cigna10q.htm

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2008

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

for the transition period from _____ to _____

Commission file number 1-08323

CIGNA Corporation

(Exact name of registrant as specified in its charter)

Delaware	06-1059331
(State or other jurisdiction	(I.R.S. Employer
of incorporation or organization)	Identification No.)

Two Liberty Place, 1601 Chestnut Street

Philadelphia, Pennsylvania 19192

(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code (215) 761-1000

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d)

of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant

was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No _

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer,

or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer”, and “smaller

reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer [X]		Accelerated filer [ ]
Non-accelerated filer [ ]		Smaller Reporting Company [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes _ No x

As of April 18, 2008, 280,813,911 shares of the issuer's common stock were outstanding.

CIGNA CORPORATION

INDEX

		Page No.
PART I.	FINANCIAL INFORMATION
	Item 1. Financial Statements
	Consolidated Statements of Income	1
	Consolidated Balance Sheets	2
	Consolidated Statements of Comprehensive Income and Changes in Shareholders' Equity	3
	Consolidated Statements of Cash Flows	4
	Notes to the Financial Statements	5
	Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	27
	Item 3. Quantitative and Qualitative Disclosures About Market Risk	48
	Item 4. Controls and Procedures	49

PART II.	OTHER INFORMATION
	Item 1. Legal Proceedings	50
	Item 1A. Risk Factors	51
	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	52
	Item 6. Exhibits	53
SIGNATURE		54
EXHIBIT INDEX		E-1

As used herein, CIGNA refers to one or more of CIGNA Corporation and its consolidated subsidiaries.

CIGNA Corporation
Consolidated Statements of Income
	Unaudited
	Three Months Ended
	March 31,
(In millions, except per share amounts)	2008			2007
Revenues
Premiums and fees	$	3,851		$	3,708
Net investment income		265			280
Mail order pharmacy revenues		296			271
Other revenues		143			94
Realized investment gains		14			21
Total revenues		4,569			4,374
Benefits and Expenses
Health Care medical claims expense		1,744			1,719
Other benefit expenses		928			836
Mail order pharmacy costs of goods sold		239			219
Guaranteed minimum income benefits expense		304			24
Other operating expenses		1,281			1,163
Total benefits and expenses		4,496			3,961
Income from Continuing Operations
before Income Taxes		73			413
Income taxes (benefits):
Current		77			132
Deferred		(59	)		4
Total taxes		18			136
Income from Continuing Operations		55			277
Income from Discontinued Operations, Net of Taxes		3			12
Net Income	$	58		$	289
Earnings Per Share - Basic:
Income from continuing operations	$	0.20		$	0.95
Income from discontinued operations		0.01			0.05
Net income	$	0.21		$	1.00
Earnings Per Share - Diluted:
Income from continuing operations	$	0.19		$	0.93
Income from discontinued operations		0.02			0.05
Net income	$	0.21		$	0.98
Dividends Declared Per Share	$	0.040		$	0.008

The accompanying Notes to the Consolidated Financial Statements are an integral part of these statements.

