (Registration Number 2-77343) pertaining to an offering of CIGNA Common Stock; and (vi) all amendments to CIGNA's registration statement on Form S-3 (Registration Number 2-98673) relating to put options; and (B) in connection with the preparation, delivery and filing of any and all registrations, amendments, qualifications or notifications under the applicable securities laws of any and all states and other jurisdictions with respect to securities of CIGNA, of whatever class or series, offered, sold, issued, distributed, placed or resold by CIGNA, any of its subsidiaries, or any other person or entity. Such attorneys-in-fact and agents, or any of them, are also hereby granted full power and authority, on behalf of and in the name, place and stead of the undersigned, to execute and deliver all such registration statements, registrations, amendments, qualifications and notifications, and CIGNA's Form 10-K, to execute and deliver any and all such other documents, and to take further action as they, or any of them, deem appropriate. The powers and authorities granted herein to such attorneys-in-fact and agents, and each of them, also include the full right, power and authority to effect necessary or appropriate substitutions or revocations. The undersigned hereby ratifies, confirms, and adopts, as his own act and deed, all action lawfully taken by such attorneys-in-fact and agents, or any of them, or by their respective substitutes, pursuant to the powers and authorities herein granted. This Power of Attorney expires by its terms and shall be of no further force and effect on May 15, 1995. IN WITNESS WHEREOF, the undersigned has executed this document as of the 23rd day of February, 1994. /s/ WILSON H. TAYLOR Wilson H. Taylor 2 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a director of CIGNA Corporation, a Delaware corporation ("CIGNA"), hereby makes, designates, constitutes and appoints THOMAS J. WAGNER, CAROL J. WARD and ROBERT A. LUKENS, and each of them (with full power to act without the other), as the undersigned's true and lawful attorneys-in-fact and agents, with full power and authority to act in any and all capacities for and in the name, place and stead of the undersigned (A) in connection with the filing with the Securities and Exchange Commission pursuant to the Securities Act of 1933 or the Securities Exchange Act of 1934, both as amended, of: (i) CIGNA's Annual Report on Form 10-K and all amendments thereto (collectively, "CIGNA's Form 10-K"); (ii) any and all registration statements pertaining to employee benefit or director compensation plans of CIGNA or its subsidiaries or pertaining to the secondary offering of CIGNA securities by its officers and directors, and all amendments thereto, including, without limitation, amendments to CIGNA's registration statements on Form S-8 (Registration Numbers 2-76444, 2-76445, 33-51791 and 33-44371), 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; (v) all amendments to CIGNA's registration statement on Form S-3 (Registration Number 2-77343) pertaining to an offering of CIGNA Common Stock; and (vi) all amendments to CIGNA's registration statement on Form S-3 (Registration Number 2-98673) relating to put options; and (B) in connection with the preparation, delivery and filing of any and all registrations, amendments, qualifications or notifications under the applicable securities laws of any and all states and other jurisdictions with respect to securities of CIGNA, of whatever class or series, offered, sold, issued, distributed, placed or resold by CIGNA, any of its subsidiaries, or any other person or entity. Such attorneys-in-fact and agents, or any of them, are also hereby granted full power and authority, on behalf of and in the name, place and stead of the undersigned, to execute and deliver all such registration statements, registrations, amendments, qualifications and notifications, and CIGNA's Form 10-K, to execute and deliver any and all such other documents, and to take further action as they, or any of them, deem appropriate. The powers and authorities granted herein to such attorneys-in-fact and agents, and each of them, also include the full right, power and authority to effect necessary or appropriate substitutions or revocations. The undersigned hereby ratifies, confirms, and adopts, as his own act and deed, all action lawfully taken by such attorneys-in-fact and agents, or any of them, or by their respective substitutes, pursuant to the powers and authorities herein granted. This Power of Attorney expires by its terms and shall be of no further force and effect on May 15, 1995. IN WITNESS WHEREOF, the undersigned has executed this document as of the 23rd day of February, 1994. /s/ ROBERT P. BAUMAN Robert P. Bauman 3 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a director of CIGNA Corporation, a Delaware corporation ("CIGNA"), hereby makes, designates, constitutes and appoints THOMAS J. WAGNER, CAROL J. WARD and ROBERT A. LUKENS, and each of them (with full power to act without the other), as the undersigned's true and lawful attorneys-in-fact and agents, with full power and authority to act in any and all capacities for and in the name, place and stead of the undersigned (A) in connection with the filing with the Securities and Exchange Commission pursuant to the Securities Act of 1933 or the Securities Exchange Act of 1934, both as amended, of: (i) CIGNA's Annual Report on Form 10-K and all amendments thereto (collectively, "CIGNA's Form 10-K"); (ii) any and all registration statements pertaining to employee benefit or director compensation plans of CIGNA or its subsidiaries or pertaining to the secondary