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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2017
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                                   to                                  

Commission file number 1-8323

GRAPHIC

CIGNA CORPORATION

(Exact name of registrant as specified in its charter)

Delaware   06-1059331
(State or other jurisdiction of incorporation or organization)   (I.R.S. Employer Identification No.)
900 Cottage Grove Road, Bloomfield, Connecticut   06002
(Address of principal executive offices)   (Zip Code)
(860) 226-6000
Registrant's telephone number, including area code
(860) 226-6741 or (215) 761-5511
Registrant's facsimile number, including area code
    SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:  
    Title of each class       Name of each exchange on which registered    
    Common Stock, Par Value $0.25       New York Stock Exchange, Inc.    

  

 

 

 

 

 

 

 

 
    SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:  
    NONE    

    Indicate by check mark     Yes     No  
           
   

if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

      þ       o    
   

if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act

      o       þ    
   

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

      þ       o    
   

whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

      þ       o    
   

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

      þ            
   

whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of "large accelerated filer," "accelerated filer, " "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.

   
    Large accelerated filer þ       Accelerated filer o       Non-accelerated filer o       Smaller reporting company o    
                            Emerging growth company o    
   

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

      o            
   

whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

      o       þ    

The aggregate market value of the voting stock held by non-affiliates of the registrant as of June 30, 2017 was approximately $42.2 billion. As of January 31, 2018, 242,875,357 shares of the registrant's Common Stock were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Part III of this Form 10-K incorporates by reference information from the registrant's definitive proxy statement related to the 2018 annual meeting of shareholders.



Table of Contents

FREQUENTLY REQUESTED 10-K INFORMATION

 
  Page

Risk Factors

  21

Executive Overview

  35

Health Care Industry Developments

  40

Liquidity and Capital Resources

  41

Critical Accounting Estimates

  44

Segment Information

  105

Revenues by Product Type

  107


 
   
   
  Page
CAUTIONARY STATEMENT    
PART I    
 

Item 1.

 

Business

 

 
    .   Overview   1
    .   Global Health Care   3
    .   Global Supplemental Benefits   10
    .   Group Disability and Life   12
    .   Other Operations   14
    .   Investments and Investment Income   14
    .   Regulation   15
    .   Miscellaneous   20
Item 1A.   Risk Factors   21
Item 1B.   Unresolved Staff Comments   30
Item 2.   Properties   30
Item 3.   Legal Proceedings   30
Item 4.   Mine Safety Disclosures   30
EXECUTIVE OFFICERS OF THE REGISTRANT   31

PART II

 

 
 

Item 5.

 

Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

 

32
Item 6.   Selected Financial Data   34
Item 7.   Management's Discussion and Analysis of Financial Condition and Results of Operations   35
Item 7A.   Quantitative and Qualitative Disclosures about Market Risk   56
Item 8.   Financial Statements and Supplementary Data   57
Item 9.   Changes in and Disagreements with Accountants on Accounting and Financial Disclosure   109
Item 9A.   Controls and Procedures   109
Item 9B.   Other Information   109


 
   
   
  Page
PART III    
 

Item 10.

 

Directors, Executive Officers and Corporate Governance.

 

110
    A.   Directors of the Registrant   110
    B.   Executive Officers of the Registrant   110
    C.   Code of Ethics and Other Corporate Governance Disclosures   110
    D.   Section 16(a) Beneficial Ownership Reporting Compliance   110
Item 11.   Executive Compensation   110
Item 12.   Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters   111
Item 13.   Certain Relationships and Related Transactions, and Director Independence   111
Item 14.   Principal Accountant Fees and Services   111

PART IV

 

 
 

Item 15.

 

Exhibits and Financial Statement Schedules

 

112

Item 16.

 

10-K Summary

 

115
SIGNATURES   116
INDEX TO FINANCIAL STATEMENT SCHEDULES   FS-1
EXHIBITS   E-1


Table of Contents

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on Cigna's current expectations and projections about future trends, events and uncertainties. These statements are not historical facts. Forward-looking statements may include, among others, statements concerning future financial or operating performance, including our ability to deliver personalized and innovative solutions for our customers and clients; future growth, business strategy, strategic or operational initiatives; economic, regulatory or competitive environments, particularly with respect to the pace and extent of change in these areas; financing or capital deployment plans and amounts available for future deployment; our prospects for growth in the coming years; and other statements regarding Cigna's future beliefs, expectations, plans, intentions, financial condition or performance. You may identify forward-looking statements by the use of words such as "believe," "expect," "plan," "intend," "anticipate," "estimate," "predict," "potential," "may," "should," "will" or other words or expressions of similar meaning, although not all forward-looking statements contain such terms.

Forward-looking statements are subject to risks and uncertainties, both known and unknown, that could cause actual results to differ materially from those expressed or implied in forward-looking statements. Such risks and uncertainties include, but are not limited to: our ability to achieve our financial, strategic and operational plans or initiatives; our ability to predict and manage medical costs and price effectively and develop and maintain good relationships with physicians, hospitals and other health care providers; the impact of modifications to our operations and processes; our ability to identify potential strategic acquisitions or transactions and realize the expected benefits of such transactions; the substantial level of government regulation over our business and the potential effects of new laws or regulations or changes in existing laws or regulations; the outcome of litigation, regulatory audits, investigations, actions and/or guaranty fund assessments; uncertainties surrounding participation in government-sponsored programs such as Medicare; the effectiveness and security of our information technology and other business systems; unfavorable industry, economic or political conditions, including foreign currency movements; acts of war, terrorism, natural disasters or pandemics; as well as more specific risks and uncertainties discussed in Part I, Item 1A – Risk Factors and Part II, Item 7 – Management's Discussion and Analysis of Financial Condition and Results of Operations of this Form 10-K and as described from time to time in our future reports filed with the Securities and Exchange Commission (the "SEC").

You should not place undue reliance on forward-looking statements that speak only as of the date they are made, are not guarantees of future performance or results, and are subject to risks, uncertainties and assumptions that are difficult to predict or quantify. Cigna undertakes no obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise, except as may be required by law.



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PART I
ITEM 1. Business

PART I

ITEM 1. Business

Overview

Cigna Corporation, together with its subsidiaries (either individually or collectively referred to as "Cigna," the "Company," "we," "our" or "us") is a global health services organization dedicated to a mission of helping individuals improve their health, well-being and sense of security. Since 2009, our strategy in support of our mission has been to "Go Deep, Go Global and Go Individual". To further accelerate the differentiated value we deliver for our customers, clients, partners and communities, we have evolved this strategy in order to expand avenues for growth and performance. Cigna's evolved strategy is to "Go Deeper", "Go Local" and "Go Beyond".

GRAPHIC

We execute on this strategy with a differentiated set of medical, pharmacy, behavioral, dental, disability, life and accident insurance and related products and services offered by our subsidiaries.

In an increasingly retail-oriented marketplace, we focus on delivering affordable and personalized products and services to customers through employer-based, government-sponsored and individual coverage arrangements. We increasingly collaborate with health care providers to continue the transition from volume-based fee for service arrangements toward a more value-based system designed to increase quality of care, lower costs and improve health outcomes. We operate a customer-centric organization enabled by keen insights regarding customer needs, localized decision-making and talented professionals committed to bringing our "Together All the Way" brand promise to life.

CIGNA CORPORATION - 2017 Form 10-K    1


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ITEM 1. Business

In particular, over the past several years, to achieve the goals of better health, affordability, localization and an improved experience for the customer, we have continued expanding our participation in collaborative care and other delivery arrangements with health care professionals across the care delivery spectrum, including large and small physician groups, specialist groups and hospitals. More recently, we have developed innovative tools and flexible provider arrangements that provide a truly personalized customer experience. These arrangements and tools are discussed in more detail in the "Global Health Care" section of this Annual Report on Form 10-K ("Form 10-K") beginning on page 3.

We present the financial results of our businesses in the following three reportable segments:

Global Health Care aggregates the Commercial and Government operating segments.

The Commercial operating segment encompasses both the U.S. commercial and certain international health care businesses serving employers and their employees, other groups, and individuals. In this segment, we refer to employer or other groups as the "client" and the individual as the "customer." Products and services include medical, dental, behavioral health, vision, and prescription drug benefit plans, health advocacy programs and other products and services to insured and self-insured customers.

The Government operating segment offers Medicare Advantage and Medicare Part D plans to seniors as well as Medicaid plans.

Global Supplemental Benefits offers supplemental health, life and accident insurance products in selected international markets and in the United States.

Group Disability and Life provides group long-term and short-term disability, group life, accident and specialty insurance products and related services.

Financial Results for the year ended and as of December 31, 2017 (in billions)
   
Consolidated basis:     Consolidated basis:  

Total revenues

  $ 41.6      Shareholders' net income   $ 2.2

Operating revenues (1)

  $ 41.4      Adjusted income from operations (1)   $ 2.7

Total assets

  $ 61.8      Total shareholders' equity   $ 13.7
Reportable segments' results: (2)     Reportable segments' results: (2)  

Operating revenues (1)

  $ 40.9      Adjusted income from operations (1)   $ 2.8
(1)
See page 35 for the definition of these metrics.

(2)
Global Health Care, Global Supplemental Benefits and Group Disability and Life segments

GRAPHIC

We present the remainder of our segment results in Other Operations, consisting of the corporate-owned life insurance business ("COLI"), run-off reinsurance and settlement annuity businesses and deferred gains associated with the sales of the individual life insurance and annuity and retirement benefits businesses.

Our revenues are derived principally from premiums on insured products, fees from self-insured products and services, mail-order pharmacy sales and investment income.

The ACA and Health Care Reform

The Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act (collectively referred to throughout this Form 10-K as the "ACA" or "PPACA") continues to have a significant impact on our business operations. The future of the ACA is uncertain due to congressional efforts to repeal and replace the ACA, various executive actions of the Trump administration, and repeal of the individual mandate as part of H.R.1, An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018 (referred to throughout this Form 10-K as the "Tax Cuts and Jobs Act" or "U.S. tax reform legislation"). The effects of the ACA, and efforts to repeal and replace it, are discussed throughout this Form 10-K where appropriate, including in the Global Health Care business description, Regulation, Risk Factors, Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A"), and the Notes to the Consolidated Financial Statements.

2    CIGNA CORPORATION - 2017 Form 10-K


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PART I
ITEM 1. Business

Other Information

The financial information included in this Annual Report on Form 10-K for the fiscal year ended December 31, 2017 is in conformity with accounting principles generally accepted in the United States of America ("GAAP") unless otherwise indicated. Industry rankings and percentages set forth herein are for the year ended December 31, 2017 unless otherwise indicated. In addition, statements set forth in this document concerning our rank or position in an industry or particular line of business have been developed internally based on publicly available information unless otherwise noted.

Cigna Corporation was incorporated in Delaware in 1981. Our annual, quarterly and current reports, proxy statements and other filings, and any amendments to these filings, are made available free of charge on our website (http://www.cigna.com, under the "Investors – Quarterly Reports and SEC Filings" captions) as soon as reasonably practicable after we electronically file these materials with, or furnish them to, the Securities and Exchange Commission (the "SEC"). We use our website as a channel of distribution for material company information. Important information, including news releases, analyst presentations and financial information regarding Cigna is routinely posted on and accessible at www.cigna.com. See "Code of Ethics and Other Corporate Governance Disclosures" in Part III, Item 10 beginning on page 110 of this Form 10-K for additional available information.

Global Health Care

  How We Win
Products and Services   Funding Solutions
                           
   

Medical

Stop Loss

Dental

Vision

 

Pharmacy

Behavioral

Health Advocacy and Coaching

 

Medicare Advantage

Medicare Part D

Medicaid

         

Administrative Services Only (ASO or self-funded)

Insured – Guaranteed Cost

Insured – Experience Rated

   


Physician Engagement   Market Segments   Distribution Channels
                               
   

Collaborative Accountable Care Organizations

Independent Practice Associations

CareAllies®

Delivery System Alliances

         

National

Middle Market

Select

Individual

Government

International

         

Insurance brokers and consultants

Cigna Sales representatives

Cigna private exchange

3rd party private exchanges

Public exchanges

   

We seek to differentiate ourselves in this business by providing innovative personalized and affordable health care benefit solutions to our clients and customers. We sub-segment and target distinct buyer groups in a personalized and localized way. We focus on anticipating, understanding, and meeting their needs and we will continue to drive growth by deepening our approach to consultative partnership, accelerating the value of our integrated solutions, and enhancing the customer experience. As a leader in the drive to transition the health care delivery system from volume-based reimbursements to a value orientation, our strategy is to accelerate our engagement with employers and individuals in order to: 1) increase our customers' involvement in their health care and 2) develop deep insights into customer needs. Our differentiated approach to partnering with health care providers allows us to leverage information, incentives and care resources to help them evolve towards value-based care delivery and improve the quality and affordability of care for our customers and clients.

Innovation is core to the way we do business and will be a critical factor to our success in the highly dynamic health care industry. We have delivered innovative solutions that improve affordability and are more personalized, such as the Cigna One Guide® program that combines a state-of-the-art digital experience with a human concierge service; and the Cigna SureFit® network that allows individual family members to choose their personal care networks, consistent with their health needs and provider preferences.

CIGNA CORPORATION - 2017 Form 10-K    3


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PART I
ITEM 1. Business

Principal Products and Services

Commercial Medical Health Plans – U.S. and International

The Commercial operating segment, either directly or through its partners, offers some or all of its products in all 50 states, the District of Columbia, the U.S. Virgin Islands, Canada, Europe, the Middle East, Asia, Africa and Australia. We offer a variety of medical plans including:

Managed Care Plans including HMO, Network, Network Open Access and Open Access Plus.  Through our insurance companies, Health Maintenance Organizations ("HMOs") and third party administrator ("TPA") companies, we offer insured and self-insured indemnity and managed care benefit plans that use meaningful cost-sharing incentives to encourage the use of "in-network" versus "out-of-network" health care providers and provide the option to select a primary care physician. The national provider network for Managed Care Plans is somewhat smaller than the national network used with the preferred provider ("PPO") plan product line. If a particular plan covers non-emergency services received from a non-participating health care provider, the customer's cost-sharing obligation is usually greater for the out-of-network care.

PPO Plans.  Our PPO product line features a network with broader provider access than the Managed Care Plans. The preferred provider product line may be at a higher cost than our Managed Care Plans.

Consumer-Driven Products.  Cigna's suite of consumer-driven products – health savings accounts ("HSAs"), health reimbursement accounts ("HRAs") and flexible spending accounts ("FSAs") – are typically paired with a high-deductible medical plan and offer customers a tax-advantaged way to pay for eligible health care expenses. The nature of these products encourages customers to play an active role in managing their health and their health care costs. When integrated with a Cigna medical plan, we can deliver a seamless experience for our customers and clients. More than three million customers have chosen one of these integrated product solutions.

Cigna Connect is an individual plan offered in markets within eight states. The product is comprised of a network of health care providers in a geographic area who have been selected with cost and quality in mind. Customers who participate in the Connect network will receive care at Cigna's lower negotiated rates to help keep out-of-pocket costs down. Out-of-network coverage is not available except for urgent and emergent care.

Approximately 90% of our commercial medical customers are enrolled in medical plans with either ASO or experience rated funding arrangements that allow the corporate client to directly benefit from lower medical costs.

The funding arrangements available for our commercial medical and dental health plans are as follows:

    Funding Solutions: Commercial

 

  Chart presents percentage of customers by funding solution as of December 31, 2017.





ASO


Plan sponsors self-fund all claims, but may purchase integrated stop loss insurance to limit exposure.


We collect fees from plan sponsors for providing access to our participating provider network and for other services and programs including: claims administration; behavioral health; disease management; utilization management; cost containment; dental; and pharmacy benefit management.

 

 

GRAPHIC

   

 

  Insured – Experience Rated ("Shared Returns" funding suite)

Premium rates are established at the beginning of a policy period and are typically based on prior claim experience of the policyholder. The policyholder receives detailed claim and utilization reporting to understand actual plan costs and help make informed decisions about future benefit plan design.

The policyholder participates, or shares in, favorable claim experience. When claims and expenses are less than the premium charged (an "experience surplus" or "margin"), the policyholder may be credited for a portion of this experience surplus/margin. If claims and expenses exceed the premium charged (an "experience deficit"), we bear these costs. In certain cases, experience deficits incurred while the policy is in effect are accumulated and may be recovered through future policy year experience surpluses/margins.

   

 

  Insured – Guaranteed Cost ("Fully Insured")

Premium rates are established at the beginning of a policy period and, depending on group size, may be based in whole or in part on prior experience of the policyholder or on a pool of similar policyholders. We generally cannot subsequently adjust premiums to reflect actual claim experience until the next annual renewal.

The policyholder does not participate, or share in, actual claim experience. We keep any experience surplus/margin if costs are less than the premium charged (subject to minimum medical loss ratio rebate requirements discussed below) and bear the risk for actual costs in excess of the premium charged.

   
4    CIGNA CORPORATION - 2017 Form 10-K


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ITEM 1. Business

In most states, individual and group insurance premium rates must be approved by the applicable state regulatory agency (typically department of insurance) and state or federal laws may restrict or limit the use of rating methods. Premium rates for groups and individuals are subject to state review for reasonableness. In addition, the ACA subjects individual and small group policy rate increases above an identified threshold to review by the United States Department of Health and Human Services ("HHS") and requires payment of premium refunds on individual and group medical insurance products if minimum medical loss ratio ("MLR") requirements are not met. The MLR represents the percentage of premiums used to pay medical claims and expenses for activities that improve the quality of care. In our individual business, premiums may also be adjusted as a result of the government risk adjustment program that takes into account the relative health status of our customers. See the "Regulation" section of this Form 10-K for additional information on the commercial MLR requirements and the risk mitigation programs of the ACA.