CIGNA Corporation
Consolidated Balance Sheets
				Unaudited						As of
				As of March 31,						December 31,
(In millions, except per share amounts)				2008						2007
Assets
Investments:
Fixed maturities, at fair value (amortized cost, $11,406; $11,409)				$	12,033					$	12,081
Equity securities, at fair value (cost, $140; $127)					144						132
Commercial mortgage loans					3,291						3,277
Policy loans					1,504						1,450
Real estate					49						49
Other long-term investments					541						520
Short-term investments					36						21
Total investments					17,598						17,530
Cash and cash equivalents					2,850						1,970
Accrued investment income					247						233
Premiums, accounts and notes receivable					1,475						1,405
Reinsurance recoverables					7,205						7,331
Deferred policy acquisition costs					848						816
Property and equipment					649						625
Deferred income taxes, net					858						794
Goodwill					1,784						1,783
Other assets, including other intangibles					883						536
Separate account assets					6,591						7,042
Total assets				$	40,988					$	40,065
Liabilities
Contractholder deposit funds				$	8,595					$	8,594
Future policy benefits					8,083						8,147
Unpaid claims and claim expenses					4,144						4,127
Health Care medical claims payable					1,033						975
Unearned premiums and fees					489						496
Total insurance and contractholder liabilities					22,344						22,339
Accounts payable, accrued expenses and other liabilities					4,886						4,127
Short-term debt					251						3
Long-term debt					2,090						1,790
Nonrecourse obligations					12						16
Separate account liabilities					6,591						7,042
Total liabilities					36,174						35,317
Contingencies — Note 14
Shareholders’ Equity
Common stock (par value per share, $0.25; shares issued, 351)					88						88
Additional paid-in capital					2,488						2,474
Net unrealized appreciation, fixed maturities	$	137					$	140
Net unrealized appreciation, equity securities		8						7
Net unrealized depreciation, derivatives		(27	)					(19	)
Net translation of foreign currencies		55						61
Postretirement benefits liability adjustment		(135	)					(138	)
Accumulated other comprehensive income					38						51
Retained earnings					7,142						7,113
Less treasury stock, at cost					(4,942	)					(4,978	)
Total shareholders’ equity					4,814						4,748
Total liabilities and shareholders’ equity				$	40,988					$	40,065
Shareholders’ Equity Per Share				$	17.14					$	16.98

The accompanying Notes to the Consolidated Financial Statements are an integral part of these statements.


CIGNA Corporation
Consolidated Statements of Comprehensive Income and Changes in Shareholders’ Equity
(In millions, except per share amounts)
	Unaudited
Three Months Ended March 31,	2008						2007
	Compre-			Share-			Compre-			Share-
	hensive			holders’			hensive			holders’
	Income			Equity			Income			Equity
Common Stock				$	88					$	40
Additional Paid-In Capital, January 1					2,474						2,451
Effect of issuance of stock for employee benefit plans					14						34
Additional Paid-In Capital, March 31					2,488						2,485
Accumulated Other Comprehensive Income (Loss),
January 1 prior to implementation effect					51						(169	)
Implementation effect of SFAS No.155					-						(12	)
Accumulated Other Comprehensive Income (Loss),
January 1 as adjusted					51						(181	)
Net unrealized depreciation, fixed maturities	$	(3	)		(3	)	$	(6	)		(6	)
Net unrealized appreciation, equity securities		1			1			-			-
Net unrealized depreciation on securities		(2	)					(6	)
Net unrealized depreciation, derivatives		(8	)		(8	)		(1	)		(1	)
Net translation of foreign currencies		(6	)		(6	)		-			-
Postretirement benefits liability adjustment		3			3			17			17
Other comprehensive income (loss)		(13	)					10
Accumulated Other Comprehensive Income (Loss), March 31					38						(171	)
Retained Earnings, January 1 prior to
implementation effects					7,113						6,177
Implementation effect of SFAS No. 155					-						12
Implementation effect of FIN 48					-						(29	)
Retained Earnings, January 1 as adjusted					7,113						6,160
Net income		58			58			289			289
Effects of issuance of stock for employee benefit plans					(18	)					(72	)
Common dividends declared					(11	)					(2	)
Retained Earnings, March 31					7,142						6,375
Treasury Stock, January 1					(4,978	)					(4,169	)
Repurchase of common stock					-						(576	)
Other, primarily issuance of treasury stock for employee
benefit plans					36						168
Treasury Stock, March 31					(4,942	)					(4,577	)
Total Comprehensive Income and Shareholders’ Equity	$	45		$	4,814		$	299		$	4,152

The accompanying Notes to the Consolidated Financial Statements are an integral part of these statements.