offering of CIGNA securities by its officers and directors, and all amendments thereto, including, without limitation, amendments to CIGNA's registration statements on Form S-8 (Registration Numbers 2-76444, 2-76445, 33-51791 and 33-44371), 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; (v) all amendments to CIGNA's registration statement on Form S-3 (Registration Number 2-77343) pertaining to an offering of CIGNA Common Stock; and (vi) all amendments to CIGNA's registration statement on Form S-3 (Registration Number 2-98673) relating to put options; and (B) in connection with the preparation, delivery and filing of any and all registrations, amendments, qualifications or notifications under the applicable securities laws of any and all states and other jurisdictions with respect to securities of CIGNA, of whatever class or series, offered, sold, issued, distributed, placed or resold by CIGNA, any of its subsidiaries, or any other person or entity. Such attorneys-in-fact and agents, or any of them, are also hereby granted full power and authority, on behalf of and in the name, place and stead of the undersigned, to execute and deliver all such registration statements, registrations, amendments, qualifications and notifications, and CIGNA's Form 10-K, to execute and deliver any and all such other documents, and to take further action as they, or any of them, deem appropriate. The powers and authorities granted herein to such attorneys-in-fact and agents, and each of them, also include the full right, power and authority to effect necessary or appropriate substitutions or revocations. The undersigned hereby ratifies, confirms, and adopts, as his own act and deed, all action lawfully taken by such attorneys-in-fact and agents, or any of them, or by their respective substitutes, pursuant to the powers and authorities herein granted. This Power of Attorney expires by its terms and shall be of no further force and effect on May 15, 1995. IN WITNESS WHEREOF, the undersigned has executed this document as of the 23rd day of February, 1994. /s/ EVELYN BEREZIN Evelyn Berezin 4 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a director of CIGNA Corporation, a Delaware corporation ("CIGNA"), hereby makes, designates, constitutes and appoints THOMAS J. WAGNER, CAROL J. WARD and ROBERT A. LUKENS, and each of them (with full power to act without the other), as the undersigned's true and lawful attorneys-in-fact and agents, with full power and authority to act in any and all capacities for and in the name, place and stead of the undersigned (A) in connection with the filing with the Securities and Exchange Commission pursuant to the Securities Act of 1933 or the Securities Exchange Act of 1934, both as amended, of: (i) CIGNA's Annual Report on Form 10-K and all amendments thereto (collectively, "CIGNA's Form 10-K"); (ii) any and all registration statements pertaining to employee benefit or director compensation plans of CIGNA or its subsidiaries or pertaining to the secondary offering of CIGNA securities by its officers and directors, and all amendments thereto, including, without limitation, amendments to CIGNA's registration statements on Form S-8 (Registration Numbers 2-76444, 2-76445, 33-51791 and 33-44371), 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; (v) all amendments to CIGNA's registration statement on Form S-3 (Registration Number 2-77343) pertaining to an offering of CIGNA Common Stock; and (vi) all amendments to CIGNA's registration statement on Form S-3 (Registration Number 2-98673) relating to put options; and (B) in connection with the preparation, delivery and filing of any and all registrations, amendments, qualifications or notifications under the applicable securities laws of any and all states and other jurisdictions with respect to securities of CIGNA, of whatever class or series, offered, sold, issued, distributed, placed or resold by CIGNA, any of its subsidiaries, or any other person or entity. Such attorneys-in-fact and agents, or any of them, are also hereby granted full power and authority, on behalf of and in the name, place and stead of the undersigned, to execute and deliver all such registration statements, registrations, amendments, qualifications and notifications, and CIGNA's Form 10-K, to execute and deliver any and all such other documents, and to take further action as they, or any of them, deem appropriate. The powers and authorities granted herein to such attorneys-in-fact and agents, and each of them, also include the full right, power and authority to effect necessary or appropriate substitutions or revocations. The undersigned hereby ratifies, confirms, and adopts, as his own act and deed, all action lawfully taken by such attorneys-in-fact and agents, or any of them, or by their respective substitutes, pursuant to the powers and authorities herein granted. This Power of Attorney expires by its terms and shall be of no further force and effect on May 15, 1995. IN WITNESS WHEREOF, the undersigned has executed this document as of the 23rd day of February, 1994. /s/ ROBERT H. CAMPBELL Robert H. Campbell 5 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a director of CIGNA Corporation, a Delaware corporation ("CIGNA"), hereby makes, designates, constitutes and appoints THOMAS J. WAGNER, CAROL J. WARD and ROBERT A. LUKENS, and each of them (with full power to act without the other), as the undersigned's true and lawful attorneys-in-fact and agents, with full power and authority to act in any and all capacities for and in the name, place and stead of the undersigned (A) in connection with the filing with the Securities and Exchange Commission