Government Health Plans

Medicare Advantage

We offer Medicare Advantage plans in 17 states and the District of Columbia through our Cigna-HealthSpring brand. Under such a plan, Medicare-eligible beneficiaries may receive health care benefits, including prescription drugs, through a managed care health plan such as our coordinated care plans. A significant portion of our Medicare Advantage customers receive medical care from our value based models that focus on developing highly engaged physician networks, aligning payment incentives to improved health outcomes, and using timely and transparent data sharing. We are focused on continuing to expand these models in the future.

We receive revenue from the Centers for Medicare and Medicaid Services ("CMS") for each plan customer based on customer demographic data and actual customer health risk factors compared to the broader Medicare population. We also may earn additional revenue from CMS related to quality performance measures (known as "Star Ratings"). See the "Executive Overview" section of our MD&A beginning on page 35 of this Form 10-K for additional discussion of our Star Ratings. Premiums may be received from customers when our plan premium exceeds the revenue received from CMS. The ACA requires Medicare Advantage and Medicare Part D plans to meet a minimum MLR of 85%. If the MLR for a CMS contract is less than 85%, we are required to pay a rebate to CMS and could be required to make additional payments if the MLR continues to be less than 85% for successive years.

Medicare Part D

Our Medicare Part D prescription drug program provides a number of plan options, as well as service and information support, to Medicare and Medicaid eligible customers. Our plans are available in all 50 states and the District of Columbia and offer the savings of Medicare combined with the flexibility to provide enhanced benefits and a drug list tailored to individuals' specific needs. Eligible beneficiaries benefit from broad network access and value-added services intended to help keep them well and save them money.

Medicaid

We offer Medicaid coverage to low income individuals in select markets in Texas. We also offered Medicaid coverage to low income individuals in select markets in Illinois throughout 2017; however, as of December 31, 2017, all of our Medicaid contracts with the state of Illinois have been terminated. Our Medicaid customers benefit from many of the coordinated care aspects of our Medicare Advantage programs.

We receive revenue from the states of Texas and Illinois for our Medicaid only customers. For customers eligible for both Medicare and Medicaid ("dual eligible") we receive revenue from both the state and CMS. All revenue is based on customer demographic data and actual customer health risk factors. Similar to Medicare Advantage, there are minimum MLR requirements in Illinois (85% for the dual product and 88% for the Medicaid only product). However, Texas utilizes an experience rebate in an effort to provide better value to consumers and increase transparency. The Texas experience rebate takes into account operating expenses and requires a rebate of dollars to the state as different profitability thresholds are met.

Specialty Products and Services

Our specialty products and services described below are designed to improve the quality of care, lower cost and help customers achieve better health outcomes. Many of these products can be sold on a standalone basis, but we believe they are most effective when integrated with a Cigna-administered health plan. Our specialty products are focused in the areas of medical, behavioral, pharmacy management, dental and vision.

Medical Specialty

Stop Loss.  We offer stop loss insurance coverage for ASO clients that provides reimbursement for claims in excess of a predetermined amount for individuals ("specific"), the entire group ("aggregate"), or both.

Cost-Containment Service.  We administer cost-containment programs on behalf of our clients and customers for health care services and supplies that are covered under health benefit plans. These programs may involve vendors who perform activities designed to control health costs by reducing out-of-network utilization and costs, educating customers regarding the availability of lower cost in-network services, negotiating discounts, reviewing provider bills, and recovering overpayments from other payers or health care providers. We charge fees for providing or arranging for these services.

Consumer Health Engagement.  We offer an array of medical management, disease management, and wellness services to customers covered under plans administered by Cigna, or by third-party administrators. Our Medical Management programs include case, specialty and utilization management including a 24-hour nurse information line. Our Health Advocacy programs and services include early intervention in the treatment of chronic conditions and an array of health and wellness coaching. Additionally, we administer incentives to motivate customers to engage in and improve their health.
CIGNA CORPORATION - 2017 Form 10-K    5


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PART I
ITEM 1. Business

Pharmacy Management

We offer prescription drug plans to our commercial and government customers both in conjunction with our medical products and on a standalone basis. With a network of over 69,000 pharmacies, Cigna Pharmacy Management is a comprehensive pharmacy benefits manager ("PBM") offering clinical programs and specialty pharmacy solutions. We also offer high quality, efficient, and cost-effective mail order, telephone and on-line pharmaceutical fulfillment services through our home delivery operation.

Our medical and pharmacy coverage meets the needs of customers with complex medical conditions requiring specialty pharmaceuticals. These types of medications are covered under the pharmacy or medical benefit depending on whether they are dispensed by a pharmacy to the customer or administered to the customer by a health care professional or facility. Uses of these typically expensive medications often require associated lab work and coordination between the pharmacy and the patient's medical professionals may be critical in improving clinical outcomes and affordability. Customers with Cigna-administered medical and pharmacy coverage may experience greater continuity of care and affordability, and clients may benefit from integrated reporting and meaningful unit cost discounts on specialty drugs.

Behavioral Health

We arrange for behavioral health care services for customers through our network of approximately 122,000 participating behavioral health care professionals and 14,000 facilities and clinics. We offer behavioral health care case management services, employee assistance programs ("EAP"), and work/life programs to employers, government entities and other groups sponsoring health benefit plans. We focus on integrating our programs and services with medical, pharmacy and disability programs to facilitate customized, holistic care.

Dental

We offer a variety of insured and self-insured dental benefit solutions including dental health maintenance organization plans ("Dental HMO") in 37 states, dental preferred provider organization ("Dental PPO") plans in 49 states and the District of Columbia, exclusive dental provider organization plans, traditional dental indemnity plans and a dental discount program. Employers and other groups can purchase our products as standalone products or in conjunction with medical products. Additionally, individual customers can purchase Dental PPO plans as standalone products or in conjunction with individual medical policies.

Beginning in 2016 Cigna launched a suite of digital enhancements to our web portal and mobile application, for our dental customers to schedule appointments online, compare out-of-pocket costs across multiple dentists, and access information that evaluates the dentist's professional history, affordability and patient experience. Cigna's recent acquisition of Brighter, a leader in digital engagement with health care consumers, will accelerate developing and delivering deep end-to-end experiences that further connect our dental consumers with high quality providers.

As of December 31, 2017, our dental customers totaled 15.8 million worldwide and approximately 67% are enrolled in plans with funding arrangements that allow clients to directly benefit from lower dental costs. Our U.S. customers access care from one of the largest Dental PPO networks and Dental HMO networks, with approximately 140,600 Dental PPO and 19,900 Dental HMO health care professionals.

Vision

Cigna Vision offers flexible, cost-effective PPO coverage that includes a range of both in and out-of-network benefits for routine vision services offered in conjunction with our medical and dental product offerings. Our national vision care network, consisting of approximately 89,800 health care providers in over 26,300 locations, includes private practice ophthalmologist and optometrist offices, as well as retail eye care centers.

Service and Quality

Customer Service

For U.S.-based customers, we operate 22 service centers that together in 2017 processed approximately 168 million claims and handled 33 million calls providing our customers service 24 hours a day, 365 days a year.

In our international health care business, we have a service model dedicated to the unique needs of our 1.5 million customers around the world. We service them from 12 globally deployed service centers that allow us to provide service 24 hours a day, 365 days a year.

Technology

Cigna Information Technology supports the Go Deeper, Go Local, Go Beyond strategy by focusing first and foremost on strong foundational technology services and delivering against an aligned business and technology portfolio that creates market differentiation. We target specific innovation in the customer experience, digital capabilities, advanced analytics and artificial intelligence that provide key areas of competitive advantage. Our goal is to continue to focus on targeted technology investments to enable our strategic business objectives. This goal is accomplished by delivering innovative technology that enables more efficient operations, improves process integrity and cyber-protections, builds stronger relationships with our key stakeholders; optimizes our economies of scale; and maximizes flexible payment arrangements, innovative products and services and intelligent analytics to support evidence-based medicine. Through continued execution of these capabilities, we are able to better and more rapidly deliver market-differentiating and innovative solutions.

Technology plays an essential role, both as a critical enabler and as a core asset, in Cigna's drive to be the partner of choice and to deliver a superior experience to numerous stakeholders. To support these goals, our global IT strategy continues to focus on technology, infrastructure and platforms, as well as adopting Agile development methods. Execution across each of these dimensions results in improved delivery, quality and speed, stronger integration, improved transparency and greater optionality. As part of the execution of our global IT strategy, we have launched a growing portfolio of innovative solutions that leverage technologies such as virtual reality, mobile, advanced analytics and machine learning. Utilizing virtual reality technology coupled with biometrics and brain wave analysis, we developed a solution that monitors and

6    CIGNA CORPORATION - 2017 Form 10-K


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ITEM 1. Business

manages the stress level of call center agents. We also have introduced a global mobile application that enables access to a virtual health team as well as personalized health content, internet of things integration and consolidated medical record information. We are leveraging machine learning and analytics to proactively engage customers with our new, integrated customer decision support and service program, One Guide®. We are also using analytics to address the opioid epidemic. In addition to collaborating with our network of doctors, we leverage our Opioid Likely Overdose Risk Model, which uses machine learning with integrated claims data and analytics to detect opioid use patterns that suggest possible misuse.

Innovation is core to the way we do business; we continuously seek opportunities to drive efficiencies and create a superior customer experience through technology. Our business strategy is predicated on providing customers with differentiated, easy to use, seamless and secure products and solutions that leverage analytics and information to meet their increasing expectations. That means we need to anticipate those needs and meet customers where they are. From predicting and preventing chronic diseases, to mining data to reduce payment and claims fraud, to using the data from wearable's to optimize health, we foresee even more opportunities going forward to use sophisticated artificial intelligence and machine learning techniques. This will allow us to build even better models to answer the complex questions, and will lead to better health care outcomes.

Data Analytics

Cigna has transformed substantial investments in analytics talent, data infrastructure, and machine learning capabilities over the past several years into a closed loop, self-learning insights system that guides our decision making and executing on our strategy. Our Insights That Matter analytics process helps our business leaders identify the questions that matter most to our customers and partners. We focus our data science experts on answering those questions with innovative methodologies and transform our insights into targeted business actions.

Cigna is using advanced analytic capabilities throughout all facets of the business to:

Identify and quantify the financial and clinical cost of discrete health opportunities and insights into how to best engage individual customers (e.g., digital, phone, or physician-based interactions). We convert these insights into a Health Matters Score that is used to connect each customer to the right clinical services and drive better clinical, financial, and quality outcomes.

Enable customized service experiences. In our pharmacy business we are proactively offering our customers value added pharmacy and medical services during inbound customer calls, realizing the value of an integrated medical and pharmacy offering. To maximize impact, we apply our proprietary Customer Segmentation models to tailor customer communications to make interactions more meaningful.

Build a deep understanding of risk adjusted total cost and quality performance metrics at the individual physician level and aggregate market level to develop relative benchmarks. This data is being used to fuel our drive to fee for value physician reimbursements and flexible provider networks.

Leverage advanced analytic models and tools to better identify prospects that best align with Cigna's mission and value proposition for our client engagement team.

Going forward, we view insights as a strategic imperative and will continue to heavily invest in expanding and strengthening our capabilities to meet and exceed our customer and partner expectations.

Quality Health Care

Our commitment to promoting quality health care to the people we serve is reflected in a variety of activities.

Health Improvement through Engaging Providers and Customers

Cigna improves health outcomes, reduces health care costs, and delivers a better customer and provider experience by enabling optimized relationships that connect care between customers and providers. We refer to this as our Connected Care strategy. Key aspects of this strategy include engaging customers in their health, collaborating with providers to help them improve their performance, and connecting customers and providers through aligned health goals and incentives and actionable information to enable better decisions and outcomes. Cigna is committed to developing innovative solutions that span the health care delivery system and can be applied to different types of providers. Currently we have numerous collaborative arrangements with our participating health care providers and are actively developing new arrangements to support our Connected Care strategy. The key principles that guide our innovative solutions include:

improving access to care at the local market level;

collaborating with and supporting providers to be successful with value-based care;

leveraging actionable, personalized patient information, enhancing the patient experience; and,

shifting reimbursement incentives to reward quality medical and cost outcomes.

We continue to increase our engagement with physicians and hospitals by rapidly developing the types of arrangements discussed below. Over two million medical customers are currently serviced by more than 136,000 health care providers in these types of arrangements.

Cigna Collaborative Care.

CIGNA CORPORATION - 2017 Form 10-K    7


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Independent Practice Associations are value based physician engagement models in our Cigna-HealthSpring business that allow the physician groups to share financial outcomes with us. The Cigna-HealthSpring clinical model also includes outreach to new and at-risk patients to ensure they are accessing their primary care physician.

CareAllies®.  In 2016, we announced the formation of CareAllies®; this U.S.-based population health company is focused on helping physicians manage the health of their patients and improve their health outcomes. CareAllies® partners with physicians, provider groups and health systems to develop customized solutions that help them meet their goals across all patients and all payers.

Delivery System Alliances.  Cigna is collaborating with select health care delivery systems to develop compelling and unique strategic relationships focused on addressing the local market's unique health care needs. This includes jointly developed products designed to improve the experience of Cigna customers by offering integrated health care and providing access to quality, value-based care in local communities.

Customer Engagement Products – Cigna One Guide®.  Cigna is also delivering a personalized experience to help our customers navigate the complex health care system and make important health care choices. Cigna One Guide® provides customers with access to guided consultations via phone, mobile application and "Click-to-Chat" to help with choosing their benefits, building a personal health team of doctors, clinicians and coaches, navigating their health benefits and reducing their health expenses through reward programs.

In the international health care business we use the Net Promoter Score ("NPS") approach to continually gather insights from customers and health care professionals around the world and to guide how we proactively enhance product and service offerings.

Participating Provider Network

We provide our customers with an extensive network of participating health care professionals, hospitals, and other facilities, pharmacies and providers of health care services and supplies. In most instances, we contract with them directly; however, in some instances, we contract with third parties for access to their provider networks and care management services. In addition, we have entered into strategic alliances with several regional managed care organizations (e.g., Tufts Health Plan, HealthPartners, Inc., Health Alliance Plan, and MVP Health Plan) to gain access to their provider networks and discounts.

We credential physicians, hospitals and other health care professionals in our participating provider networks using quality criteria that meet or exceed the standards of external accreditation or state regulatory agencies, or both. Typically, most health care professionals are re-credentialed every three years.

The Cigna Care Network® is a benefit-plan design option offered in 74 service areas. The network distinguishes physicians in 21 specialties (3 primary care and 18 other specialties) who participate in our network, based on specific quality and/or cost-efficiency criteria. The benefit design is intended to encourage Cigna customers to consider using a Cigna Care Network® physician, affords a lower co-payment or coinsurance for services provided by a physician in this network than if the individual were to select a participating, non-Cigna Care Network® physician.

LocalPlus® is a locally-tailored network of select health care providers and facilities designed to provide cost-effective and quality care. It links multiple local networks across geographic markets to provide consistency for both employers and the customers. LocalPlus® was available in 23 markets as of the end of 2017, and will be available in 24 markets by the end of 2018.

The Cigna SureFit® network is built around a focused, local network of doctors and hospitals, who are rewarded for collaborating and providing quality care. Customers choose a primary care provider ("PCP") at enrollment, which helps ensure care is coordinated within the network – creating a better, more affordable customer experience. This creates network efficiencies that result in significant client savings over our Open Access Plus ("OAP") product. Traditional and alternative funding options are paired with integrated medical, pharmacy and behavioral health products to further maximize savings.

Medical Care and Onsite Services

Cigna Medical Group is a multi-specialty medical group practice that delivers primary care and certain specialty care services through 20 medical facilities and 120 clinicians in Phoenix, Arizona. These health care centers have received the highest accreditation (level 3) from the National Committee for Quality Assurance ("NCQA").

LivingWell Health Centers – HealthSpring®.  Medicare Advantage customers may receive care from one of our four free-standing clinics and 13 "embedded" clinics that incorporate the principles and resources of stand-alone clinics while allowing the customer access to their primary care physician.

Cigna Onsite Health provides employer-based onsite or nearby health centers and health and wellness coaches with nearly 60 health centers and 160 health coaches. Care delivery services include acute, episodic care through full primary care services. Additional services include a range of health and wellness and preventive services, pre-packaged generic prescription dispensing, biometrics screenings and health and wellness coaching for diet and nutrition as well as chronic condition management. Cigna Onsite Health also offers virtual health services to extend access to care for both coaching and treatment services.
8    CIGNA CORPORATION - 2017 Form 10-K


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External Validation

We continue to demonstrate our commitment to quality and have a broad scope of quality programs validated through nationally recognized external accreditation organizations. We achieved Health Plan accreditation from the NCQA in 38 of our markets. Additional NCQA recognitions include Full Accreditation for Managed Behavioral Healthcare Organization for Cigna Behavioral Health, Accreditation with Performance Reporting for Wellness & Health Promotion, Accreditation for our Disease Management programs and Physician & Hospital Quality Certification for our provider transparency program. We have Full Accreditation for Health Utilization Management, Case Management, Pharmacy Benefit Management and Specialty Pharmacy from URAC, an independent, nonprofit health care accrediting organization dedicated to promoting health care quality through accreditation, certification and commendation. We participate in the NCQA's Health Plan Employer Data and Information Set ("HEDIS®") Quality Compass Report, whose Effectiveness of Care measures are a standard set of metrics to evaluate the effectiveness of managed care clinical programs.