CIGNA Corporation
Consolidated Statements of Cash Flows
	Unaudited
(In millions)	Three Months Ended March 31,
	2008			2007
Cash Flows from Operating Activities
Net income	$	58		$	289
Adjustments to reconcile net income to net cash provided by operating activities:
Income from discontinued operations		(3	)		(12	)
Insurance liabilities		126			74
Reinsurance recoverables		17			12
Deferred policy acquisition costs		(43	)		(12	)
Premiums, accounts and notes receivable		(72	)		17
Other assets		(341	)		(28	)
Accounts payable, accrued expenses and other liabilities		596			(74	)
Current income taxes		64			100
Deferred income taxes		(59	)		4
Realized investment gains		(14	)		(21	)
Depreciation and amortization		53			54
Gains on sales of businesses (excluding discontinued operations)		(9	)		(11	)
Other, net		(21	)		(14	)
Net cash provided by operating activities		352			378
Cash Flows from Investing Activities
Proceeds from investments sold:
Fixed maturities		315			188
Equity securities		-			11
Commercial mortgage loans		12			28
Other (primarily short-term and other long-term investments)		115			143
Investment maturities and repayments:
Fixed maturities		149			107
Commercial mortgage loans		5			62
Investments purchased:
Fixed maturities		(499	)		(440	)
Equity securities		(13	)		(2	)
Commercial mortgage loans		(30	)		(69	)
Other (primarily short-term and other long-term investments)		(142	)		(185	)
Property and equipment sales		-			22
Property and equipment purchases		(68	)		(41	)
Cash provided by investing activities of discontinued operations		-			31
Other acquisitions/dispositions, net cash used		(7	)		-
Other, net		-			(6	)
Net cash used in investing activities		(163	)		(151	)
Cash Flows from Financing Activities
Deposits and interest credited to contractholder deposit funds		330			141
Withdrawals and benefit payments from contractholder deposit funds		(280	)		(142	)
Change in cash overdraft position		64			12
Net change in short-term debt		248			498
Net proceeds on issuance of long-term debt		298			-
Repayment of long-term debt		-			(87	)
Repurchase of common stock		-			(583	)
Issuance of common stock		33			133
Common dividends paid		(3	)		(2	)
Net cash provided by (used in) financing activities		690			(30	)
Effect of foreign currency rate changes on cash and cash equivalents		1			-
Net increase in cash and cash equivalents		880			197
Cash and cash equivalents, beginning of period		1,970			1,392
Cash and cash equivalents, end of period	$	2,850		$	1,589
Supplemental Disclosure of Cash Information:
Income taxes paid, net of refunds	$	3		$	8
Interest paid	$	22		$	20
The accompanying Notes to the Consolidated Financial Statements are an integral part of these statements.

CIGNA CORPORATION

NOTES TO THE CONSOLIDATED

FINANCIAL STATEMENTS

NOTE 1 – BASIS OF PRESENTATION

The consolidated financial statements include the accounts of CIGNA Corporation, its significant subsidiaries, and variable interest entities of which CIGNA is the primary beneficiary, which are referred to collectively as “the Company.” Intercompany transactions and accounts have been eliminated in consolidation. These consolidated financial statements were prepared in conformity with accounting principles generally accepted in the United States of America (GAAP).

The interim consolidated financial statements are unaudited but include all adjustments (including normal recurring adjustments) necessary, in the opinion of management, for a fair statement of financial position and results of operations for the periods reported. The interim consolidated financial statements and notes should be read in conjunction with the Consolidated Financial Statements and Notes in the Company’s Form 10-K for the year ended December 31, 2007.

The preparation of interim consolidated financial statements necessarily relies heavily on estimates. This and certain other factors, such as the seasonal nature of portions of the health care and related benefits business as well as competitive and other market conditions, call for caution in estimating full year results based on interim results of operations.

All weighted average shares, per share amounts and references to stock compensation for all periods presented have been adjusted to reflect the three-for-one stock split effective June 4, 2007.

Certain reclassifications have been made to prior period amounts to conform to the presentation of 2008 amounts.

Discontinued operations for the three months ended March 31, 2008 represented $3 million after-tax from the settlement of certain issues related to a past divestiture. Discontinued operations for the three months ended March 31, 2007 represent realized gains of $12 million after-tax from the disposition of certain directly-owned real estate investments.

Unless otherwise indicated, amounts in these Notes exclude the effects of discontinued operations.