pursuant to the Securities Act of 1933 or the Securities Exchange Act of 1934, both as amended, of: (i) CIGNA's Annual Report on Form 10-K and all amendments thereto (collectively, "CIGNA's Form 10-K"); (ii) any and all registration statements pertaining to employee benefit or director compensation plans of CIGNA or its subsidiaries or pertaining to the secondary offering of CIGNA securities by its officers and directors, and all amendments thereto, including, without limitation, amendments to CIGNA's registration statements on Form S-8 (Registration Numbers 2-76444, 2-76445, 33-51791 and 33-44371), 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; (v) all amendments to CIGNA's registration statement on Form S-3 (Registration Number 2-77343) pertaining to an offering of CIGNA Common Stock; and (vi) all amendments to CIGNA's registration statement on Form S-3 (Registration Number 2-98673) relating to put options; and (B) in connection with the preparation, delivery and filing of any and all registrations, amendments, qualifications or notifications under the applicable securities laws of any and all states and other jurisdictions with respect to securities of CIGNA, of whatever class or series, offered, sold, issued, distributed, placed or resold by CIGNA, any of its subsidiaries, or any other person or entity. Such attorneys-in-fact and agents, or any of them, are also hereby granted full power and authority, on behalf of and in the name, place and stead of the undersigned, to execute and deliver all such registration statements, registrations, amendments, qualifications and notifications, and CIGNA's Form 10-K, to execute and deliver any and all such other documents, and to take further action as they, or any of them, deem appropriate. The powers and authorities granted herein to such attorneys-in-fact and agents, and each of them, also include the full right, power and authority to effect necessary or appropriate substitutions or revocations. The undersigned hereby ratifies, confirms, and adopts, as his own act and deed, all action lawfully taken by such attorneys-in-fact and agents, or any of them, or by their respective substitutes, pursuant to the powers and authorities herein granted. This Power of Attorney expires by its terms and shall be of no further force and effect on May 15, 1995. IN WITNESS WHEREOF, the undersigned has executed this document as of the 23rd day of February, 1994. /s/ ALFRED C. DECRANE, JR. Alfred C. DeCrane, Jr. 6 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a director of CIGNA Corporation, a Delaware corporation ("CIGNA"), hereby makes, designates, constitutes and appoints THOMAS J. WAGNER, CAROL J. WARD and ROBERT A. LUKENS, and each of them (with full power to act without the other), as the undersigned's true and lawful attorneys-in-fact and agents, with full power and authority to act in any and all capacities for and in the name, place and stead of the undersigned (A) in connection with the filing with the Securities and Exchange Commission pursuant to the Securities Act of 1933 or the Securities Exchange Act of 1934, both as amended, of: (i) CIGNA's Annual Report on Form 10-K and all amendments thereto (collectively, "CIGNA's Form 10-K"); (ii) any and all registration statements pertaining to employee benefit or director compensation plans of CIGNA or its subsidiaries or pertaining to the secondary offering of CIGNA securities by its officers and directors, and all amendments thereto, including, without limitation, amendments to CIGNA's registration statements on Form S-8 (Registration Numbers 2-76444, 2-76445, 33-51791 and 33-44371), 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; (v) all amendments to CIGNA's registration statement on Form S-3 (Registration Number 2-77343) pertaining to an offering of CIGNA Common Stock; and (vi) all amendments to CIGNA's registration statement on Form S-3 (Registration Number 2-98673) relating to put options; and (B) in connection with the preparation, delivery and filing of any and all registrations, amendments, qualifications or notifications under the applicable securities laws of any and all states and other jurisdictions with respect to securities of CIGNA, of whatever class or series, offered, sold, issued, distributed, placed or resold by CIGNA, any of its subsidiaries, or any other person or entity. Such attorneys-in-fact and agents, or any of them, are also hereby granted full power and authority, on behalf of and in the name, place and stead of the undersigned, to execute and deliver all such registration statements, registrations, amendments, qualifications and notifications, and CIGNA's Form 10-K, to execute and deliver any and all such other documents, and to take further action as they, or any of them, deem appropriate. The powers and authorities granted herein to such attorneys-in-fact and agents, and each of them, also include the full right, power and authority to effect necessary or appropriate substitutions or revocations. The undersigned hereby ratifies, confirms, and adopts, as his own act and deed, all action lawfully taken by such attorneys-in-fact and agents, or any of them, or by their respective substitutes, pursuant to the powers and authorities herein granted. This Power of Attorney expires by its terms and shall be of no further force and effect on May 15, 1995. IN WITNESS WHEREOF, the undersigned has executed this document as of the 23rd day of February, 1994. /s/ JAMES F. ENGLISH, JR. James F. English, Jr. 7 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a director of CIGNA Corporation, a Delaware corporation ("CIGNA"), hereby makes, designates, constitutes and