Markets and Distribution

We offer health care and related products and services in the following market segments:

          % of Medical
Customers
 
National   Multi-state employers with 5,000 or more U.S.-based, full-time employees. We offer primarily ASO funding solutions in this market segment.   23%  
Middle Market   Employers generally with 250 to 4,999 U.S.-based, full-time employees. This segment also includes single-site employers with more than 5,000 employees and Taft-Hartley plans and other groups. We offer ASO, experience rated and guaranteed cost insured funding solutions in this market segment.     53%  
Select   Employers generally with 51-249 eligible employees. We usually offer ASO with stop loss insurance coverage and guaranteed cost insured funding solutions in this market segment.   9%  
Individual   In 2017, we offered plans in fifteen states. We had plans on public health insurance exchanges in seven states (Colorado, Illinois, Maryland, Missouri, North Carolina, Tennessee and Virginia) and off-exchange in eight states (Arizona, California, Connecticut, Florida, Georgia, New Jersey, South Carolina, and Texas). In 2018, we offer plans in nine states. We have plans on public health insurance exchanges in six states (Colorado, Illinois, Missouri, North Carolina, Tennessee, and Virginia) and off-exchange in three states (Arizona, Florida, and New Jersey). Consistent with the regulations for Individual ACA compliant plans, we offer plans only on a guaranteed cost basis in this market segment.     2%  
Government   Individuals who are post-65 retirees, as well as employer group sponsored pre- and post-65 retirees. We offer Medicare Advantage, Prescription Drug programs, and Medicaid products in this market segment including dual-eligible members who receive both Medicare and Medicaid benefits.   3%  
International   Local and multinational companies, international organizations and governments and their local and globally-mobile employees and dependents working or travelling in more than 190 countries and jurisdictions. We offer guaranteed cost, experience rated insured and ASO funding solutions in this market segment.     10%  

Cigna Guided Solutions® is Cigna's benefit administration and private exchange solution that targets clients who value fully integrated solutions and focus on engaging employees in their benefit offering. It leverages Cigna's ability to provide a fully integrated solution with our broad spectrum of products, benefit plans, services, and full suite of funding options focused on improving total cost, health, and productivity. Through Cigna Guided Solutions®, employers enjoy simplified administration and the convenience of single source purchasing while employees receive more choice via an easy-to-use shopping experience and year round engagement. Together with integrated robust decision-support tools, employees are able to make personalized decisions to select the right benefit offering and get the most value from their plans.

In addition, Cigna participates on many third party private exchanges. We actively evaluate private exchange participation opportunities as they emerge in the market, and target our participation to those models that best align with our mission and value proposition.

We employ sales representatives to distribute our products and services through insurance brokers and insurance consultants or directly to employers, unions and other groups or individuals. We also employ sales representatives to sell access to our national participating provider network, utilization review services, behavioral health care and pharmacy management services, and employee assistance services directly to insurance companies, HMOs and third party administrators. As of December 31, 2017, our field sales force consisted of over 1,200 sales representatives in 124 field locations. In our Government business, Medicare Advantage enrollment is generally a decision made individually by the customer, and accordingly, sales agents and representatives focus their efforts on in-person contacts with potential enrollees, as well as telephonic and group selling venues.

Competition

Our business is subject to intense competition and continuing industry consolidation creates an even more competitive business environment. In certain geographic locations, some health care companies may have significant market share positions, but no one competitor dominates the health care market nationally. Given the current economic and political environment, we expect a continuing trend of consolidation across the health care industry supply chain (including insurers, hospitals, pharmaceutical companies, and providers).

Competition in the health care market exists both for employers and other groups sponsoring plans and for employees in those instances where the employer offers a choice of products from more than one health care company. Most group insurance policies are subject to annual review by the plan sponsor, who may seek competitive quotations prior to renewal. Since the inception of the Individual Exchange marketplaces many carriers have incurred significant financial losses leading to many exiting the market. With the continued debate regarding the ACA and the health care industry more broadly, it is likely that legislative and regulatory changes to the ACA will occur in the future.

CIGNA CORPORATION - 2017 Form 10-K    9


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The primary competitive factors affecting our business are quality and cost-effectiveness of service and provider networks; effectiveness of medical care management; products that meet the needs of employers and their employees; total cost management; technology; and effectiveness of marketing and sales. Financial strength of the insurer, as indicated by ratings issued by nationally recognized rating agencies, is also a competitive factor. We believe that our health advocacy capabilities, holistic approach to consumer engagement, breadth of product offerings, clinical care and medical management capabilities and array of product funding options are competitive advantages in meeting the diverse needs of our customer base. We also believe that our focus on helping to improve the health, well-being and sense of security of the customers we serve will allow us to differentiate ourselves from our competitors.

Our primary competitors in our U.S.-based health care businesses include:

other national insurance and health services companies that provide group health insurance products, including Aetna, Anthem, Humana, Kaiser Permanente and UnitedHealth Group;

not-for-profit managed care organizations, including Blue Cross/Blue Shield plans;

other regional stand-alone managed care and specialty companies, including newer health plans seeking to disrupt in part through technology (e.g. Bright Health and Oscar)

managed care organizations affiliated with major insurance companies and hospitals; and

national managed pharmacy, behavioral health and utilization review services companies.

Our primary competitors in the international health care business include U.S.-based insurers such as Aetna, UnitedHealth Group GeoBlue and MetLife; global competitors such as BUPA and Allianz; and local and regional insurers in a range of countries.

In addition to our traditional competitors, new sources of competition continue to emerge. These newer competitors are focused on delivering lower cost benefits and services through internet-enabled technology that allows consumers to take a more active role in the management of their health. This can be accomplished through financial incentives, access to enhanced quality medical data and other information sharing. The effective use of our health advocacy, customer insight and physician engagement capabilities, along with decision support tools (some of which are web-based) and enabling technology are critical to success in the health care industry, and we believe our capabilities in these areas will be competitive differentiators.

Industry Developments

The health insurance marketplace will continue to be shaped by the ACA over the near term. However, Congressional efforts to repeal and replace the ACA, various executive actions of the Trump administration, and the repeal of the individual mandate as part of the recently signed U.S. tax reform legislation make the future of the ACA uncertain. See the "Regulation" and "Risk Factors" sections of the Form 10-K for additional discussion about these developments.

Global Supplemental Benefits

  How We Win
Products
and Services
  Key Geographies and
Growth Markets
  Distribution
Channels
                               
   

Hospitalization

Dental

Medicare Supplement

Critical Illness

Personal Accident

Term Life

Variable Universal Life

Individual Private Medical Insurance

         

Asia: South Korea, China, Taiwan, Hong Kong, Indonesia and India

Turkey

United States

         

Telemarketing

Home Shopping & Direct Response Television

Independent agents

Bancassurance

Internet

   

We continue to distinguish ourselves in the global supplemental health, life and accident businesses through our differentiated direct-to-consumer distribution, customer insights and marketing capabilities. We enter new markets when the opportunity to bring our product and health solutions is attractive. Over the past several years, we have continued to extend our product offerings and geographic reach.

10    CIGNA CORPORATION - 2017 Form 10-K


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Principal Products and Services

Supplemental Health, Life and Accident Insurance

Supplemental health, life and accident insurance products generally provide simple, affordable coverage of risks for the health and financial security of individuals. Supplemental health products provide specified payments for a variety of health risks and include personal accident, accidental death, critical illness, hospitalization, travel, dental, cancer and other dread disease coverages. We also offer customers individual private medical insurance, term and variable universal life insurance and certain savings products.

Medicare Supplement Plans

We offer individual Medicare Supplement plans that provide retirees with federally standardized Medigap-style plans. Retirees may select among the various plans with specific plan options to meet their unique needs and may visit, without the need for a referral, any health care professional or facility that accepts Medicare throughout the United States.

Pricing and Reinsurance

Premium rates for our global supplemental benefits products are based on assumptions about mortality, morbidity, customer acquisition and retention, customer demographics, expenses and target profit margins, as well as interest rates. For variable universal life insurance products, fees consist of mortality, administrative, asset management and surrender charges assessed against the contractholder's fund balance. Mortality charges on variable universal life may be adjusted prospectively to reflect expected mortality experience. Most contracts permit premium rate changes at least annually.

A global approach to underwriting risk management allows each local business to underwrite and accept risk within specified limits. Retentions are centrally managed through cost effective use of external reinsurance to limit our liability on per life, per risk and per event (catastrophe) bases.

Markets and Distribution

Our supplemental health, life and accident insurance products sold in foreign countries are generally marketed through distribution partners with whom the individual insured has an affinity relationship. These products are sold primarily through direct marketing channels, such as outbound telemarketing, and in-branch bancassurance (when we partner with a bank and use the bank's sales channels to sell our insurance products). Marketing campaigns are conducted through these channels under a variety of arrangements with affinity partners, including banks, credit card companies and other financial and non-financial institutions. We also market directly to consumers via direct response television and the Internet. In certain countries, we market our products through captive and third party brokers and agents. Our Medicare supplement product line is distributed primarily through independent agents and telemarketing directly to the consumer.

South Korea represents our single largest geographic market for Global Supplemental Benefits. For information on this concentration of risk for the Global Supplemental Benefits segment's business in South Korea, see "Other Items Affecting Results of Global Supplemental Benefits" in the Global Supplemental Benefits section of the MD&A beginning on page 49 of this Form 10-K.

For our supplemental health, life and accident insurance products sold in foreign markets we are increasingly exposed to geopolitical, currency and other risks inherent in foreign operations. Also, given that we bill and collect a significant portion of premiums through credit cards, a substantial contraction in consumer credit could impact our ability to retain existing policies and sell new policies. A decline in customer retention would result in both a reduction of revenue and an acceleration of the amortization of acquisition-related costs. Changes in regulation for permitted distribution channels also may impact our business or results.

Competition

We expect that the competitive environment for global supplemental benefits will continue to intensify as U.S., Europe and other regionally-based insurance and financial services providers more aggressively pursue expansion opportunities across geographies, especially in Asia. We believe competitive factors will include branding, product and distribution innovation and differentiation, efficient management of marketing processes and costs, commission levels paid to distribution partners, the quality of claims, local network coverage, customer services and talent acquisition and retention. Additionally, in most overseas markets, perception of financial strength also will likely continue to be an important competitive factor.

Our competitors are primarily locally-based insurance companies, including insurance subsidiaries of banks primarily in Asia and Europe and multi-national companies. Insurance company competitors in this segment primarily focus on traditional product distribution through captive agents, with direct marketing being secondary channels. We estimate that we have less than 3% market share of the total insurance premiums in any given market in which we operate.

In the Medicare supplement business, the principal competitive factors are underwriting and pricing, relative operating efficiency, broker relations and the quality of claims and customer service. Our primary competitors in this business include U.S.-based health insurance companies.

Industry Developments

Pressure on social health care systems, a rapidly aging population and increased wealth and education in developing insurance markets are leading to higher demand for products providing health insurance and financial security. In the supplemental health, life and accident business, direct marketing channels continue to grow and attract new competitors with industry consolidation among financial institutions and other affinity partners.

Data privacy regulation has tightened in all markets in the wake of data privacy news scandals, impacting affinity partner and customer attitudes toward direct marketing of insurance and other financial services.

CIGNA CORPORATION - 2017 Form 10-K    11


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Most of the businesses in this segment operate through foreign subsidiaries. We continue to maintain a capital management strategy to retain overseas a significant portion of the earnings from these foreign operations. These undistributed earnings are deployed outside of the United States in support of the liquidity and capital requirements of our foreign operations. As a result of U.S. tax reform legislation enacted in December 2017, we recorded additional U.S. taxes of $88 million related to the Company's accumulated unremitted foreign earnings. Most of these taxes were incurred in the Global Supplemental Benefits segment. See the Management's Discussion and Analysis section of this Form 10-K for additional discussion of our capital management strategy and the impact of tax reform.

Group Disability and Life

  How We Win
Products and Services   Distribution Channels
                       
   

Short-term disability

 

Personal and voluntary accident

         

Insurance brokers and consultants

   
   

Long-term disability

 

Business travel accident

         

Sales representatives

   
 
   

Leave administration

 

Critical illness, Accidental injury and Hospital indemnity

               
   

Paid family leave

          Customer Segments
   

Basic-term life

                   
 
   

Voluntary term life

             

National

   
   

Group universal life

             

Middle Market

   
                   

Select

   

Our Group Disability and Life business markets its products and services in all 50 states, the District of Columbia, Puerto Rico, the U.S. Virgin Islands and Canada.

Products and Services

Group Disability

Long-term and short-term group disability insurance products generally provide a fixed level of income to replace a portion of wages lost because of disability. Group disability coverage is typically employer-paid or a combination of employer and employee-paid, but also may include coverage paid for entirely by employees. As part of our group disability insurance products, we also provide assistance to employees in returning to work and assistance to employers with resources to manage the cost of employee disability. We are an industry leader in helping employees return to work quickly, resulting in higher productivity and lower cost for employers and a better quality of life for their employees.

We seek to integrate the administration of our disability insurance products with other disability benefit programs, behavioral programs, medical programs, social security advocacy and administration of federal Family and Medical Leave Act ("FMLA"), State Leave Laws and other leave of absence programs. We believe this integration provides our customers with increased efficiency and effectiveness in disability claims management, enhances productivity and reduces overall costs to employers. This integration also provides early insight into employees at risk for future disability claims. Coordinating the administration of these disability programs with medical programs offered by our health care business provides enhanced opportunities to influence outcomes, reduce the cost of both medical and disability events and improve the return to work rate. The benefits of this integrated approach also include:

using information from the health care and disability databases to help identify, treat and manage disabilities before they become longer in duration or chronic and more costly; and

proactively reaching out to assist employees suffering from a mental health or chronic condition, either as a primary condition or as a result of another condition.

Our disability products and services are offered on a fully insured, experience-rated and ASO basis, although most are fully insured. As measured by 2017 premiums and fees, disability constituted 51% of this segment's business. Approximately 15,400 disability insurance policies covering approximately 8.8 million lives were in force as of December 31, 2017.

Group Life Insurance

Group life insurance products offered include term life and universal life. Group term life insurance may be employer-paid basic life insurance, employee-paid supplemental life insurance or a combination thereof. Group universal life insurance is an employee-paid, voluntary life insurance product in which the owner may accumulate a cash value. The cash value earns interest at rates declared from time to time, subject to a minimum guaranteed contracted rate, and may be borrowed, withdrawn, or, within certain limits, used to fund future life insurance coverage.

12    CIGNA CORPORATION - 2017 Form 10-K


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As measured by 2017 premiums and fees, group life insurance constituted approximately 43% of this segment's business. Approximately 9,200 group life insurance policies covering approximately 6.5 million lives were in force as of December 31, 2017.

Other Products and Services

We also offer personal accident insurance coverage, consisting primarily of accidental death and dismemberment and travel accident insurance to employers. Group accident insurance may be employer-paid or employee-paid. In addition, we offer specialty insurance services that consist primarily of disability and life, accident and hospital indemnity products to professional or trade associations and financial institutions.

We also provide a number of voluntary products and services that are typically paid by the employee and offered at the employer's worksite. Our plans provide employers with administrative solutions designed to provide employers with a complete and simple way to manage their benefits program. In recent years, we have brought to market three additional voluntary offerings: accidental injury insurance, critical illness coverage and hospital indemnity. These products provide additional dollar payouts to employees for unexpected accidents, hospitalization or more serious illnesses.

Pricing and Reinsurance

Premiums charged for disability and term life insurance products are usually established in advance of the policy period and are generally guaranteed for one to three years and selectively guaranteed for up to five years; policies are generally subject to termination by the policyholder or by the insurance company annually. Premium rates reflect assumptions about future claims, expenses, credit risk, investment returns and profit margins. These assumptions may be based in whole or in part on prior experience of the account or on a pool of accounts, depending on the group size and the statistical credibility of the experience that varies by product.

Premiums for group universal life insurance products consist of mortality and administrative charges assessed against the policyholder's fund balance. Interest credited and mortality charges for group universal life may be adjusted prospectively to reflect expected interest and mortality experience. Mortality charges are subject to maximum guaranteed rates and interest credited on cash values is subject to minimum guaranteed rates as stated in the policy.

The premiums for these products are typically collected within the coverage year and then invested in assets that match the duration of the expected benefit payments that occur over many future years (primarily for disability benefits). With significant investments in longer-duration securities, net investment income is a critical element of profitability for this segment.

The effectiveness of return-to-work programs and morbidity levels will impact the profitability of disability insurance products. Our previous claim experience and industry data indicate a correlation between disability claim incidence levels and economic conditions, with submitted claims rising under adverse economic conditions, although this impact is not clear. For life insurance products, the degree to which future experience deviates from mortality and expense assumptions also affects profitability.

To reduce our exposure to large individual and catastrophic losses under group life, disability and accidental death policies, as well as our more recent accidental injury and critical illness policies, we purchase reinsurance from a diverse group of unaffiliated reinsurers. Our comprehensive reinsurance program consists of excess of loss treaties and catastrophe coverage designed to mitigate earnings volatility and provide surplus protection.