NOTE 2 – RECENT ACCOUNTING PRONOUNCEMENTS

Fair value measurements. Effective January 1, 2008, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 157, “Fair Value Measurements.” This standard expands disclosures about fair value measurements and clarifies how to measure fair value by focusing on the price that would be received when selling an asset or paid to transfer a liability (exit price). See Note 7 for information on the Company’s fair value measurements including new required disclosures.

The Company carries certain financial instruments at fair value in the financial statements including approximately $12 billion in invested assets at March 31, 2008. The Company also carries derivative instruments at fair value, including assets and liabilities for reinsurance contracts covering guaranteed minimum income benefits under certain variable annuity contracts issued by other insurance companies and related retrocessional contracts. The Company also reports separate account assets at fair value, however changes in the fair values of these assets accrue directly to policyholders and are not included in the Company’s revenues and expenses. At the adoption of SFAS No. 157, there were no effects to the Company’s measurements of fair values for financial instruments other than for assets and liabilities for reinsurance contracts covering guaranteed minimum income benefits discussed below.

At adoption, the Company was required to change certain assumptions used to estimate the fair values of assets and liabilities for reinsurance contracts covering guaranteed minimum income benefits. As a result, the Company recorded a charge of $131 million after-tax, net of reinsurance ($202 million pre-tax), in Run-off Reinsurance. This charge did not have an impact on the Company’s cash flows.

Because there is no market for these contracts, the assumptions used to estimate their fair values at adoption were determined using a hypothetical market participant's view of an exit price. The Company considered the following in determining the view of a hypothetical market participant:

·	that the most likely transfer of these assets and liabilities would be through a reinsurance transaction with an independent insurer having a market capitalization and credit rating similar to that of the Company; and

·	that because this block of contracts is in run-off mode, an insurer looking to acquire these contracts would have similar existing contracts with related administrative and risk management capabilities.

At adoption, the assumptions used to estimate the fair value of these contracts were determined using a hypothetical market participant’s view of an exit price rather than using historical market data and actual experience to establish the Company’s future expectations. For many of these assumptions, there is limited or no observable market data so determining an exit price requires the Company to exercise significant judgment and make critical accounting estimates.

The Company considers the various assumptions used to estimate fair values of these contracts in two categories: capital markets and future annuitant and retrocessionaire behavior assumptions. Estimated components of the charge by category (net of reinsurance) are described below, including how these updated assumptions differ from those used historically to estimate fair values for these contracts.

Assumptions Related to Capital Markets - $183 million of the $202 million pre-tax charge, net of estimated receivables for reinsurance, reflects the impact of changes in capital markets assumptions including market return, discount rate, the projected interest rate used to calculate the reinsured income benefits at the time of annuitization (claim interest rate), and volatility. These assumptions were updated to reflect risk free interest rates (LIBOR swap curve) and volatility consistent with that implied by derivative instruments in a consistently active market, under the assumption that a hypothetical market participant would hedge all or a portion of the net liability. The capital markets charge is comprised of:

$131 million related to using risk free interest rates to project the growth in the contractholders’ underlying investment accounts rather than using an estimate of the actual returns for the underlying equity and bond mutual funds over time. Risk free growth rates were lower than the market return assumptions at December 31, 2007 which ranged from 5-11% varying by fund type. The Company believes risk free rates would be used by a hypothetical market participant who is expected to hedge the risk associated with these contracts because they would earn risk free interest returns from hedging instruments. However, the Company’s actual payments will be based on, among other variables, the actual returns that the contractholders’ earn on their underlying investment accounts.

$23 million related to assuming implied market volatility as of January 1, 2008 for certain indices where observable in a consistently active market. The Company believes that a hypothetical market participant would use these market observable implied volatilities rather than use average historical market volatilities.

$20 million related to projecting the interest rate used to calculate the reinsured income benefits at the time of annuitization (claim interest rate) using the market implied forward rate curve and volatility as of January 1, 2008. Claim payments are based on the 7-year Treasury Rate at the time the benefit is elected, and the Company believes that a hypothetical market participant would likely use the above market-implied approach rather than projecting the 7-year Treasury Rate grading from current levels to long-term average levels.