appoints THOMAS J. WAGNER, CAROL J. WARD and ROBERT A. LUKENS, and each of them (with full power to act without the other), as the undersigned's true and lawful attorneys-in-fact and agents, with full power and authority to act in any and all capacities for and in the name, place and stead of the undersigned (A) in connection with the filing with the Securities and Exchange Commission pursuant to the Securities Act of 1933 or the Securities Exchange Act of 1934, both as amended, of: (i) CIGNA's Annual Report on Form 10-K and all amendments thereto (collectively, "CIGNA's Form 10-K"); (ii) any and all registration statements pertaining to employee benefit or director compensation plans of CIGNA or its subsidiaries or pertaining to the secondary offering of CIGNA securities by its officers and directors, and all amendments thereto, including, without limitation, amendments to CIGNA's registration statements on Form S-8 (Registration Numbers 2-76444, 2-76445, 33-51791 and 33-44371), 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; (v) all amendments to CIGNA's registration statement on Form S-3 (Registration Number 2-77343) pertaining to an offering of CIGNA Common Stock; and (vi) all amendments to CIGNA's registration statement on Form S-3 (Registration Number 2-98673) relating to put options; and (B) in connection with the preparation, delivery and filing of any and all registrations, amendments, qualifications or notifications under the applicable securities laws of any and all states and other jurisdictions with respect to securities of CIGNA, of whatever class or series, offered, sold, issued, distributed, placed or resold by CIGNA, any of its subsidiaries, or any other person or entity. Such attorneys-in-fact and agents, or any of them, are also hereby granted full power and authority, on behalf of and in the name, place and stead of the undersigned, to execute and deliver all such registration statements, registrations, amendments, qualifications and notifications, and CIGNA's Form 10-K, to execute and deliver any and all such other documents, and to take further action as they, or any of them, deem appropriate. The powers and authorities granted herein to such attorneys-in-fact and agents, and each of them, also include the full right, power and authority to effect necessary or appropriate substitutions or revocations. The undersigned hereby ratifies, confirms, and adopts, as his own act and deed, all action lawfully taken by such attorneys-in-fact and agents, or any of them, or by their respective substitutes, pursuant to the powers and authorities herein granted. This Power of Attorney expires by its terms and shall be of no further force and effect on May 15, 1995. IN WITNESS WHEREOF, the undersigned has executed this document as of the 23rd day of February, 1994. /s/ FRANK S. JONES Frank S. Jones 8 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a director of CIGNA Corporation, a Delaware corporation ("CIGNA"), hereby makes, designates, constitutes and appoints THOMAS J. WAGNER, CAROL J. WARD and ROBERT A. LUKENS, and each of them (with full power to act without the other), as the undersigned's true and lawful attorneys-in-fact and agents, with full power and authority to act in any and all capacities for and in the name, place and stead of the undersigned (A) in connection with the filing with the Securities and Exchange Commission pursuant to the Securities Act of 1933 or the Securities Exchange Act of 1934, both as amended, of: (i) CIGNA's Annual Report on Form 10-K and all amendments thereto (collectively, "CIGNA's Form 10-K"); (ii) any and all registration statements pertaining to employee benefit or director compensation plans of CIGNA or its subsidiaries or pertaining to the secondary offering of CIGNA securities by its officers and directors, and all amendments thereto, including, without limitation, amendments to CIGNA's registration statements on Form S-8 (Registration Numbers 2-76444, 2-76445, 33-51791 and 33-44371), 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; (v) all amendments to CIGNA's registration statement on Form S-3 (Registration Number 2-77343) pertaining to an offering of CIGNA Common Stock; and (vi) all amendments to CIGNA's registration statement on Form S-3 (Registration Number 2-98673) relating to put options; and (B) in connection with the preparation, delivery and filing of any and all registrations, amendments, qualifications or notifications under the applicable securities laws of any and all states and other jurisdictions with respect to securities of CIGNA, of whatever class or series, offered, sold, issued, distributed, placed or resold by CIGNA, any of its subsidiaries, or any other person or entity. Such attorneys-in-fact and agents, or any of them, are also hereby granted full power and authority, on behalf of and in the name, place and stead of the undersigned, to execute and deliver all such registration statements, registrations, amendments, qualifications and notifications, and CIGNA's Form 10-K, to execute and deliver any and all such other documents, and to take further action as they, or any of them, deem appropriate. The powers and authorities granted herein to such attorneys-in-fact and agents, and each of them, also include the full right, power and authority to effect necessary or appropriate substitutions or revocations. The undersigned hereby ratifies, confirms, and adopts, as his own act and deed, all action lawfully taken by such attorneys-in-fact and agents, or any of them, or by their respective substitutes, pursuant to the powers and authorities herein granted. This Power of Attorney expires by its terms and