Markets and Distribution

We market our group disability and life insurance products and services to employers, employees, professional and other associations and groups in the National, Middle Market and Select segments (see definitions of these segments on page 9). In marketing these products, we primarily sell through insurance brokers and consultants and employ a direct sales force consisting of approximately 250 sales professionals in 27 office locations as of December 31, 2017.

Competition

The principal competitive factors that affect the Group Disability and Life segment are underwriting and pricing, the quality and effectiveness of claims management, relative operating efficiency, investment and risk management, distribution methodologies and producer relations, the breadth and variety of products and services offered, the quality of customer service and, more importantly, the state of the tools and technology available for customers, clients, consultants and producers. For certain products with longer-term liabilities, such as group long-term disability insurance, the financial strength of the insurer, as indicated by ratings issued by nationally recognized rating agencies, is also a competitive factor.

The principal competitors of our group disability, life and accident businesses are other large and regional insurance companies that market and distribute these or similar types of products and include Unum, The Hartford, Prudential, Lincoln and MetLife.

As of December 31, 2017, we are one of the top providers of group disability, life and accident insurance in the United States, based on premiums.

Industry Developments

Employers are expressing a growing interest in employee wellness, absence management and productivity and likewise are recognizing a strong link between employee health, productivity and their profitability. As this interest grows, we believe our healthy lifestyle and return-to-work programs and integrated family medical leave, disability and health care programs position us to deliver integrated solutions for employers and employees. We also believe that our strong disability management portfolio and fully integrated programs provide tools for employers and employees to improve health status. This focus on managing the employee's total absence enables us to increase the number and effectiveness of interventions and minimize disabling events.

CIGNA CORPORATION - 2017 Form 10-K    13


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The group insurance market remains highly competitive as the rising cost of providing medical coverage to employees has forced companies to re-evaluate their overall employee benefit spending, resulting in lower volumes of group disability and life insurance business and more competitive pricing. Demographic shifts have further driven demand for products and services that are sufficiently flexible to meet the evolving needs of employers and employees who want innovative, cost-effective solutions to their insurance needs. Employers continue to shift towards greater employee participatory coverage and voluntary purchases. With our broad suite of voluntary offerings and continued focus on developing additional voluntary products and service capabilities, we believe we are well positioned to meet the needs of both employers and employees as the market shifts to become more retail-focused.

Over the past few years, there has been heightened review by state regulators of the claims handling practices within the disability and life insurance industry. This has resulted in an increase in coordinated, multi-state examinations that target specific market practices in addition to regularly recurring examinations of an insurer's overall operations conducted by an individual state's regulators. We have been subject to such an examination over the past several years. See Note 21(E) to our Consolidated Financial Statements for additional information.

The depressed level of interest rates in the United States over the last several years has constrained earnings growth in this segment due to lower yields on our fixed-income investments and higher benefit expenses resulting from the discounting of future claim payments at lower interest rates.

Other Operations

Other Operations includes the following four businesses:

Corporate-owned Life Insurance

The principal products of the COLI business are permanent insurance contracts sold to corporations to provide coverage on the lives of certain employees for the purpose of financing employer-paid future benefit obligations. Permanent life insurance provides coverage that, when adequately funded, does not expire after a term of years. The contracts are primarily non-participating universal life policies. Fees for universal life insurance products consist primarily of mortality and administrative charges assessed against the policyholder's fund balance. Interest credited and mortality charges for universal life and mortality charges on variable universal life may be adjusted prospectively to reflect expected interest and mortality experience. To reduce our exposure to large individual and catastrophe losses, we purchase reinsurance from unaffiliated reinsurers.

Run-off Settlement Annuity Business

Our settlement annuity business is a closed, run-off block of single premium annuity contracts. These contracts are primarily liability settlements with approximately 20% of the liabilities associated with payments that are guaranteed and not contingent on survivorship. For contracts that involve non-guaranteed payments, such payments are contingent on the survival of one or more parties involved in the settlement.

Run-off Reinsurance

Our reinsurance operations are an inactive business in run-off mode.

In February 2013, we effectively exited the guaranteed minimum death benefit ("GMDB") and guaranteed minimum income benefit ("GMIB") business by reinsuring 100% of our future exposures, net of retrocessional arrangements in place at that time, up to a specified limit. For additional information regarding this reinsurance transaction and the arrangements that secure our reinsurance recoverables, see Note 9 to our Consolidated Financial Statements.

Individual Life Insurance and Annuity and Retirement Benefits Businesses

This business includes deferred gains recognized from the 1998 sale of the individual life insurance and annuity business and the 2004 sale of the retirement benefits business. For more information regarding the arrangements that secure our reinsurance recoverables for the retirement benefits business, see Note 9 to our Consolidated Financial Statements.

Investments and Investment Income

General Accounts

Our investment operations provide investment management and related services for our corporate invested assets and the insurance-related invested assets in our General Account ("General Account Invested Assets"). We acquire or originate, directly or through intermediaries, a broad range of investments including private placement and public securities, commercial mortgage loans, real estate, mezzanine, private equity partnerships and short-term investments. Invested assets also include policy loans that are fully collateralized by insurance policy cash values. Invested assets are managed primarily by our subsidiaries and, to a lesser extent, external managers with whom our subsidiaries contract. Net investment income is included as a component of adjusted income from operations for each of our reporting segments and Corporate. Realized investment gains (losses) are reported by segment but excluded from adjusted income from operations. For additional information about invested assets, see the "Investment Assets" section of the MD&A beginning on page 52 and Notes 10 to 12 of our Consolidated Financial Statements.

We manage our investment portfolios to reflect the underlying characteristics of related insurance and contractholder liabilities and capital requirements, as well as regulatory and tax considerations pertaining to those liabilities and state investment laws. Insurance and contractholder liabilities range from short duration health care products to longer term obligations associated with disability and life insurance products and the run-off settlement annuity business. Assets supporting these liabilities are managed in segregated investment portfolios to

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facilitate matching of asset durations and cash flows to those of corresponding liabilities. Investment strategy and results are affected by the amount and timing of cash available for investment, competition for investments, economic conditions, interest rates and asset allocation decisions. We routinely monitor and evaluate the status of our investments, obtaining and analyzing relevant investment-specific information and assessing current economic conditions, trends in capital markets and other factors such as industry sector, geographic and property-specific information.

Separate Accounts

Our subsidiaries or external advisors manage Separate Account invested assets on behalf of contractholders; including the Cigna Pension Plan, variable universal life products sold through our corporate-owned life insurance business, and other disability and life products. These assets are legally segregated from our other businesses and are not included in General Account Invested Assets. Income, gains and losses generally accrue directly to the contractholders.

Regulation

The laws and regulations governing our business continue to increase each year and are subject to frequent change. We are regulated by state, federal and international regulatory agencies that generally have discretion to issue regulations and interpret and enforce laws and rules. These regulations can vary significantly from jurisdiction to jurisdiction, and the interpretation of existing laws and rules also may change periodically. Domestic and international governments continue to enact and consider various legislative and regulatory proposals that could materially impact the health care system.

Our insurance and HMO subsidiaries must be licensed by the jurisdictions in which they conduct business. These subsidiaries are subject to numerous state, federal and international regulations related to their business operations, including, but not limited to:

the form and content of customer contracts including benefit mandates (including special requirements for small groups);

premium rates and medical loss ratios;

the content of agreements with participating providers of covered services;

producer appointment and compensation;

claims processing, payment and appeals;

underwriting practices;

reinsurance arrangements;

solvency and financial reporting;

unfair trade and claim practices;

market conduct;

protecting the privacy and confidentiality of the information received from customers;

risk sharing arrangements with providers;

reimbursement or payment levels for Medicare services;

reimbursement or payment levels for out-of-network emergency care services;

claim appeal procedures;

provider directory and network adequacy requirements;

advertising; and

the operation of consumer-directed plans (including health savings accounts, health reimbursement accounts, flexible spending accounts and debit cards).

The business of administering and insuring employee benefit programs in the United States, particularly health care programs, is heavily regulated by state and federal laws and administrative agencies, such as state departments of insurance, and federal agencies including HHS, CMS, the Internal Revenue Service ("IRS") and the Departments of Labor ("DOL"), Treasury and Justice ("DOJ"), as well as the courts. Health savings accounts, health reimbursement accounts and flexible spending accounts also are regulated by the Department of the Treasury and the IRS.

Our operations, accounts and other books and records are subject to examination at regular intervals by regulatory agencies, including state insurance and health and welfare departments, state boards of pharmacy, CMS, DOL, and comparable international regulators to assess compliance with applicable laws and regulations. In addition, our current and past business practices are subject to review by, and from time to time we receive subpoenas and other requests of information from various state insurance and health care regulatory authorities, state attorneys general, the Office of Inspector General ("OIG"), the DOJ, the DOL and other state, federal and international authorities, including inquiries by, and testimony before committees and subcommittees of the U.S. Congress regarding certain of our business practices. These examinations, reviews, subpoenas and requests may result in changes to or clarifications of our business practices, as well as fines, penalties or other sanctions.

Our international subsidiaries are subject to regulations in international jurisdictions where foreign insurers may face more rigorous regulations than their domestic competitors. In addition, the expansion of our operations into foreign countries increases our exposure to certain U.S. laws, such as the Foreign Corrupt Practices Act of 1977 ("FCPA"). See page 19 for further discussion of international regulations.

Patient Protection and the Affordable Care Act (ACA)

The ACA mandated broad changes affecting insured and self-insured health benefit plans that impact our current business model, including our relationship with current and future producers and health care providers, products, services, processes and technology. Several bills were

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introduced in Congress in 2017 to repeal and replace the ACA, though none had passed the House and Senate. Discussions on the ACA continue in Congress.

Throughout 2017, President Trump took several steps to limit the utility of the ACA. In January 2017, he signed an executive order instructing agencies to waive, defer, grant exemptions from, or delay the implementation of any provision or requirement of the ACA that would impose a fiscal burden on any state or a cost, fee, tax, penalty, or regulatory burden on individuals, providers, insurers, recipients of health care services, purchasers of health insurance or makers of medical devices, products or medications. In October 2017, President Trump issued another executive order that could result in significant changes to the individual and group health insurance markets. Among other things, the executive order permits the expansion of association health plans where small businesses and individuals join together to form a plan. It may also expand the use of short term health plans that generally have lower premiums and less coverage than policies sold on the exchanges. At this time, we are unable to determine the effect, if any, of these actions on our business or results of operations.

Also in October 2017, the Trump administration stopped payment of cost-sharing reduction subsidies to insurers. Cost-sharing reduction subsidies lower the amount that qualifying customers pay for deductibles, copayments and coinsurance. The federal government had provided funding for the cost-sharing reduction subsidies to the qualifying customer's insurer until the President's executive order. The attorneys general of 18 states and the District of Columbia have sued the Trump administration, seeking to require the administration to continue paying these subsidies. While the litigation is at a preliminary stage, in October 2017, the court denied the attorney generals' request for an injunction, allowing the government to cease providing the cost-sharing reduction payments to insurers during the pendency of the matter. We will continue to monitor developments as the case proceeds.

In December 2017, the U.S. tax reform legislation was signed into law that, among other things, repealed the penalty charged to individuals without health insurance, known as the "individual mandate," effective January 1, 2019.

As a result of these actions, the future of the ACA is uncertain.

Key Provisions of the ACA

Various fees, including the health insurance industry tax, were assessed beginning in 2014. The health insurance industry assessment, totaling $14.3 billion in 2018, is not tax deductible. While federal appropriations legislation imposed a one-year moratorium on the industry tax for 2017 and 2019, the industry tax has been reinstated for 2018. For 2020 and beyond, the annual industry tax will equal the amount for the preceding year increased by a rate of premium growth for the preceding year less the rate of growth in the consumer price index for the preceding calendar year. Our share of this industry tax is determined based on our proportion of premiums for both our commercial and government risk businesses to the industry total.

Each state has a state-based, a state and federal partnership, or a federally-facilitated health insurance exchange for individuals and small employer groups to purchase insurance coverage. Because individuals seeking to purchase health insurance coverage either on or off the exchanges are guaranteed to be issued a policy, the ACA provided programs designed to reduce the risk for participating health insurance companies. The ACA includes a permanent program that adjusts premiums based on the relative health status of the customer base ("risk adjustment"). Two other programs, a reinsurance program and a risk corridor program, were temporary in nature (2014-2016).

MLR requirements, as prescribed by HHS, require payment of premium rebates to group and individual policyholders if certain annual MLRs are not met in our commercial business. Expatriate health coverage is excluded from certain provisions of the ACA, including the MLR requirement.

Other provisions of the ACA in effect include reduced Medicare Advantage premium rates, the requirement to cover preventive services with no enrollee cost-sharing, banning the use of lifetime and annual limits on the dollar amount of essential health benefits, increasing restrictions on rescinding coverage and extending coverage of dependents to the age of 26. The employer mandate requires employers with 50 or more full-time employees to offer affordable health insurance that provides minimum value (each as defined under the ACA) to full-time employees and dependent children up to age 26 or be subject to penalties based on employer size. The ACA also changed certain tax laws that effectively limit tax deductions for certain employee compensation paid by health insurers.

Management continues to be actively engaged with the Trump administration, Congress, regulators and policymakers with respect to the ACA. However, President Trump's and Congress' attempts to scale back the ACA, such as through the repeal of the individual mandate, regulatory challenges to the ACA, and pending litigation challenging aspects of the law and related executive orders, will continue to create uncertainty about the ultimate impact of the ACA.

See also the "Executive Overview" section of our MD&A beginning on page 35 of this Form 10-K. In addition, accounting policies around the government's risk mitigation programs are further disclosed in Note 2 to our Consolidated Financial Statements.

Medicare and Medicaid Regulations

Several of our subsidiaries engage in businesses that are subject to federal Medicare regulations, such as:

those offering individual and group Medicare Advantage coverage; and

those offering Medicare Pharmacy (Part D) products.

In our Medicare Advantage and Medicare Part D business, we contract with CMS to provide services to Medicare beneficiaries. As a result, our ability to obtain payment (and the determination of the amount of such payments), enroll and retain members and expand into new service areas is subject to compliance with CMS' numerous and complex regulations and requirements that are frequently modified and subject to administrative discretion. Marketing and sales activities (including those of third-party brokers and agents) are also heavily regulated by CMS and other governmental agencies, including applicable state departments of insurance. We will continue to allocate significant resources to our compliance, ethics and fraud, waste and abuse programs to comply with the laws and regulations governing Medicare Advantage and Medicare Part D programs.

Our Medicare Advantage and Medicare Part D prescription drug plan businesses also have been impacted by the ACA (and other programs) in a variety of ways, including mandated minimum reductions to risk scores, transition of Medicare Advantage "benchmark" rates to Medicare

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fee-for-service parity, reduced enrollment periods and limitations on disenrollment and mandated consumer discounts on brand name and generic prescription drugs for Medicare Part D plan participants in the coverage gap.

The ACA ties a portion of each Medicare Advantage plan's and Medicare Part D plan's reimbursement to the plan's "Star Rating" by CMS; those plans receiving a rating of four or more stars are eligible for quality-based bonus payments. The Star Rating system considers various measures adopted by CMS, including, for example, quality of care, preventative services, chronic illness management, coverage determinations and appeals and customer satisfaction. The star rating system is subject to change annually by CMS, which may make it more difficult to achieve four stars or greater.

The ACA requires Medicare Advantage and Medicare Part D plans to meet a minimum MLR of 85%. If the MLR for a CMS contract is less than 85%, we are required to pay a penalty to CMS and could be required to make additional payments or be subject to other penalties if the MLR continues to be less than 85% for successive years. Through the ACA and other federal legislation, funding for Medicare Advantage plans has been and may continue to be altered.

Our Medicaid and dual eligible products are also regulated by CMS and state Medicaid agencies that audit our performance to determine compliance with contracts and regulations. We continue to work in collaboration with applicable state agencies regarding our Medicaid plan in Texas to ensure ongoing compliance and sustainability.

Section 111 of the Medicare, Medicaid and SCHIP Extension Act of 2007 requires us to report specific information regarding claimants and claim settlements involving Medicare participants so CMS can recover Medicare funds expended to provide health care treatment to the claimant.

Strict sanctions, including fines and penalties, exclusion from the Medicare and Medicaid programs and criminal penalties may be imposed for non-compliance with these laws and regulations.

Federal and State Audits of Government-Sponsored Health Care Programs

Participation in government-sponsored health care programs subjects us to a variety of federal and state laws and regulations and risks associated with audits conducted under these programs. These audits may occur in years subsequent to our providing the relevant services. These risks may include potential fines and penalties, restrictions on our ability to participate or expand our presence in certain programs and restrictions on marketing our plans. For example, with respect to our Medicare Advantage business, CMS and the OIG perform audits to determine a health plan's compliance with federal regulations and contractual obligations, including program audits, compliance with proper coding practices (sometimes referred to as "Risk Adjustment Data Validation Audits" or "RADV audits"). For our Medicare Part D business, compliance with fraud and abuse enforcement practices is monitored through Recovery Audit Contractor ("RAC") audits in which third-party contractors conduct post-payment reviews on a contingency fee basis to detect and correct improper payments. In addition, negative performance points may be accumulated for noncompliance, including failure to perform satisfactorily during an audit. Negative past performance points could restrict our ability to expand our Medicare Advantage business geographically. The DOJ is currently conducting an industry review of the risk adjustment data submission practices and business processes, including review of medical charts, of Medicare Advantage organizations under Medicare Parts C and D.