$9 million related to using risk free interest rates as of January 1, 2008 to discount the liability. The Company believes that a hypothetical market participant would use current risk free interest rates for discounting rather than a rate anticipated to be earned on the assets invested to settle the liability. The impact of using risk free interest rates to discount the liability is significantly less than the impact of using these rates to project the growth in contractholders’ underlying investment accounts because risk free interest rates as of January 1, 2008 are much closer to the discount rate assumption of 5.75% used at December 31, 2007 prior to the adoption of SFAS No. 157.

Assumptions Related to Future Annuitant and Retrocessionaire Behavior - $19 million of the $202 million pre-tax charge, net of estimated receivables for reinsurance, reflects the impact of the Company’s view of a hypothetical market participant’s assumptions for future annuitant and retrocessionaire behavior and primarily reflects incremental risk and profit charges.

The Company’s results of operations related to this business are expected to continue to be volatile in future periods both because underlying assumptions will be based on current market-observable inputs which will likely change each period and because the recorded liabilities, net of receivables from reinsurers, are higher after adoption of SFAS No. 157. See Note 7 for additional information.

The Financial Accounting Standards Board (FASB) deferred the effective date of SFAS No. 157 until the first quarter of 2009 for non-financial assets and liabilities (such as intangible assets, property and equipment and goodwill) that are required to be measured at fair value on a periodic basis (such as at acquisition or impairment). The FASB expects to address implementation issues during this delay. Accordingly, the Company will adopt SFAS No. 157 for non-financial assets and liabilities in the first quarter of 2009 and will evaluate the effects of adoption when the FASB provides implementation guidance.

Fair value option. Effective January 1, 2008, the Company adopted SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities," which permits entities to choose fair value measurement of many financial instruments, including insurance contracts, with subsequent changes in fair value to be reported in net income for the period. This choice is made for each individual financial instrument, is irrevocable and, after implementation, must be determined when the entity first commits to or recognizes the financial instrument. The adoption of SFAS No. 159 did not impact the Company's consolidated financial statements, as no items were initially elected for fair value measurement. For financial assets and liabilities acquired in subsequent periods, the Company will determine whether to use the fair value election at the time of acquisition.

NOTE 3 – ACQUISITIONS AND DISPOSITIONS

The Company may from time to time acquire or dispose of assets, subsidiaries or lines of business. Significant transactions are described below.

Great-West Healthcare Acquisition. On April 1, 2008, the Company acquired the Healthcare division of Great-West Life and Annuity, Inc. (“Great-West Healthcare”) through 100% indemnity reinsurance agreements and the acquisition of certain affiliates and other assets and liabilities of Great-West Life and Annuity, Inc. for a cash purchase price of approximately $1.5 billion. Great-West Healthcare primarily sells administrative service medical plans with stop loss coverage to small and mid-size employer groups. Great-West Healthcare's offerings also include the following products sold through a variety of funding options: stop loss, life, disability, medical, dental, vision, prescription drug coverage, and accidental death and dismemberment insurance. The acquisition, which will be accounted for as a purchase beginning in the second quarter of 2008, was financed through a combination of available cash and the issuance of long-term debt and commercial paper (see Note 11).

The results of Great-West Healthcare will be included in the Company’s consolidated financial statements from the date of acquisition.

Sale of the Brazilian Life Insurance Operations. On April 29, 2008, the Company completed the sale of its Brazilian life insurance operations. See Note 3 to the Consolidated Financial Statements in the Company's 2007 Form 10-K for additional information.

NOTE 4 – EARNINGS PER SHARE

Basic and diluted earnings per share were computed as follows:


(Dollars in millions, except per share amounts)	Basic		Effect of Dilution			Diluted
Three Months Ended March 31,
2008
Income from continuing
operations	$	55		-		$	55
Shares (in thousands):
Weighted average		279,077		-			279,077
Options and restricted stock grants				3,401			3,401
Total shares		279,077		3,401			282,478
EPS	$	0.20	$	(0.01	)	$	0.19
2007
Income from continuing
operations	$	277		-		$	277
Shares (in thousands):