shall be of no further force and effect on May 15, 1995. IN WITNESS WHEREOF, the undersigned has executed this document as of the 23rd day of February, 1994. /s/ ROBERT D. KILPATRICK Robert D. Kilpatrick 9 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a director of CIGNA Corporation, a Delaware corporation ("CIGNA"), hereby makes, designates, constitutes and appoints THOMAS J. WAGNER, CAROL J. WARD and ROBERT A. LUKENS, and each of them (with full power to act without the other), as the undersigned's true and lawful attorneys-in-fact and agents, with full power and authority to act in any and all capacities for and in the name, place and stead of the undersigned (A) in connection with the filing with the Securities and Exchange Commission pursuant to the Securities Act of 1933 or the Securities Exchange Act of 1934, both as amended, of: (i) CIGNA's Annual Report on Form 10-K and all amendments thereto (collectively, "CIGNA's Form 10-K"); (ii) any and all registration statements pertaining to employee benefit or director compensation plans of CIGNA or its subsidiaries or pertaining to the secondary offering of CIGNA securities by its officers and directors, and all amendments thereto, including, without limitation, amendments to CIGNA's registration statements on Form S-8 (Registration Numbers 2-76444, 2-76445, 33-51791 and 33-44371), 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; (v) all amendments to CIGNA's registration statement on Form S-3 (Registration Number 2-77343) pertaining to an offering of CIGNA Common Stock; and (vi) all amendments to CIGNA's registration statement on Form S-3 (Registration Number 2-98673) relating to put options; and (B) in connection with the preparation, delivery and filing of any and all registrations, amendments, qualifications or notifications under the applicable securities laws of any and all states and other jurisdictions with respect to securities of CIGNA, of whatever class or series, offered, sold, issued, distributed, placed or resold by CIGNA, any of its subsidiaries, or any other person or entity. Such attorneys-in-fact and agents, or any of them, are also hereby granted full power and authority, on behalf of and in the name, place and stead of the undersigned, to execute and deliver all such registration statements, registrations, amendments, qualifications and notifications, and CIGNA's Form 10-K, to execute and deliver any and all such other documents, and to take further action as they, or any of them, deem appropriate. The powers and authorities granted herein to such attorneys-in-fact and agents, and each of them, also include the full right, power and authority to effect necessary or appropriate substitutions or revocations. The undersigned hereby ratifies, confirms, and adopts, as his own act and deed, all action lawfully taken by such attorneys-in-fact and agents, or any of them, or by their respective substitutes, pursuant to the powers and authorities herein granted. This Power of Attorney expires by its terms and shall be of no further force and effect on May 15, 1995. IN WITNESS WHEREOF, the undersigned has executed this document as of the 23rd day of February, 1994. /s/ GERALD D. LAUBACH Gerald D. Laubach 10 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a director of CIGNA Corporation, a Delaware corporation ("CIGNA"), hereby makes, designates, constitutes and appoints THOMAS J. WAGNER, CAROL J. WARD and ROBERT A. LUKENS, and each of them (with full power to act without the other), as the undersigned's true and lawful attorneys-in-fact and agents, with full power and authority to act in any and all capacities for and in the name, place and stead of the undersigned (A) in connection with the filing with the Securities and Exchange Commission pursuant to the Securities Act of 1933 or the Securities Exchange Act of 1934, both as amended, of: (i) CIGNA's Annual Report on Form 10-K and all amendments thereto (collectively, "CIGNA's Form 10-K"); (ii) any and all registration statements pertaining to employee benefit or director compensation plans of CIGNA or its subsidiaries or pertaining to the secondary offering of CIGNA securities by its officers and directors, and all amendments thereto, including, without limitation, amendments to CIGNA's registration statements on Form S-8 (Registration Numbers 2-76444, 2-76445, 33-51791 and 33-44371), 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; (v) all amendments to CIGNA's registration statement on Form S-3 (Registration Number 2-77343) pertaining to an offering of CIGNA Common Stock; and (vi) all amendments to CIGNA's registration statement on Form S-3 (Registration Number 2-98673) relating to put options; and (B) in connection with the preparation, delivery and filing of any and all registrations, amendments, qualifications or notifications under the applicable securities laws of any and all states and other jurisdictions with respect to securities of CIGNA, of whatever class or series, offered, sold, issued, distributed, placed or resold by CIGNA, any of its subsidiaries, or any other person or entity. Such attorneys-in-fact and agents, or any of them, are also hereby granted full power and authority, on behalf of and in the name, place and stead of the undersigned, to execute and deliver all such registration statements, registrations, amendments, qualifications and notifications, and CIGNA's Form 10-K, to execute and deliver any and all such other documents, and to take further action as they, or any of them, deem appropriate. The powers and authorities granted herein to such attorneys-in-fact and agents, and each of them, also include the full right, power