The federal government has made investigating and prosecuting health care fraud, waste and abuse a priority. Fraud, waste and abuse prohibitions encompass a wide range of activities, including kickbacks for inducement to refer customers, billing for unnecessary medical services, coding, network adequacy and improper marketing. The False Claims Act (which includes whistleblower provisions) enables the federal government to bring a lawsuit against an entity that it believes has knowingly presented a false or fraudulent request for payment from the federal government, or who has made a false statement or used a false record to get a claim approved. The regulations and contractual requirements in this area are complex, are frequently modified, and are subject to administrative discretion and judicial interpretation. A number of states have also adopted false claims acts and whistleblower provisions. We expect to continue to allocate significant resources to comply with these regulations and requirements and to maintain audit readiness.

Pharmacy-related Laws and Regulations

Certain of our subsidiaries are pharmacies that dispense prescription drugs to participants of benefit plans administered or insured by our HMO and insurance company subsidiaries. These pharmacy-subsidiaries are subject to state licensing requirements and regulation as well as U.S. Drug Enforcement Agency registration requirements, U.S. Food and Drug Administration requirements and third party accreditation requirements. Other laws and regulations affecting our pharmacy-subsidiaries include federal and state laws concerning labeling, packaging, advertising, handling and adulteration of prescription drugs and dispensing of controlled substances.

Our pharmacy benefit management (PBM) services are subject to numerous laws and regulations, including, for example the False Claims Act and federal and state anti-kickback laws. These laws and regulations govern, and proposed legislation and regulations may govern, critical PBM practices, including disclosure, receipt and retention of rebates and other payments received from pharmaceutical manufacturers; receipt and retention of transmission fees from contracted pharmacies; use of, administration of, and/or changes to drug formularies, maximum allowable cost list pricing, and/or clinical programs; disclosure of data to third parties; drug utilization management practices; the level of duty a pharmacy benefit manager owes its customers; configuration of pharmacy networks; the operations of our subsidiary pharmacies; disclosure of negotiated provider reimbursement rates; calculation of customer cost share for prescription drug claims; disclosure of fees associated with administrative service agreements and patient care programs that are attributable to customers' drug utilization; and registration or licensing of pharmacy benefit managers.

Other Federal and State Regulations

Employee Retirement Income Security Act and the Public Health Service Act

Our domestic subsidiaries sell most of their products and services to sponsors of employee benefit plans that are governed by the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). ERISA is a complex set of federal laws and regulations enforced by the IRS and the Department of Labor, as well as the courts. ERISA regulates certain aspects of the relationship between us, the employers that maintain employee welfare benefit plans subject to ERISA and participants in such plans. Our domestic subsidiaries are subject to requirements

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imposed by ERISA affecting claim payment and appeals procedures for individual health insurance and insured and self-insured group health plans and for the insured dental, disability, life and accident plans we administer. Our domestic subsidiaries also may contractually agree to comply with these requirements on behalf of the self-insured dental, disability, life and accident plans they administer.

Many provisions of the ACA impacting insured and self-insured group health plans were incorporated into ERISA. The health insurance reform provisions under ERISA were also incorporated into the Public Health Service Act and are directly applicable to health insurance issuers (i.e., health insurers and HMOs).

Plans subject to ERISA also can be subject to state laws and the legal question of whether and to what extent ERISA preempts a state law will continue to be subject to court interpretation.

Privacy, Security and Data Standards Regulations

The federal Health Insurance Portability and Accountability Act of 1996 and its implementing regulations ("HIPAA") imposes minimum standards on health insurers, HMOs, health plans, health care providers and clearinghouses for the privacy and security of protected health information. HIPAA also established rules that standardize the format and content of certain electronic transactions, including, but not limited to, eligibility and claims.

The Health Information Technology for Economic and Clinical Health Act ("HITECH") imposes additional contracting requirements for covered entities, the extension of privacy and security provisions to business associates, the requirement to provide notification to various parties in the event of a data breach of protected health information, and enhanced financial penalties for HIPAA violations, including potential criminal penalties for individuals. In the conduct of our business, depending on the circumstances, we may act as either a covered entity or a business associate.

The federal Gramm-Leach-Bliley Act generally places restrictions on the disclosure of non-public information to non-affiliated third parties, and requires financial institutions, including insurers, to provide customers with notice regarding how their non-public personal information is used, including an opportunity to "opt out" of certain disclosures. State departments of insurance and certain federal agencies adopted implementing regulations as required by federal law.

A number of states have adopted data security laws and regulations regulating data security and requiring security breach notification that may apply to us in certain circumstances and are increasingly focused on protecting individuals from identity theft. Neither HIPAA nor the Gramm-Leach-Bliley privacy regulations preempt more stringent state laws and regulations. In addition, international laws, rules and regulations governing the use and disclosure of personal information are generally more stringent than in the United States, and they vary from jurisdiction to jurisdiction.

The Cybersecurity Information Sharing Act of 2015 ("CISA") encourages organizations to share cyber threat indicators with the federal government and, among other things, directs HHS to develop a set of voluntary cybersecurity best practices for organizations in the health care industry. States have also begun to issue regulations specifically related to cybersecurity. In October 2017, the National Association of Insurance Commissioners ("NAIC") adopted the Insurance Data Security Model Law that creates rules for insurers and other covered entities addressing data security, investigation and notification of breaches. This includes maintaining an information security program based on ongoing risk assessment, overseeing third-party service providers, investigating data breaches and notifying regulators of a cybersecurity event. As the model law is intended to serve as model legislation only, states will need to enact legislation for the model law to become mandatory and enforceable. We will continue to monitor states' activity regarding cybersecurity regulation.

Consumer Protection Laws

We engage in direct-to-consumer activities and are increasingly offering mobile and web-based solutions to our customers. We are therefore subject to federal and state regulations applicable to electronic communications and other consumer protection laws and regulations, such as the Telephone Consumer Protection Act and the CAN-SPAM Act. In particular, the Federal Trade Commission is increasingly exercising its enforcement authority in the areas of consumer privacy and data security, with a focus on web-based, mobile data and "big data." Federal consumer protection laws may also apply in some instances to privacy and security practices related to personally identifiable information.

Dodd-Frank Act and Investment-Related Regulations

The Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act") provides for a number of reforms and regulations in the corporate governance, financial reporting and disclosure, investments, tax and enforcement areas. The Dodd-Frank Act established a Federal Insurance Office (the "FIO") to develop federal policy on insurance matters. While the FIO does not have authority over health insurance, it may have authority over other parts of our business, such as life insurance. Additional rulemaking by the SEC and other regulatory authorities continues. In February 2017, President Trump signed an executive order directing the Secretary of the Treasury to conduct a review of the Dodd-Frank Act. We continue to monitor how these regulations might impact us.

Depending upon their nature, our investment management activities are subject to U.S. federal securities laws, ERISA and other federal and state laws governing investment related activities. In many cases, the investment management activities and investments of individual insurance companies are subject to regulation by multiple jurisdictions.

Office of Foreign Assets Control Sanctions and Anti-Money Laundering

We also are subject to regulation by the Office of Foreign Assets Control of the Department of the Treasury that administers and enforces economic and trade sanctions based on U.S. foreign policy and national security goals against targeted foreign countries and regimes.

Certain of our products are subject to Department of the Treasury anti-money laundering regulations under the Bank Secrecy Act.

In addition, we may be subject to similar regulations in non-U.S. jurisdictions in which we operate.

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Regulation of Insurance Companies

Financial Reporting, Internal Control and Corporate Governance

Regulators closely monitor the financial condition of licensed insurance companies and HMOs. States regulate the form and content of statutory financial statements, the type and concentration of permitted investments, and corporate governance over financial reporting. Our insurance and HMO subsidiaries are required to file periodic financial reports and schedules with regulators in most of the jurisdictions in which they do business as well as annual financial statements audited by independent registered public accounting firms. Certain insurance and HMO subsidiaries are required to file an annual report of internal control over financial reporting with most jurisdictions in which they do business. Insurance and HMO subsidiaries' operations and accounts are subject to examination by such agencies. Many states have expanded regulations relating to corporate governance and internal control activities of insurance and HMO subsidiaries as a result of model regulations adopted by the NAIC with elements similar to corporate governance and risk oversight disclosure requirements under federal securities laws.

Guaranty Associations, Indemnity Funds, Risk Pools and Administrative Funds

Most states and certain non-U.S. jurisdictions require insurance companies to support guaranty associations or indemnity funds that are established to pay claims on behalf of insolvent insurance companies. Some states have similar laws relating to HMOs and other payers, such as consumer operated and oriented plans (co-ops) established under the ACA. In the United States, these associations levy assessments on member insurers licensed in a particular state to pay such claims. Certain states require HMOs to participate in guaranty funds, special risk pools and administrative funds. For additional information about guaranty fund and other assessments, see Note 21 to our Consolidated Financial Statements.

Certain states continue to require health insurers and HMOs to participate in assigned risk plans, joint underwriting authorities, pools or other residual market mechanisms to cover risks not acceptable under normal underwriting standards, although some states have eliminated these requirements as a result of the ACA.

Solvency and Capital Requirements

Many states have adopted some form of the NAIC model solvency-related laws and risk-based capital rules ("RBC rules") for life and health insurance companies. The RBC rules recommend a minimum level of capital depending on the types and quality of investments held, the types of business written and the types of liabilities incurred. If the ratio of the insurer's adjusted surplus to its risk-based capital falls below statutory required minimums, the insurer could be subject to regulatory actions ranging from increased scrutiny to conservatorship.

In addition, various non-U.S. jurisdictions prescribe minimum surplus requirements that are based upon solvency, liquidity and reserve coverage measures. Our HMOs and life and health insurance subsidiaries, as well as non-U.S. insurance subsidiaries, are compliant with applicable RBC and non-U.S. surplus rules.

The Risk Management and Own Risk and Solvency Assessment Model Act ("ORSA"), adopted by the NAIC, provides requirements and principles for maintaining a group solvency assessment and a risk management framework and reflects a broader approach to U.S. insurance regulation. ORSA includes a requirement to file an annual ORSA Summary Report in the lead state of domicile. To date, an overwhelming majority of the states have adopted the same or similar versions of ORSA. We file our ORSA report annually as required.

Holding Company Laws

Our domestic insurance companies and certain of our HMOs are subject to state laws regulating subsidiaries of insurance holding companies. Under such laws, certain dividends, distributions and other transactions between an insurance company or an HMO subsidiary and its affiliates may require notification to, or approval by, one or more state insurance commissioners. In addition, the holding company acts of states in which our subsidiaries are domiciled restrict the ability of any person to obtain control of an insurance company or HMO subsidiary without prior regulatory approval.

Marketing, Advertising and Products

In most states, our insurance companies and HMO subsidiaries are required to certify compliance with applicable advertising regulations on an annual basis. Our insurance companies and HMO subsidiaries are also required by most states to file and secure regulatory approval of products prior to the marketing, advertising, and sale of such products.

Licensing Requirements

Certain subsidiaries contract to provide claim administration, utilization management and other related services for the administration of self-insured benefit plans. These subsidiaries may be subject to state third-party administration and other licensing requirements and regulation, as well as third party accreditation requirements.

Our international subsidiaries are often required to be licensed when entering new markets or starting new operations in certain jurisdictions. The licensure requirements for these subsidiaries vary by country and are subject to change.

International Regulations

Our operations outside the United States expose us to laws of multiple jurisdictions and the rules and regulations of various governing bodies and regulators, including those related to financial and other disclosures, corporate governance, privacy, data protection, data mining, data transfer, intellectual property, labor and employment, consumer protection, direct-to-consumer communications activities, tax, anti-corruption and anti-money laundering. Foreign laws and rules may include requirements that are different from or more stringent than similar requirements in the United States.

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Our operations in countries outside the United States:

are subject to local regulations of the jurisdictions where we operate;

in some cases, are subject to regulations in the jurisdictions where customers reside; and

in all cases, are subject to the FCPA.

In particular, in South Korea where we are selling insurance products directly to individual customers, regulators are focused on protecting the rights of individual customers by enforcing "Treating Customers Fairly" concepts. This regulatory focus results in rigorous data localization requirements, network separation obligations, and system monitoring restrictions, as well as obligations to closely monitor marketing communications and sales scripts. Anti-money laundering requirements in South Korea also impose obligations on the Company to collect certain information about each customer at time of sale and to risk rank each customer to determine possible future money laundering risk.

The FCPA prohibits offering, promising, providing or authorizing others to give anything of value to a foreign government official or employee to obtain or retain business or otherwise secure a business advantage. Outside of the United States, we may interact with government officials in several different capacities: as regulators of our insurance business; as clients or partners who are state-owned or partially state-owned; as health care professionals who are employed by the government; and as hospitals that are state-owned. Violations of the FCPA and other anti-corruption laws may result in severe criminal and civil sanctions as well as other penalties, and the SEC and Department of Justice have increased their enforcement activities with respect to FCPA. The UK Bribery Act of 2010 applies to all companies with a nexus to the United Kingdom. Under this act, any voluntary disclosures of FCPA violations may be shared with United Kingdom authorities, thus potentially exposing companies to liability and potential penalties in multiple jurisdictions.

If our employees or agents fail to comply with applicable laws governing our international operations, we may face investigations, prosecutions and other legal proceedings and actions that could result in civil penalties, administrative remedies and criminal sanctions. See the Risk Factors section beginning on page 21 for a discussion of risks related to our global operations.

Miscellaneous

Premiums and fees from CMS represented 17% of our total consolidated revenues for the year ended December 31, 2017 under a number of contracts. We are not dependent on business from one or a few customers. Other than CMS, no one customer accounted for 10% or more of our consolidated revenues in 2017. We are not dependent on business from one or a few brokers or agents. In addition, our 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 approval and acceptance.

We had approximately 46,000 employees as of December 31, 2017.

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ITEM 1A. Risk Factors

As a large company operating in a complex industry, we encounter a variety of risks and uncertainties that could have a material adverse effect on our business, liquidity, results of operations, financial condition or the trading price of our securities. You should carefully consider each of the risks and uncertainties discussed below, together with other information contained in this Annual Report on Form 10-K, including Management's Discussion and Analysis of Results of Operations and Financial Condition. These risks and uncertainties are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also adversely affect us. The following risk factors have been organized by category for ease of use; however many of the risks may have impacts in more than one category. These categories, therefore, should be viewed as a starting point for understanding the significant risks facing us and not as a limitation on the potential impact of the matters discussed. Risk factors are not necessarily listed in order of importance.

Strategic and Operational Risks

Future performance of our business will depend on our ability to execute our strategic and operational initiatives effectively.

The future performance of our business will depend in large part on our ability to effectively implement and execute our strategic and operational initiatives including: (1) driving value creation in our targeted areas of business growth; (2) pursuing additional opportunities to expand our capabilities through solutions, segments, distribution channels and geographies; and (3) creating additional value through capital deployment. Successfully executing on these initiatives depends on a number of factors, including our ability to:

differentiate our products and services from those of our competitors;

develop and introduce new and innovative products or programs, particularly in response to government regulation and the increased focus on consumer-directed products;

grow our commercial product portfolio, including managing the uncertainties associated with the mix and volume of business on public health insurance exchanges;

identify and introduce the proper mix or integration of products that will be accepted by the marketplace;

attract and retain sufficient numbers of qualified employees;

attract, develop and maintain collaborative relationships with a sufficient number of qualified partners, including physicians and other health care providers in an environment of growing shortages of primary care professionals and consolidation within the provider industry;

attract new and maintain existing customer relationships;

transition health care providers from volume-based fee-for-service arrangements to a value-based system;

improve medical cost competitiveness in targeted markets;

manage our medical and administrative costs effectively;

identify and enter into strategic relationships;

manage our balance sheet exposures effectively, including our pension funding obligations; and

manage our Global Health Care operating expense ratio effectively.

If these initiatives fail or are not executed on effectively, our consolidated financial position and results of operations could be negatively affected. For example, efforts to reduce operating expenses while maintaining the necessary resources and talent pool are important and, if not managed effectively, could have long-term effects on our business by negatively impacting our ability to drive improvements in the quality of our products and services. For our strategic initiatives to succeed, we must effectively integrate our operations, including our acquired businesses, actively work to ensure consistency throughout the organization, and promote a global mind-set along with a focus on individual customers. If we fail to do so, our business may be unable to grow as planned, or the result of expansion may be unsatisfactory. In addition, the current competitive, economic and regulatory environment requires our organization to adapt rapidly and nimbly to new opportunities and challenges. We will be unable to do so if we do not make important decisions quickly, define our appetite for risk specifically, implement new governance, managerial and organizational processes smoothly and communicate roles and responsibilities clearly.

We face price competition and other pressures that could result in premiums that are insufficient to cover the cost of the health care services delivered to our customers.

While health plans compete on the basis of many service and quality-related factors, we expect that price will continue to be a significant basis of competition. Our client and customer contracts are subject to negotiation as clients and customers seek to contain their costs, including by reducing benefits offered or elected. Increasingly, our clients seek to negotiate performance guarantees that require us to pay penalties if the guaranteed performance standard is not met. As brokers and benefit consultants seek to enhance their revenue streams, they look to take on services that we typically provide. Alternatively, our clients and customers may purchase different types of products that are less profitable, or move to a competitor to obtain more favorable pricing. Each of these events would likely negatively impact our financial results.