and authority to effect necessary or appropriate substitutions or revocations. The undersigned hereby ratifies, confirms, and adopts, as his own act and deed, all action lawfully taken by such attorneys-in-fact and agents, or any of them, or by their respective substitutes, pursuant to the powers and authorities herein granted. This Power of Attorney expires by its terms and shall be of no further force and effect on May 15, 1995. IN WITNESS WHEREOF, the undersigned has executed this document as of the 23rd day of February, 1994. /s/ MARILYN W. LEWIS Marilyn W. Lewis 11 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a director of CIGNA Corporation, a Delaware corporation ("CIGNA"), hereby makes, designates, constitutes and appoints THOMAS J. WAGNER, CAROL J. WARD and ROBERT A. LUKENS, and each of them (with full power to act without the other), as the undersigned's true and lawful attorneys-in-fact and agents, with full power and authority to act in any and all capacities for and in the name, place and stead of the undersigned (A) in connection with the filing with the Securities and Exchange Commission pursuant to the Securities Act of 1933 or the Securities Exchange Act of 1934, both as amended, of: (i) CIGNA's Annual Report on Form 10-K and all amendments thereto (collectively, "CIGNA's Form 10-K"); (ii) any and all registration statements pertaining to employee benefit or director compensation plans of CIGNA or its subsidiaries or pertaining to the secondary offering of CIGNA securities by its officers and directors, and all amendments thereto, including, without limitation, amendments to CIGNA's registration statements on Form S-8 (Registration Numbers 2-76444, 2-76445, 33-51791 and 33-44371), 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; (v) all amendments to CIGNA's registration statement on Form S-3 (Registration Number 2-77343) pertaining to an offering of CIGNA Common Stock; and (vi) all amendments to CIGNA's registration statement on Form S-3 (Registration Number 2-98673) relating to put options; and (B) in connection with the preparation, delivery and filing of any and all registrations, amendments, qualifications or notifications under the applicable securities laws of any and all states and other jurisdictions with respect to securities of CIGNA, of whatever class or series, offered, sold, issued, distributed, placed or resold by CIGNA, any of its subsidiaries, or any other person or entity. Such attorneys-in-fact and agents, or any of them, are also hereby granted full power and authority, on behalf of and in the name, place and stead of the undersigned, to execute and deliver all such registration statements, registrations, amendments, qualifications and notifications, and CIGNA's Form 10-K, to execute and deliver any and all such other documents, and to take further action as they, or any of them, deem appropriate. The powers and authorities granted herein to such attorneys-in-fact and agents, and each of them, also include the full right, power and authority to effect necessary or appropriate substitutions or revocations. The undersigned hereby ratifies, confirms, and adopts, as his own act and deed, all action lawfully taken by such attorneys-in-fact and agents, or any of them, or by their respective substitutes, pursuant to the powers and authorities herein granted. This Power of Attorney expires by its terms and shall be of no further force and effect on May 15, 1995. IN WITNESS WHEREOF, the undersigned has executed this document as of the 23rd day of February, 1994. /s/ PAUL F. OREFFICE Paul F. Oreffice 12 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a director of CIGNA Corporation, a Delaware corporation ("CIGNA"), hereby makes, designates, constitutes and appoints THOMAS J. WAGNER, CAROL J. WARD and ROBERT A. LUKENS, and each of them (with full power to act without the other), as the undersigned's true and lawful attorneys-in-fact and agents, with full power and authority to act in any and all capacities for and in the name, place and stead of the undersigned (A) in connection with the filing with the Securities and Exchange Commission pursuant to the Securities Act of 1933 or the Securities Exchange Act of 1934, both as amended, of: (i) CIGNA's Annual Report on Form 10-K and all amendments thereto (collectively, "CIGNA's Form 10-K"); (ii) any and all registration statements pertaining to employee benefit or director compensation plans of CIGNA or its subsidiaries or pertaining to the secondary offering of CIGNA securities by its officers and directors, and all amendments thereto, including, without limitation, amendments to CIGNA's registration statements on Form S-8 (Registration Numbers 2-76444, 2-76445, 33-51791 and 33-44371), 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; (v) all amendments to CIGNA's registration statement on Form S-3 (Registration Number 2-77343) pertaining to an offering of CIGNA Common Stock; and (vi) all amendments to CIGNA's registration statement on Form S-3 (Registration Number 2-98673) relating to put options; and (B) in connection with the preparation, delivery and filing of any and all registrations, amendments, qualifications or notifications under the applicable securities laws of any and all states and other jurisdictions with respect to securities of CIGNA, of whatever class or series, offered, sold, issued, distributed, placed or resold by CIGNA, any of its subsidiaries, or any other person or entity. Such attorneys-in-fact and agents, or any of them, are also hereby granted full power and authority, on behalf of and in the name, place and stead of the undersigned, to execute and deliver all such registration statements, registrations, amendments, qualifications and notifications, and CIGNA's Form 10-K, to execute and deliver any and all such other documents, and to take further action as they, or any of them, deem appropriate. The powers and authorities granted herein to such attorneys-in-fact and agents, and each of them, also include the full right, power and authority to effect necessary or appropriate substitutions or revocations. The undersigned hereby ratifies, confirms, and adopts, as his own act and deed, all action lawfully taken by such attorneys-in-fact and agents, or any of them, or by their respective substitutes, pursuant to the powers and authorities herein granted. This Power of Attorney expires by its terms and shall be of no further force and effect on May 15, 1995. IN WITNESS WHEREOF, the undersigned has executed this document as of the 23rd day of February, 1994. /s/ CHARLES R. SHOEMATE Charles R. Shoemate 13 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a director of CIGNA Corporation, a Delaware corporation ("CIGNA"), hereby makes, designates, constitutes and appoints THOMAS J. WAGNER, CAROL J. WARD and ROBERT A. LUKENS, and each of them (with full power to act without the other), as the undersigned's true and lawful attorneys-in-fact and agents, with full power and authority to act in any and all capacities for and in the name, place and stead of the undersigned (A) in connection with the filing with the Securities and Exchange Commission pursuant to the Securities Act of 1933 or the Securities Exchange Act of 1934, both as amended, of: (i) CIGNA's Annual Report on Form 10-K and all amendments thereto (collectively, "CIGNA's Form 10-K"); (ii) any and all registration statements pertaining to employee benefit or director compensation plans of CIGNA or its subsidiaries or pertaining to the secondary offering of CIGNA securities by its officers and directors, and all amendments thereto, including, without limitation, amendments to CIGNA's registration statements on Form S-8 (Registration Numbers 2-76444, 2-76445, 33-51791 and 33-44371), 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; (v) all amendments to CIGNA's registration statement on Form S-3 (Registration Number 2-77343) pertaining to an offering of CIGNA Common Stock; and (vi) all amendments to CIGNA's registration statement on Form S-3 (Registration Number 2-98673) relating to put options; and (B) in connection with the preparation, delivery and filing of any and all registrations, amendments, qualifications or notifications under the applicable securities laws of any and all states and other jurisdictions with respect to securities of CIGNA, of whatever class or series, offered, sold, issued, distributed, placed or resold by CIGNA, any of its subsidiaries, or any other person or entity. Such attorneys-in-fact and agents, or any of them, are also hereby granted full power and authority, on behalf of and in the name, place and stead of the undersigned, to execute and deliver all such registration statements, registrations, amendments, qualifications and notifications, and CIGNA's Form 10-K, to execute and deliver any and all such other documents, and to take further action as they, or any of them, deem appropriate. The powers and authorities granted herein to such attorneys-in-fact and agents, and each of them, also include the full right, power and authority to effect necessary or appropriate substitutions or revocations. The undersigned hereby ratifies, confirms, and adopts, as his own act and deed, all action lawfully taken by such attorneys-in-fact and agents, or any of them, or by their respective substitutes, pursuant to the powers and authorities herein granted. This Power of Attorney expires by its terms and shall be of no further force and effect on May 15, 1995. IN WITNESS WHEREOF, the undersigned has executed this document as of the 23rd day of February, 1994. /s/ LOUIS W. SULLIVAN, M.D. Louis W. Sullivan, M.D. 14 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a director of CIGNA Corporation, a Delaware corporation ("CIGNA"), hereby makes, designates, constitutes and appoints THOMAS J. WAGNER, CAROL J. WARD and ROBERT A. LUKENS, and each of them (with full power to act without the other), as the undersigned's true and lawful attorneys-in-fact and agents, with full power and authority to act in any and all capacities for and in the name, place and stead of the undersigned (A) in connection with the filing with the Securities and Exchange Commission pursuant to the Securities Act of 1933 or the Securities Exchange Act of 1934, both as amended, of: (i) CIGNA's Annual Report on Form 10-K and all amendments thereto (collectively, "CIGNA's Form 10-K"); (ii) any and all registration statements pertaining to employee benefit or director compensation plans of CIGNA or its subsidiaries or pertaining to the secondary offering of CIGNA securities by its officers and directors, and all amendments thereto, including, without limitation, amendments to CIGNA's registration statements on Form S-8 (Registration Numbers 2-76444, 2-76445, 33-51791 and 33-44371), 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; (v) all amendments to CIGNA's registration statement on Form S-3 (Registration Number 2-77343) pertaining to an offering of CIGNA Common Stock; and (vi) all amendments to CIGNA's registration statement on Form S-3 (Registration Number 2-98673) relating to put options; and (B) in connection with the preparation, delivery and filing of any and all registrations, amendments, qualifications or notifications under the applicable securities laws of any and all states and other jurisdictions