Further, federal and state regulatory agencies may restrict our ability to implement changes in premium rates. For example, the ACA includes an annual rate review requirement to prohibit unreasonable rate increases in the individual and small group health insurance markets and established minimum medical loss ratios for certain plans, which could make it more difficult to obtain price increases. Fiscal concerns regarding the continued viability of programs such as Medicare may cause decreasing reimbursement rates, delays in premium payments or

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insufficient increases in reimbursement rates for government-sponsored programs in which we participate. Any limitation on our ability to maintain or increase our premium or reimbursement levels, or a significant loss of customers resulting from our need to increase or maintain premium or reimbursement levels, could adversely affect our business, cash flows, financial condition and results of operations.

In addition, factors such as business consolidations and strategic alliances will likely continue to create pressure to contain or otherwise restrict price increases for products and services, despite increasing medical costs. Continuing consolidation among physicians, hospitals and other health care providers, the emergence of accountable care organizations, vertical integration of health care providers and other entities, changes in the organizational structures chosen by physicians, hospitals and health care providers, new market entrants, including those not traditionally in the health care industry, and the ability of larger employers to contract directly with providers may impact how we compete and the way we price our products. Technological advancements, such as those that allow customers and providers to access medical information remotely and telemedicine, may also affect how we compete and price our products. Our product margins and growth depend, in part, on our ability to compete effectively in our markets, set prices appropriately in highly competitive markets to keep or increase our market share, increase customers as planned, and avoid losing accounts with favorable medical cost experience while retaining or increasing our customer base in accounts with unfavorable medical cost experience.

Premiums in the health care business are generally set for one-year periods and are priced well in advance of the date on which the contract commences. Our revenue on Medicare policies is based on bids submitted mid-year in the year before the contract year. Although we base the premiums we charge and our Medicare bids on our estimate of future health care costs over the contract period, actual costs may exceed what we estimate and charge in premiums due to factors such as medical cost inflation, higher than expected utilization of medical services, new or costly drugs, treatments and technology and customer mix. Our health care costs also are affected by external events that we cannot forecast or project and over which we have little or no control, such as influenza-related health care costs, epidemics, pandemics, terrorist attacks or other man-made disasters, natural disasters or other events that materially increase utilization of medical and/or other covered services, as well as changes in customers' health care utilization patterns and provider billing practices. Relatively small differences between predicted and actual medical costs or utilization rates as a percentage of revenue can result in significant changes in our financial results. Our profitability depends, in part, on our ability to accurately predict, price for and effectively manage future health care costs through disciplined underwriting, provider contracting, utilization management and product design.

The reserves we hold for expected medical claims are based on estimates that involve an extensive degree of judgment and are inherently variable. If actual claims exceed our estimates, our operating results could be materially adversely affected, and our ability to take timely corrective actions to contain future costs may be limited.

We maintain and record medical claims reserves on our balance sheet for estimated future payments. Our estimates of health care costs payable are based on a number of factors, including historical claim experience, but this estimation process requires extensive judgment. Considerable variability is inherent in such estimates, and the accuracy of the estimates is highly sensitive to changes in medical claims submission and processing patterns and/or procedures, changes in customer base and product mix, changes in the utilization of medical and/or other covered services, changes in medical cost trends, changes in our medical management practices and the introduction of new benefits and products. Furthermore, if we are not able to accurately and promptly anticipate and detect medical cost trends, our ability to take timely corrective actions to limit future costs and reflect our current benefit cost experience in our pricing process may be limited. In addition, while we continually review estimates of future payments relating to medical claims costs for services incurred in the current and prior periods and make adjustments to our reserves, the actual health care costs may exceed the reserves we have recorded.

If we fail to develop and maintain satisfactory relationships with physicians, hospitals and other health care providers, our business and results of operations may be adversely affected.

We directly and indirectly contract with physicians, hospitals and other health care professionals and facilities to provide health care services to our customers. Our results of operations are substantially dependent on our ability to contract for these services at competitive prices. In any particular market, physicians, hospitals and health care providers may enter into exclusive arrangements with competitors or simply refuse to contract with us, demand higher payments or take other actions that could result in higher medical costs or less desirable products for our customers. In some markets, certain providers, particularly hospitals, physician/hospital organizations and multi-specialty physician groups, may have significant or controlling market positions that could result in a diminished bargaining position for us. If providers refuse to contract with us, use their market position to negotiate more favorable contracts or place us at a competitive disadvantage, our ability to market products or to be profitable in those areas could be materially and adversely affected. Establishing collaborative arrangements with physician groups, specialist groups, independent practice associations, hospitals and health care delivery systems is key to our strategic focus to transition from volume-based fee-for-service arrangements to a value-based health care system. If such collaborative arrangements do not result in the lower medical costs that we project or if we fail to attract health care providers to such arrangements, or are less successful at implementing such arrangements than our competitors, our attractiveness to customers may be reduced and our ability to profitably grow our business may be adversely affected.

Our ability to develop and maintain satisfactory relationships with health care providers also may be negatively impacted by other factors not associated with us, such as changes in Medicare and/or Medicaid reimbursement levels, increasing pressure on revenue and other pressures on health care providers and increasing consolidation activity among hospitals, physician groups and health care providers. For example, ongoing reductions by CMS and state governments in amounts payable to providers, particularly hospitals, for services provided to Medicare and Medicaid enrollees may exacerbate the cost shift to private payors, thereby adversely impacting our ability to maintain or develop new cost-effective health care provider contracts or result in a loss of revenues or customers.

Continuing consolidation among physicians, hospitals and other health care providers, the emergence of accountable care organizations, vertical integration of health care providers and other entities, changes in the organizational structures chosen by physicians, hospitals and health care providers and new market entrants, including those not traditionally in the health care industry, may affect the way providers interact with us and may change the competitive landscape in which we operate. In some instances, these organizations may compete directly

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ITEM 1A. Risk Factors

with us, potentially affecting the way that we price our products and services or cause us to incur increased costs if we change our operations to be more competitive.

Out-of-network providers are not limited by any agreement with us in the amounts they bill. While benefit plans place limits on the amount of charges that will be considered for reimbursement, out-of-network providers have become increasingly sophisticated and aggressive and such limitations can be difficult to enforce. As a result, the outcome of disputes where we do not have a provider contract may cause us to pay higher medical or other benefit costs than we projected.

As a global company, we face political, legal, operational, regulatory, economic and other risks that present challenges and could negatively affect our multinational operations and/or our long-term growth.

As a global company, our business is increasingly exposed to risks inherent in foreign operations. These risks can vary substantially by market, and include political, legal, operational, regulatory, economic and other risks, including government intervention that we do not face in our U.S. operations. The global nature of our business and operations may present challenges including, but not limited to, those arising from:

varying regional and geopolitical business conditions and demands;

regulation that may discriminate against U.S. companies, favor nationalization or expropriate assets;

price controls or other pricing issues and exchange controls or other restrictions that prevent us from transferring funds from these operations out of the countries in which we operate or converting local currencies that our foreign operations hold into U.S. dollars or other currencies;

foreign currency exchange rates and fluctuations that may have an impact on the future costs or on future sales and cash flows from our international operations, and any countermeasures that we may implement may not be effective in reducing the effect of volatile currencies and other risks of our international operations;

tax positions and applicable regulations that may be subject to interpretation or uncertainty to a greater extent than in the United States;

our reliance on local sales forces for some operations in countries that may have labor problems and/or less flexible employee relationships that can be difficult and expensive to terminate, where laws and regulations regarding employment status may be less clear, or where changes in local regulation or law may disrupt business operations;

effectively managing our partner relationships in countries outside of the United States;

managing more geographically diverse operations and projects;

operating in new foreign markets that may require considerable management time before operations generate any significant revenues and earnings;

providing data protection on a global basis and sufficient levels of technical support in different locations;

the global trend for companies to enact local data residency requirements;

political conditions, including the June 2016 referendum in the United Kingdom to leave the European Union and tensions in the Korean Peninsula;

acts of war, terrorism, natural disasters or pandemics in locations where we operate; and

general economic and political conditions.

These factors may increase in significance as we continue to expand globally, and any one of these challenges could negatively affect our operations or long-term growth. For example, due to the concentration of our international business in South Korea, the Global Supplemental Benefits segment is exposed to potential losses resulting from economic and regulatory changes in that country and the geopolitical climate in the Korean Peninsula, as well as foreign currency movements affecting the South Korean currency, that could have a significant impact on the segment's results and our consolidated financial results.

International operations also require us to devote significant resources to implement controls and systems in new markets to comply with, and to ensure that our vendors and partners comply with, U.S. and foreign laws prohibiting bribery, corruption and money laundering, in addition to other regulations regarding, among other things, our products, direct-to-consumer communications, customer privacy, data protection and data residency. Violations of these laws and regulations could result in fines, criminal sanctions against us, our officers or employees, restrictions or outright prohibitions on the conduct of our business and significant reputational harm. We must regularly reassess the size, capability and location of our global infrastructure and make appropriate changes, and must have effective change management processes and internal controls in place to address changes in our business and operations. Our success depends, in part, on our ability to anticipate these risks and manage these challenges. Our failure to comply with laws and regulations governing our conduct outside the United States or to establish constructive relations with non-U.S. regulators could have a material adverse effect on our business, results of operations, financial condition, liquidity and long-term growth.

We are dependent on the success of our relationships with third parties for various services and functions, including, but not limited to, certain pharmacy benefit management services.

To improve operating costs, productivity and efficiencies, we contract with third parties for the provision of specific services, such as certain pharmacy benefit management services, information technology, medical management services, call center and claim services. Our operations may be adversely affected if a third party fails to satisfy its obligations to us or if the arrangement is terminated in whole or in part or if there is a contractual dispute between us and the third party. Even though contracts are intended to provide certain protections, we have limited control

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ITEM 1A. Risk Factors

over the actions of third parties. For example, noncompliance with any privacy or security laws and regulations or any security breach involving one of our third-party vendors or a dispute between us and a third party vendor related to our arrangement could have a material adverse effect on our business, results of operations, financial condition, liquidity and reputation. In addition, with respect to services or functions outsourced to third parties in foreign jurisdictions, we also are exposed to risks inherent in conducting business outside of the United States.

Outsourcing also may require us to change our existing operations, adopt new processes for managing these service providers and/or redistribute responsibilities to realize the potential productivity and operational efficiencies. If there are delays or difficulties in changing business processes or our third party vendors do not perform as expected, we may not realize, or not realize on a timely basis, the anticipated economic and other benefits of these relationships. This could result in substantial costs or regulatory compliance issues, divert management's attention from other strategic activities, negatively affect employee morale or create other operational or financial problems for us. Terminating or transitioning in whole or in part arrangements with key vendors could result in additional costs or penalties, risks of operational delays or potential errors and control issues during the termination or transition phase. We may not be able to find an alternative vendor in a timely manner or on acceptable terms. If there is an interruption in business or loss of access to data resulting from a termination or transition in services, we may not be able to meet the demands of our customers and, in turn, our business and results of operations could be adversely impacted.

Acquisitions, joint ventures and other transactions involve risks and we may not realize the expected benefits because of integration difficulties, underperformance relative to our expectations and other challenges.

As part of our growth strategy, we regularly consider and enter into strategic transactions, including mergers, acquisitions, joint ventures, licensing arrangements and other relationships (collectively referred to as "transactions"), with the expectation that these transactions will result in various benefits. Our ability to achieve the anticipated benefits of these transactions is subject to numerous uncertainties and risks, including our ability to integrate operations, resources and systems, including data security systems, in an efficient and effective manner. We could also face challenges in implementing business plans; changes in laws and regulations or conditions imposed by regulations applicable to the business; retaining key employees; and general competitive factors in the marketplace. These events could result in increased costs, decreases in expected revenues, earnings or cash flow, and goodwill or other intangible asset impairment charges. Further, we may finance transactions by issuing common stock for some or all of the purchase price that could dilute the ownership interests of our shareholders, or by incurring additional debt that could impact our ability to access capital in the future.

In addition, effective internal controls are necessary to provide reliable and accurate financial reports and to mitigate the risk of fraud. The integration of businesses is likely to cause increasing complexity in our systems and internal controls and make them more difficult to manage. Any difficulties in assimilating businesses into our control system could cause us to fail to meet our financial reporting obligations. Ineffective internal controls also could cause investors to lose confidence in our reported financial information that could negatively impact the trading price of our stock and our access to capital.

Our business depends on our ability to effectively invest in, implement improvements to and properly maintain the uninterrupted operation and data integrity of our information technology and other business systems.

Our business is highly dependent on maintaining effective information systems as well as the integrity and timeliness of the data we use to serve our customers and health care professionals and to operate our business. If our data were found to be inaccurate or unreliable due to fraud or other error, or if we, or any of the third-party service providers we engage, were to fail to maintain information systems and data integrity effectively, we could experience operational disruptions that may impact our clients, customers and health care professionals and hinder our ability to establish appropriate pricing for products and services, retain and attract clients and customers, establish reserves and report financial results timely and accurately and maintain regulatory compliance, among other things.

Our information technology strategy and execution are critical to our continued success. Increasing regulatory and legislative changes will place additional demands on our information technology infrastructure that could have a direct impact on resources available for other projects tied to our strategic initiatives. In addition, recent trends toward greater consumer engagement in health care require new and enhanced technologies, including more sophisticated applications for mobile devices. We must continue to invest in long-term solutions that will enable us to anticipate customer needs and expectations, enhance the customer experience, act as a differentiator in the market and protect against cybersecurity risks and threats. Our success is dependent, in large part, on maintaining the effectiveness of existing technology systems and continuing to deliver and enhance technology systems that support our business processes in a cost-efficient and resource-efficient manner. Connectivity among technologies is becoming increasingly important. The failure of our health care technologies to operate seamlessly with other products could adversely affect our results of operations, financial position and cash flows. We must also develop new systems to meet current market standards and keep pace with continuing changes in information processing technology, evolving industry and regulatory standards and customer needs. Failure to do so may present compliance challenges and impede our ability to deliver services in a competitive manner. Further, because system development projects are long-term in nature, they may be more costly than expected to complete and may not deliver the expected benefits upon completion.

In addition, our business is highly dependent upon our ability to perform, in an efficient and uninterrupted fashion, necessary business functions, such as claims processing and payment, internet support and customer call centers, and processing new and renewal business. Unavailability, cyber-attack or other failure of one or more of our information technology or other systems could cause slower response times, resulting in claims not being processed as quickly as clients or customers desire, decreased levels of client or customer service and satisfaction, and harm to our reputation. Because our information technology and other systems interface with and depend on third-party systems, we could experience service denials if demand for such service exceeds capacity or a third-party system fails or experiences an interruption. If sustained or repeated, such business interruptions, systems failures or service denials could have material adverse effects on our business, results of operations, financial condition and liquidity.

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ITEM 1A. Risk Factors

As a large health services company, we are subject to cyber-attacks or other privacy or data security incidents. If we are unable to prevent or contain the effects of any such attacks, we may suffer exposure to substantial liability, reputational harm, loss of revenue or other damages.

Our business depends on our clients' and customers' willingness to entrust us with their health-related and other sensitive personal information. Computer systems may be vulnerable to physical break-ins, computer viruses or malware, programming errors, attacks by third parties or similar disruptive problems. We have been, and will likely continue to be, the target of computer viruses or other malicious codes, unauthorized access, cyber-attacks or other computer-related penetrations. There have been large scale cyber-attacks within the health care industry. As we increase the amount of personal information that we store and share digitally, our exposure to data security and related cybersecurity risks increases, including the risk of undetected attacks, damage, loss or unauthorized access or misappropriation of proprietary or personal information, and the cost of attempting to protect against these risks also increases. We have implemented security technologies, processes and procedures to protect consumer identity and provide employee awareness training around phishing, malware and other cyber risks; however, there are no assurances that such measures will be effective against all types of breaches. The techniques used change frequently or are often not recognized until after they have been launched, because cyber-attacks can originate from a wide variety of sources including third parties such as external service providers. Those parties may also attempt to fraudulently induce employees, customers or other users of our systems to disclose sensitive information in order to gain access to our data or that of our customers. In addition, while we have certain standards for all vendors that provide us services, our vendors, and in turn, their own service providers, may become subject to the same type of security breaches. Finally, our offices may be vulnerable to security incidents or security attacks, acts of vandalism or theft, misplaced or lost data, human error or similar events that could negatively affect our systems and our customers' and clients' data.

The costs to eliminate or address security threats and vulnerabilities before or after a cyber-incident could be significant. Our remediation efforts may not be successful and could result in interruptions, delays, or cessation of service and loss of existing or potential customers.

In addition, breaches of our security measures and the unauthorized dissemination of sensitive personal information or proprietary information or confidential information about us, our customers or other third-parties could expose our customers' private information and our customers to the risk of financial or medical identity theft. Unauthorized dissemination of confidential and proprietary information about our business and strategy also could negatively affect the achievement of our strategic initiatives. Such events would also negatively affect our ability to compete, others' trust in us, our reputation, customer base and revenues and expose us to mandatory disclosure (including to the media), litigation and other enforcement proceedings, material fines, penalties and/or remediation costs, and compensatory, special, punitive and statutory damages, consent orders and other adverse actions, any of which could adversely affect our business, results of operations, financial condition or liquidity.

Our pharmacy benefit management business and related operations are subject to a number of risks and uncertainties that are in addition to those we face in our health care business.

Notwithstanding our arrangement with a third-party vendor for certain pharmacy benefit management services, we remain responsible to regulators and our clients and customers for the delivery of those pharmacy benefit management services that we contract to provide. Our pharmacy benefit management business is subject to federal and state regulation, including without limitation, federal and state anti-kickback laws, consumer protection laws, ERISA, HIPAA and laws related to the operation of Internet and mail-service pharmacies, as well as the laws and regulations of the foreign countries in which we conduct business. In addition, certain of our subsidiaries are pharmacies subject to state licensing and U.S. Drug Enforcement Agency registration requirements and state and federal laws concerning labeling, packaging, advertising, handling and adulteration of prescription drugs and dispensing of controlled substances. Noncompliance with applicable regulations by us or our third-party vendors could have material adverse effects on our business, results of operations, financial condition, liquidity and reputation.

Our pharmacy benefit management business also would be adversely affected by an inability to contract on favorable terms with pharmaceutical manufacturers and we could suffer exposure to liabilities and reputational harm in connection with purported errors by mail order or retail pharmacy businesses.

In operating onsite clinics and other types of medical facilities, we may be subject to additional liability that could result in significant time and expense.

In addition to contracting with physicians and other health care providers for services, we employ physicians and other health care professionals at onsite low acuity and primary care clinics that we operate for our customers, as well as certain clinics for our employees. In addition, our Government business operates LivingWell health centers and we own and operate multispecialty health care centers, low acuity clinics and other types of centers in the Phoenix, Arizona metropolitan area that employ physicians and other health care professionals. As a direct employer of health care professionals and as an owner or operator of medical facilities, we are subject to liability for negligent acts, omissions, or injuries occurring at one of these clinics or caused by one of our employees. Even if any claims brought against us are unsuccessful or without merit, we still have to defend against such claims. The defense of any actions may result in significant expenses that could have a material adverse effect on our business, results of operations, financial condition, liquidity and reputation.

Legal and Compliance Risks

Our business is subject to substantial government regulation, as well as new laws or regulations or changes in existing laws or regulations that could have a material adverse effect on our business, results of operations, financial condition and liquidity.

Our business is regulated at the federal, state, local and international levels. The laws and rules governing our business and related interpretations, including, among others, those associated with the ACA, are increasing in number and complexity, are subject to frequent change and can be inconsistent or in conflict with each other. As a public company with global operations, we are subject to the laws of multiple

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jurisdictions and the rules and regulations of various governing bodies, such as those related to financial and other disclosures, corporate governance, privacy, data protection, labor and employment, consumer protection, tax and anti-corruption.

We must identify, assess and respond to new trends in the legislative and regulatory environment, as well as comply with the various existing regulations applicable to our business. Existing or future laws, rules, regulatory interpretations or judgments could force us to change how we conduct our business, affect the products we offer, restrict revenue and enrollment growth, increase our costs, including operating, health care technology and administrative costs, and require enhancements to our compliance infrastructure and internal controls environment. Existing or future laws and rules also could require us to take other actions such as changing our business practices, thereby increasing our liability in federal and state courts for coverage determinations, contract interpretation and other actions.

Several bills were introduced in Congress in 2017 to repeal and replace the ACA, though none have passed the House and Senate. Discussions on the ACA continue in Congress. Throughout 2017, President Trump took several steps to limit the utility of the ACA and continues to advocate for its repeal and replacement. The individual mandate was repealed effective January 1, 2019 as part of the U.S. tax reform legislation that was signed into law in December 2017. We are unable to predict how these events will ultimately be resolved and what the potential impact may be on the ACA, and in turn, on our business including, but not limited to, our products, services, processes and technology and on our relationships with current and future customers, producers, vendors and health care providers. Legal challenges regarding aspects of the ACA, such as litigation regarding the payment of risk corridor receivables and cost sharing reduction subsidies, have contributed to this uncertainty. In addition, state legislatures have and will continue to focus on health care issues, particularly in light of the various ACA amendments proposed by Congress and the Trump administration executive orders.

Further, failure to effectively implement or adjust our strategic and operational initiatives, such as by reducing operating costs, adjusting premium pricing or benefit design or transforming our business model in response to regulatory changes may have a material adverse effect on our results of operations, financial condition and cash flows, including, but not limited to, our ability to maintain the value of our goodwill and other intangible assets.

Our insurance and HMO subsidiaries must be licensed by and are subject to the regulations of the jurisdictions in which they conduct business. For example, HMOs and insurance companies are regulated under specific state laws and regulations and indirectly affected by other health care-related laws and regulations. State regulations mandate minimum capital or restricted cash reserve requirements. In addition, state guaranty fund laws and related regulations subject us to assessments for certain obligations to policyholders and claimants of impaired or insolvent insurance companies. Some states have similar laws relating to HMOs and other payors, such as consumer operated and oriented plans (co-ops) established under the ACA. Any such assessment could expose us to the risk of paying a portion of an impaired or insolvent insurance company's claims through state guaranty association assessments. We also participate in the private exchange marketplace. Whether and the extent to which states may issue regulations that apply to private exchanges remains uncertain.

In addition to the regulations discussed above, we are required to obtain and maintain insurance and other regulatory approvals to market many of our products, increase prices for certain regulated products and consummate some of our acquisitions and dispositions. Delays in obtaining or failure to obtain or maintain these approvals could reduce our revenue or increase our costs.

The health care industry is also regularly subject to negative media attention, including as a result of the political environment and the ongoing debate concerning the ACA. Such publicity may adversely affect our stock price and reputation in certain markets.

For more information on regulation, see "Business – Regulation" in Part I, Item 1 of this Form 10-K.

There are various risks associated with participating in government-sponsored programs, such as Medicare, including dependence upon government funding, compliance with government contracts and increased regulatory oversight.

Through our Government business, we contract with CMS and various state governmental agencies to provide managed health care services including Medicare Advantage plans and Medicare-approved prescription drug plans. Revenues from Medicare programs are dependent, in whole or in part, upon annual funding from the federal government through CMS and/or applicable state or local governments. Funding for these programs is dependent on many factors outside our control including general economic conditions, continuing government efforts to contain health care costs and budgetary constraints at the federal or applicable state or local level and general political issues and priorities. These entities generally have the right to not renew or cancel their contracts with us on short notice without cause or if funds are not available. Unanticipated changes in funding, such as the application of sequestration by the federal or state governments, could substantially reduce our revenues and profitability.

The Medicare program has been the subject of regulatory reform initiatives, including the ACA. The premium rates paid to Medicare Advantage plans and Medicare Part D plans are established by contract, although the rates differ depending on a combination of factors, many of which are outside our control. The ACA ties a portion of each Medicare Advantage plan's and Medicare Part D plan's reimbursement to the plan's "Star Rating" by CMS, with those plans receiving a rating of four or more stars eligible for quality-based bonus payments. The Star Rating system considers various measures adopted by CMS, including, for example, quality of care, preventative services, chronic illness management, coverage determination appeals and customer satisfaction. The Star Rating system is subject to change annually by CMS, which may make it more difficult to achieve four stars or greater. Our Medicare Advantage plans' and Medicare Part D plans' operating results, premium revenue and benefit offerings are likely to continue to be significantly determined by their Star Ratings. If we fail to meet our expectations regarding Star Ratings, are unsuccessful in maintaining or improving our Star Ratings, fail to meet or exceed our competitors' ratings, or if quality-bonus payments are eliminated, our financial performance may be adversely affected. See Part II, Item 7 – Management's Discussion and Analysis of Financial Condition and Results of Information – Health Care Industry Developments and Other Matters Affecting our Global Health Care Segment for additional information on our Star Ratings.

Contracts with CMS and the various state governmental agencies contain certain provisions regarding data submission, provider network maintenance, provider directories, quality measures, claims payment, continuity of care, call center performance and other requirements. If we fail to comply with these requirements, we may be subject to administrative actions, fines or other penalties that could impact our profitability.

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The ACA established health insurance exchanges for individuals and small employers. Insurers participating on the health insurance exchanges are required to offer a minimum level of benefits and comply with requirements with respect to premium rates and coverage limitations. Our participation in these exchanges involves uncertainties associated with mix and volume of business and could adversely affect our results of operations, financial position and cash flows. The executive order signed by President Trump in October 2017 that halted payment of the cost sharing reduction subsidies has created additional uncertainty regarding the future of public health insurance exchanges.

In addition, any failure to comply with various state and federal health care laws and regulations, including those directed at preventing fraud and abuse in government funded programs, could result in investigations or litigation, such as actions under the federal False Claims Act and similar whistleblower statutes under state laws. This could subject us to fines, penalties or other enforcement actions, restrictions on our ability to market or enroll new customers, limits on expansion, restrictions or exclusions from programs or other agreements with federal or state governmental agencies that could adversely impact our business, cash flows, financial condition, results of operations and reputation.

In addition, our Medicare Advantage and Medicare Part D businesses face a number of other risks including potential uncollectible receivables resulting from processing and/or verifying enrollment, inadequate underwriting assumptions, inability to receive and process correct information or increased medical or pharmaceutical costs. Actual results may be materially different than our assumptions and estimates regarding these complex and wide-ranging programs that could have a material adverse effect on our business, financial condition and results of operations.

We face risks related to litigation, regulatory audits and investigations.

We are routinely involved in numerous claims, lawsuits, regulatory audits, investigations and other legal matters arising, for the most part, in the ordinary course of business, including that of administering and insuring employee benefit programs. These legal matters could include benefit claims, breach of contract actions, tort claims, claims arising from consumer protection laws, claims disputes under federal or state laws and disputes regarding reinsurance arrangements, employment and employment discrimination-related suits, antitrust claims, employee benefit claims, wage and hour claims, tax, privacy, intellectual property and whistle blower claims, shareholder suits and other securities law claims and real estate disputes. In addition, we have incurred and likely will continue to incur liability for practices and claims related to our health care business, such as marketing misconduct, failure to timely or appropriately pay for or provide health care, provider network structure, poor outcomes for care delivered or arranged, provider disputes including disputes over compensation or contractual provisions, and claims related to our administration of self-funded business. There are currently, and may be in the future, attempts to bring class action lawsuits against the company and the industry; individual plaintiffs also may bring multiple claims regarding the same subject matter against us and other companies in our industry.

With respect to our global operations, contractual rights, tax positions, laws and regulations may be subject to interpretation or uncertainty to a greater degree than in the United States, and therefore subject us to disputes by customers, governmental authorities or others. Foreign laws and rules and regulatory audit and investigative practices may differ from or be more stringent than, similar requirements in the United States.

Court decisions and legislative activity may increase our exposure for any of these types of claims. In some cases, substantial non-economic or punitive damages may be sought. We seek to procure insurance coverage to cover some of these potential liabilities. However, certain potential liabilities may not be covered by insurance, insurers may dispute coverage or the amount of insurance may be insufficient to cover the entire damages awarded. In addition, certain types of damages, such as punitive damages, may not be covered by insurance, and insurance coverage for all or certain forms of liability may become unavailable or prohibitively expensive in the future. It is possible that the resolution of current or future legal matters and claims could result in changes to our industry and business practices, losses material to our results of operations, financial condition and liquidity or damage to our reputation.

We are frequently the subject of regulatory market conduct and other reviews, audits and investigations by state insurance and health and welfare departments, attorneys general, CMS and the OIG and comparable authorities in foreign jurisdictions. With respect to our Medicare Advantage and Medicare Part D businesses, CMS and OIG perform audits to determine a health plan's compliance with federal regulations and contractual obligations, including compliance with proper coding practices and fraud and abuse enforcement practices through audits designed to detect and correct improper payments. The Department of Justice is conducting an industry review of the risk adjustment data submission practices and business processes, including review of medical charts, of Medicare Advantage organizations under Medicare Parts C and D. There also continues to be heightened review by federal and state regulators of business and reporting practices within the health care, disability and life insurance industry, including with respect to claims payment and related escheat practices, and increased scrutiny by other state and federal governmental agencies (such as state attorneys general) empowered to bring criminal actions in circumstances that could have previously given rise only to civil or administrative proceedings. These regulatory audits or reviews or actions by other governmental agencies could result in changes to our business practices, retroactive adjustments to certain premiums, significant fines, penalties, civil liabilities, criminal liabilities or other sanctions, including restrictions on our ability to market certain products or engage in business-related activities, that could have a material adverse effect on our business, results of operation, financial condition and liquidity. In addition, disclosure of an adverse investigation or audit or the imposition of fines or other sanctions could negatively affect our reputation in certain markets and make it more difficult for us to sell our products and services.

A description of material pending legal actions and other legal and regulatory matters is included in Note 21 to our Consolidated Financial Statements included in this Form 10-K. The outcome of litigation and other legal or regulatory matters is always uncertain.

If we fail to comply with applicable privacy, security and data laws, regulations and standards, our business and reputation could be materially and adversely affected.

The collection, maintenance, protection, use, transmission, disclosure and disposal of sensitive personal information are regulated at the federal, state, international and industry levels and requirements are imposed on us by contracts with clients. In some cases, such laws, rules, regulations and contractual requirements also apply to our vendors and require us to obtain written assurances of their compliance with such requirements or may hold us liable for any violations by our vendors. International laws, rules and regulations governing the use and disclosure of such information are generally more stringent than in the United States, and they vary across jurisdictions. We also are subject to various other consumer protection laws that regulate our communications with customers.

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ITEM 1A. Risk Factors

These laws, rules, and contractual requirements are subject to change. Compliance with new privacy, security and data laws, regulations and requirements may result in increased operating costs, and may constrain or require us to alter our business model or operations. For example, the HITECH amendments to HIPAA may further restrict our ability to collect, disclose and use sensitive personal information and may impose additional compliance requirements on our business.

HIPAA requires covered entities to comply with the HIPAA privacy, security and breach rules. In addition, business associates must comply with the HIPAA security and breach requirements. While we provide for appropriate protections through our contracts with our third-party service providers and in certain cases assess their security controls, we have limited oversight or control over their actions and practices. Several of our businesses act as business associates to their covered entity customers and, as a result, collect, use, disclose and maintain sensitive personal information in order to provide services to these customers. HHS has continued its audit program to assess HIPAA compliance efforts by covered entities and has expanded it to include business associates. In addition, HHS has increased its enforcement efforts. These efforts result in enforcement actions that are the result of investigations brought on by the notification to HHS of a breach. An audit resulting in findings or allegations of noncompliance or the implementation of an enforcement action could have an adverse effect on our results of operations, financial position, cash flows and reputation.

Effective prevention, detection and control systems are critical to maintain regulatory compliance and prevent fraud and failure of these systems could adversely affect us.

Federal and state governments have made investigating and prosecuting health care and other insurance fraud and abuse a priority. Fraud and abuse prohibitions encompass a wide range of activities including kickbacks for referral of customers, billing for unnecessary medical services, improper marketing and violations of patient privacy rights. The regulations and contractual requirements applicable to us are complex and subject to change. In addition, ongoing vigorous law enforcement, a highly technical regulatory scheme and the Dodd-Frank Act legislation and related regulations enhance regulators' enforcement powers and whistleblower incentives and protections. Our compliance efforts in this area will continue to require significant resources. Failure of our prevention, detection or control systems related to regulatory compliance or the failure of employees to comply with our internal policies including data systems security or unethical conduct by managers and employees, could adversely affect our reputation and also expose us to litigation and other proceedings, fines and penalties.

In addition, provider or customer fraud that is not prevented or detected could impact our medical costs or those of our self-insured clients. Further, during an economic downturn, we may experience increased fraudulent claims volume that may lead to additional costs due to an increase in disputed claims and litigation.

Economic Risks

Significant stock market or interest rate declines could result in additional unfunded pension obligations resulting in the need for additional plan funding by us and increased pension expenses.

We currently have unfunded obligations in our frozen pension plans. A significant decline in the value of the plans' equity and fixed income investments or unfavorable changes in applicable laws or regulations could materially increase our expenses and change the timing and amount of required plan funding. This could reduce the cash available to us, including our subsidiaries. We also are exposed to interest rate and equity risk associated with our pension and other post-retirement obligations. Sustained declines in interest rates could have an adverse impact on the funded status of our pension plans and our reinvestment yield on new investments. See Note 15 to our Consolidated Financial Statements for more information on our obligations under the pension plan.

Significant changes in market interest rates affect the value of our financial instruments that promise a fixed return or benefit and the value of particular assets and liabilities.

As an insurer, we have substantial investment assets that support insurance and contractholder deposit liabilities. Generally low levels of interest rates on investments, such as those experienced in U.S. and foreign financial markets during recent years, have negatively impacted our level of investment income earned in recent periods.

A substantial portion of our investment assets are in fixed interest-yielding debt securities of varying maturities, fixed redeemable preferred securities and commercial mortgage loans. The value of these investment assets can fluctuate significantly with changes in market conditions. A rise in interest rates would likely reduce the value of our investment portfolio and increase interest expense if we were to access our available lines of credit.

A downgrade in the financial strength ratings of our insurance subsidiaries could adversely affect new sales and retention of current business, and a downgrade in our debt ratings would increase the cost of borrowed funds and could negatively affect our ability to access capital.

Financial strength, claims paying ability and debt ratings by recognized rating organizations are each important factors in establishing the competitive position of insurance and health benefits companies. Ratings information by nationally recognized ratings agencies is broadly disseminated and generally used throughout the industry. We believe that the claims paying ability and financial strength ratings of our principal insurance subsidiaries are important factors in marketing our products to certain customers. Our debt ratings impact both the cost and availability of future borrowings and, accordingly, our cost of capital. Each of the rating agencies reviews ratings periodically and there can be no assurance that current ratings will be maintained in the future. A downgrade of these ratings in the future could make it more difficult to either market our products successfully or raise capital to support business growth within our insurance subsidiaries.