with respect to securities of CIGNA, of whatever class or series, offered, sold, issued, distributed, placed or resold by CIGNA, any of its subsidiaries, or any other person or entity. Such attorneys-in-fact and agents, or any of them, are also hereby granted full power and authority, on behalf of and in the name, place and stead of the undersigned, to execute and deliver all such registration statements, registrations, amendments, qualifications and notifications, and CIGNA's Form 10-K, to execute and deliver any and all such other documents, and to take further action as they, or any of them, deem appropriate. The powers and authorities granted herein to such attorneys-in-fact and agents, and each of them, also include the full right, power and authority to effect necessary or appropriate substitutions or revocations. The undersigned hereby ratifies, confirms, and adopts, as his own act and deed, all action lawfully taken by such attorneys-in-fact and agents, or any of them, or by their respective substitutes, pursuant to the powers and authorities herein granted. This Power of Attorney expires by its terms and shall be of no further force and effect on May 15, 1995. IN WITNESS WHEREOF, the undersigned has executed this document as of the 23rd day of February, 1994. /s/ HICKS B. WALDRON Hicks B. Waldron 15 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a director of CIGNA Corporation, a Delaware corporation ("CIGNA"), hereby makes, designates, constitutes and appoints THOMAS J. WAGNER, CAROL J. WARD and ROBERT A. LUKENS, and each of them (with full power to act without the other), as the undersigned's true and lawful attorneys-in-fact and agents, with full power and authority to act in any and all capacities for and in the name, place and stead of the undersigned (A) in connection with the filing with the Securities and Exchange Commission pursuant to the Securities Act of 1933 or the Securities Exchange Act of 1934, both as amended, of: (i) CIGNA's Annual Report on Form 10-K and all amendments thereto (collectively, "CIGNA's Form 10-K"); (ii) any and all registration statements pertaining to employee benefit or director compensation plans of CIGNA or its subsidiaries or pertaining to the secondary offering of CIGNA securities by its officers and directors, and all amendments thereto, including, without limitation, amendments to CIGNA's registration statements on Form S-8 (Registration Numbers 2-76444, 2-76445, 33-51791 and 33-44371), 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; (v) all amendments to CIGNA's registration statement on Form S-3 (Registration Number 2-77343) pertaining to an offering of CIGNA Common Stock; and (vi) all amendments to CIGNA's registration statement on Form S-3 (Registration Number 2-98673) relating to put options; and (B) in connection with the preparation, delivery and filing of any and all registrations, amendments, qualifications or notifications under the applicable securities laws of any and all states and other jurisdictions with respect to securities of CIGNA, of whatever class or series, offered, sold, issued, distributed, placed or resold by CIGNA, any of its subsidiaries, or any other person or entity. Such attorneys-in-fact and agents, or any of them, are also hereby granted full power and authority, on behalf of and in the name, place and stead of the undersigned, to execute and deliver all such registration statements, registrations, amendments, qualifications and notifications, and CIGNA's Form 10-K, to execute and deliver any and all such other documents, and to take further action as they, or any of them, deem appropriate. The powers and authorities granted herein to such attorneys-in-fact and agents, and each of them, also include the full right, power and authority to effect necessary or appropriate substitutions or revocations. The undersigned hereby ratifies, confirms, and adopts, as his own act and deed, all action lawfully taken by such attorneys-in-fact and agents, or any of them, or by their respective substitutes, pursuant to the powers and authorities herein granted. This Power of Attorney expires by its terms and shall be of no further force and effect on May 15, 1995. IN WITNESS WHEREOF, the undersigned has executed this document as of the 23rd day of February, 1994. /s/ EZRA K. ZILKHA Ezra K. Zilkha EX-24.2 26 CERTIFIED RESOLUTIONS 1 CIGNA Corporation One Liberty Place 1650 Market Street P. O. Box 7716 Philadelphia, PA 19192-1550 (215) 761-1000 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 23, 1994, 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, 1993, 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 25, 1994 /s/ CAROL J. WARD -------------------- Carol J. Ward Corporate Secretary EX-28.1 27 RECONCILIATION OF SCHEDULE P 1 EXHIBIT 28.1 CIGNA CORPORATION PROPERTY AND CASUALTY STATUTORY RESERVES RECONCILIATION OF SCHEDULE P TO TOTAL STATUTORY RESERVES 1993
(DOLLARS IN MILLIONS) --------------------- Schedule P: Part 1, Column 34, Line 12................................. $ 6,274 Part 1, Column 35, Line 12................................ 1,219 -------- Total statutory reserves as reported in consolidated annual statement balance sheet......................................... 7,493 Reconciliation to amounts reported in Form 10-K: Foreign subsidiaries not included in consolidated domestic annual statement............................................................. 2,029 Other................................................................... 68 -------- Total statutory reserves as reported in Form 10-K....................... $ 9,590 -------- --------
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