28    CIGNA CORPORATION - 2017 Form 10-K


Back to Contents

PART I
ITEM 1A. Risk Factors

Global market, economic and geopolitical conditions may cause fluctuations in equity market prices, interest rates and credit spreads that could impact our ability to raise or deploy capital and affect our overall liquidity.

If the equity and credit markets experience extreme volatility and disruption, there could be downward pressure on stock prices and access to capital for certain issuers without regard to those issuers' underlying financial strength. Extreme disruption in the credit markets could adversely impact our availability and cost of capital in the future.

As of December 31, 2017, our outstanding long-term debt totaled $5.2 billion. In the event of adverse economic and industry conditions, we may be required to dedicate a greater percentage of our cash flow from operations to the payment of principal and interest on our debt, thereby reducing the funds we have available for other purposes, such as investments and other expenditures in ongoing businesses, acquisitions, dividends and stock repurchases. In these circumstances, our ability to execute our strategy may be limited, our flexibility in planning for or reacting to changes in business and market conditions may be reduced, or our access to capital markets may be limited such that additional capital may not be available or may be available only on unfavorable terms.

Unfavorable developments in economic conditions may adversely affect our business, results of operations and financial condition.

Many factors, including geopolitical issues, future economic downturns, availability and cost of credit and other capital and consumer spending can negatively impact the U.S. and global economies. Our results of operations could be materially and adversely affected by the impact of unfavorable economic conditions on our customers (both employers and individuals), health care providers and third-party vendors. For example:

Employers may take action to reduce their operating costs by modifying, delaying or canceling plans to purchase our products or making changes in the mix of products purchased that are unfavorable to us.

Higher unemployment rates and workforce reductions could result in lower enrollment in our employer-based plans (including an increase in the number of employees who opt out of employer-based plans) or our individual plans.

Because of unfavorable economic conditions or the ACA, employers may stop offering health care coverage to employees or elect to offer this coverage on a voluntary, employee-funded basis as a means to reduce their operating costs.

Our historical disability claim experience and industry data indicate that submitted disability claims rise under adverse economic conditions.

If customers are not successful in generating sufficient funds or are precluded from securing financing, they may not be able to pay, or may delay payment of, accounts receivable that are owed to us.

Our customers or potential customers may force us to compete more vigorously on factors such as price and service to retain or obtain their business.

A prolonged unfavorable economic environment could adversely impact the financial position of hospitals and other health care providers, potentially increasing our medical costs as these providers attempt to maintain revenue levels in their efforts to adjust to their own economic challenges.

Our third-party vendors could significantly and quickly increase their prices or reduce their output to reduce their operating costs. Our business depends on our ability to perform necessary business functions in an efficient and uninterrupted fashion.

These factors could lead to a decrease in our customer base, revenues or margins and/or an increase in our operating costs.

In addition, during a prolonged unfavorable economic environment, state and federal budgets could be materially and adversely affected, resulting in reduced or delayed reimbursements or payments in state and federal government programs such as Medicare and Social Security. These state and federal budgetary pressures also could cause the government to impose new or a higher level of taxes or assessments on us, such as premium taxes on insurance companies and HMOs and surcharges or fees on select fee-for-service and capitated medical claims. Although we could attempt to mitigate or cover our exposure from such increased costs through, among other things, increases in premiums, there can be no assurance that we will be able to mitigate or cover all of such costs, which may have a material adverse effect on our business, results of operations, financial condition and liquidity.

We are subject to the credit risk of our reinsurers.

We enter into reinsurance arrangements with other insurance companies, primarily to limit losses from large exposures or to permit recovery of a portion of direct losses. We also may enter into reinsurance arrangements in connection with acquisition or divestiture transactions when the underwriting company is not being acquired or sold.

Under all reinsurance arrangements, reinsurers assume insured losses, subject to certain limitations or exceptions that may include a loss limit. These arrangements also subject us to various obligations, representations and warranties with the reinsurers. Reinsurance does not relieve us of liability as the originating insurer. We remain liable to the underlying policyholders if a reinsurer defaults on obligations under the reinsurance arrangement. Although we regularly evaluate the financial condition of reinsurers to minimize exposure to significant losses from reinsurer insolvencies, reinsurers may become financially unsound. If a reinsurer fails to meet its obligations under the reinsurance contract or if the liabilities exceed any applicable loss limit, we will be forced to cover the claims on the reinsured policies.

The collectability of amounts due from reinsurers is subject to uncertainty arising from a number of factors, including whether the insured losses meet the qualifying conditions of the reinsurance contract, whether reinsurers or their affiliates have the financial capacity and willingness to make payments under the terms of the reinsurance contract, and the magnitude and type of collateral supporting our reinsurance recoverable, such as holding sufficient qualifying assets in trusts or letters of credit issued. Although a portion of our reinsurance exposures are secured, the inability to collect a material recovery from a reinsurer could have a material adverse effect on our results of operations, financial condition and liquidity.

CIGNA CORPORATION - 2017 Form 10-K    29


Table of Contents

PART I
ITEM 1B. Unresolved Staff Comments

ITEM 1B. Unresolved Staff Comments

None.

ITEM 2. Properties

Our global real estate portfolio consists of approximately 7.9 million square feet of owned and leased properties. Our domestic portfolio has approximately 5.7 million square feet in 38 states, the District of Columbia, Puerto Rico and the U.S. Virgin Islands. Our international properties contain approximately 2.2 million square feet located throughout the following countries: Belgium, Canada, China, Hong Kong, India, Indonesia, Kenya, New Zealand, Singapore, South Korea, Spain, Switzerland, Taiwan, Thailand, Turkey, United Arab Emirates, and the United Kingdom.

Our principal domestic office locations include the Wilde Building located at 900 Cottage Grove Road in Bloomfield, Connecticut (our corporate headquarters) and Two Liberty Place located at 1601 Chestnut Street in Philadelphia, Pennsylvania. The Wilde Building measures approximately 893,000 square feet and is owned, while Two Liberty Place measures approximately 322,000 square feet and is leased space.

We believe our properties are adequate and suitable for our business as presently conducted. The foregoing does not include information on investment properties.

ITEM 3. Legal Proceedings

The information contained under "Litigation Matters", "Regulatory Matters" and "Other Legal Matters" in Note 21 to our Financial Statements beginning on page 102 of this Form 10-K, is incorporated herein by reference.

ITEM 4. Mine Safety Disclosures

Not applicable.

30    CIGNA CORPORATION - 2017 Form 10-K


Table of Contents

PART I
EXECUTIVE OFFICERS OF THE REGISTRANT

EXECUTIVE OFFICERS OF THE REGISTRANT

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 below.

LISA R. BACUS, 53, Executive Vice President and Global Chief Marketing Officer of Cigna beginning May 2013 and Chief Customer Officer beginning February 2017; Executive Vice President and Chief Marketer at American Family Insurance from February 2008 until May 2013.

MARK L. BOXER, 58, Executive Vice President and Global Chief Information Officer of Cigna beginning April 2011; Deputy Chief Information Officer, Xerox Corporation; and Group President, Government Health Care, for Xerox Corporation/Affiliated Computer Services from March 2009 until April 2011.

DAVID M. CORDANI, 52, Chief Executive Officer of Cigna beginning December 2009; Director since October 2009; President beginning June 2008; and Chief Operating Officer from June 2008 until December 2009.

BRIAN C. EVANKO, 41, President, Government Business beginning November 2017; President, U.S. Individual Business from August 2013 to November 2017; Business Financial Officer, Cigna Global Individual, Health, Life and Accident from September 2012 to August 2013; Chief Actuary, Cigna Global Individual, Health, Life and Accident, from December 2008 to September 2012.

CHRISTOPHER J. HOCEVAR, 44, President, Strategy, Segments and Solutions beginning February 2017; President, Pharmacy and Select Business from June 2013 to February 2017; President, Select Business beginning February 2011.

NICOLE S. JONES, 47, Executive Vice President and General Counsel of Cigna beginning June 2011; Senior Vice President and General Counsel of Lincoln Financial Group from May 2010 until June 2011; Vice President and Deputy General Counsel of Cigna from April 2008 until May 2010; and Corporate Secretary of Cigna from September 2006 until April 2010.

ALAN M. MUNEY, MD, MHA, 64, Executive Vice President, Total Health & Network and Chief Medical Officer beginning February 2017; joined Cigna as Senior Vice President, Total Health & Network in 2010 and named Chief Medical Officer in 2011.

JOHN M. MURABITO, 59, Executive Vice President, Human Resources and Services of Cigna beginning August 2003.

ERIC P. PALMER, 41, Executive Vice President and Chief Financial Officer beginning June 2017; Deputy Chief Financial Officer from February 2017 until June 2017; Senior Vice President, Chief Business Financial Officer from November 2015 to February 2017; Vice President, Business Financial Officer, Health Care from April 2012 to November 2015; and Vice President, Business Financial Officer, U.S. Commercial Markets from June 2010 to April 2012.

JASON D. SADLER, 49, President, International Markets beginning June 2014; President, Global Individual Health, Life and Accident from July 2010 until June 2014, and Managing Director Insurance Business Hong Kong, HSBC Insurance Asia Limited from January 2007 until July 2010.

MICHAEL W. TRIPLETT, 56, President, U.S. Markets beginning February 2017; Regional Segment Lead from June 2009 to February 2017.

CIGNA CORPORATION - 2017 Form 10-K    31


Table of Contents

PART II
ITEM 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

PART II

ITEM 5.       Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

The information under the caption "Quarterly Financial Data – Stock and Dividend Data" appears on page 108 of this Form 10-K. As of December 31, 2017, the number of shareholders of record was 5,618. Cigna's common stock is listed with, and trades on, the New York Stock Exchange under the symbol "CI".

Issuer Purchases of Equity Securities

The following table provides information about Cigna's share repurchase activity for the quarter ended December 31, 2017:

Period
  Total # of
shares
purchased (1)

  Average
price paid
per share

  Total # of shares
purchased as
part of publicly
announced
program (2)

  Approximate dollar value
of shares that may yet
be purchased as part of
publicly announced
program (3)

October 1-31, 2017

  1,416,046   $190.43   1,415,061   $1,501,096,013

November 1-30, 2017

  1,116,284   $200.39   1,114,334   $1,277,792,524

December 1-31, 2017

  1,358,593   $205.88   1,357,938   $998,215,883

Total

  3,890,923   $198.68   3,887,333   N/A
(1)
Represents shares tendered by employees as payment of taxes withheld on vesting of restricted stock and strategic performance shares granted under the Company's equity compensation plans.

(2)
Additionally, the Company maintains a share repurchase program, authorized by the Board of Directors. Under this program, the Company may repurchase shares from time to time, depending on market conditions and alternate uses of capital. The timing and actual number of shares repurchased will depend on a variety of factors, including price, general business and market conditions and alternate uses of capital. The share repurchase program may be effected through open market purchases or privately negotiated transactions in compliance with Rule 10b-18 under the Securities Exchange Act of 1934, as amended, including through Rule 10b5-1 trading plans. The program may be suspended or discontinued at any time. In 2017, the Company repurchased approximately 16 million shares for $2.8 billion. Remaining authorization under the program was approximately $1 billion as of December 31, 2017. From January 1, 2018 through January 31, 2018, the Company repurchased 1.2 million shares for approximately $260 million.

(3)
Approximate dollar value of shares is as of the last date of the applicable month.
32    CIGNA CORPORATION - 2017 Form 10-K


Back to Contents

PART II
ITEM 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Five Year Cumulative Total Shareholder Return*
December 31, 2012 – December 31, 2017

GRAPHIC

 
  12/31/2012
  12/31/2013
  12/31/2014
  12/31/2015
  12/31/2016
  12/31/2017

Cigna

  $ 100   $ 164   $ 193   $ 274   $ 250   $ 381

S&P 500

  $ 100   $ 132   $ 151   $ 153   $ 171   $ 208

S&P Managed Health Care, Life & Health Ins. Indexes**

  $ 100   $ 152   $ 190   $ 220   $ 265   $ 368
*
Assumes that the value of the investment in Cigna common stock and each index was $100 on December 31, 2012 and that all dividends were reinvested.

**
Weighted average of S&P Managed Health Care (75%) and Life and Health Insurance (25%) Indexes.
CIGNA CORPORATION - 2017 Form 10-K    33


Table of Contents

PART II
ITEM 6. Selected Financial Data

ITEM 6.     Selected Financial Data

The selected financial data should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations and the Consolidated Financial Statements and accompanying notes included elsewhere herein.

Highlights

(Dollars in millions, except per share amounts)
  2017
  2016
  2015
  2014
  2013
Total revenues   $ 41,616   $ 39,668   $ 37,876   $ 34,914   $ 32,380
Shareholders' net income   $ 2,237   $ 1,867   $ 2,094   $ 2,102   $ 1,476
Net income   $ 2,232   $ 1,843   $ 2,077   $ 2,094   $ 1,478
Shareholders' net income per share                              

Basic

  $ 8.92   $ 7.31   $ 8.17   $ 7.97   $ 5.28

Diluted

  $ 8.77   $ 7.19   $ 8.04   $ 7.83   $ 5.18
Common dividends declared per share   $ 0.04   $ 0.04   $ 0.04   $ 0.04   $ 0.04
Cash and investments   $ 31,591   $ 30,000   $ 26,681   $ 25,762   $ 25,160
Total assets   $ 61,753   $ 59,360   $ 57,088   $ 55,870   $ 54,306
Long-term debt   $ 5,199   $ 4,756   $ 5,020   $ 4,979   $ 4,984
Total liabilities   $ 47,969   $ 45,575   $ 44,975   $ 44,991   $ 43,629
Shareholders' equity   $ 13,735   $ 13,723   $ 12,035   $ 10,774   $ 10,567
34    CIGNA CORPORATION - 2017 Form 10-K


Table of Contents

PART II
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

ITEM 7.          Management's Discussion and Analysis of Financial Condition and Results of Operations

 
  Page

Executive Overview

  35

Liquidity and Capital Resources

  41

Critical Accounting Estimates

  44

Segment Reporting

  47

Global Health Care

  47

Global Supplemental Benefits

  49

Group Disability and Life

  50

Other Operations

  51

Corporate

  51

Investment Assets

  52

Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is intended to provide information to assist you in better understanding and evaluating our financial condition and results of operations. We encourage you to read this MD&A in conjunction with our Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K ("Form 10-K") and the "Risk Factors" contained in Part I, Item 1A of this Form 10-K.

Unless otherwise indicated, financial information in the MD&A is presented in accordance with accounting principles generally accepted in the United States of America ("GAAP"). See Note 2 to our Consolidated Financial Statements for additional information regarding the Company's significant accounting policies. In some of our financial tables in this MD&A, we present either percentage changes or "N/M" when those changes are so large as to become not meaningful. Changes in percentages are expressed in basis points ("bps").

In this MD&A, our consolidated measures "operating revenues" and "adjusted income from operations" are not determined in accordance with GAAP and should not be viewed as substitutes for the most directly comparable GAAP measures "total revenues" and "shareholders' net income."

We define operating revenues as total revenues excluding realized investment results. We exclude realized investment results from this measure because our portfolio managers may sell investments based on factors largely unrelated to the underlying business purposes of each segment. As a result, gains or losses created in this process may not be indicative of past or future underlying performance of our businesses.

We use adjusted income from operations as our principal financial measure of operating performance because management believes it best reflects the underlying results of our business operations and permits analysis of trends in underlying revenue, expenses and profitability. We define adjusted income from operations as shareholders' net income excluding after-tax realized investment gains and losses, net amortization of other acquired intangible assets and special items. Income or expense amounts are excluded from adjusted income from operations for the following reasons:

Realized investment results are excluded because, as noted above, our portfolio managers may sell investments based on factors largely unrelated to the underlying business purposes of each segment.

Net amortization of other intangible assets is excluded because it relates to costs incurred for acquisitions and, as a result, it does not relate to the core performance of the Company's business operations. In 2015, the amortization amount was net of a bargain purchase gain on an acquisition.

Special items are excluded because management believes they are not representative of the underlying results of operations. See Note 22 to our Consolidated Financial Statements for descriptions of special items.

Executive Overview

Cigna Corporation, together with its subsidiaries (either individually or collectively referred to as "Cigna," the "Company," "we," "our" or "us") is a global health services organization dedicated to a mission of helping individuals improve their health, well-being and sense of security. To execute on our mission, Cigna's evolved strategy is to "Go Deeper", "Go Local" and "Go Beyond" with a differentiated set of medical, dental, disability, life and accident insurance and related products and services offered by our subsidiaries. In addition to these ongoing operations, we also have certain run-off operations.

For further information on our business and strategy, please see Item 1, "Business" in this Form 10-K. See Note 1 to our Consolidated Financial Statements for a description of our reporting segments.

CIGNA CORPORATION - 2017 Form 10-K    35


Back to Contents

PART II
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

Financial Summary

Summarized below are certain key measures of our performance for the years ended December 31:

 
  For the Years Ended
December 31,

  Increase
(Decrease)

  Increase
(Decrease)

(Dollars in millions, except per share amounts)

    2017     2016     2015     2017 vs. 2016     2016 vs. 2015

Total revenues (1)

  $ 41,616   $ 39,668   $ 37,876   5%   5%
         

Operating revenues (1)

                             

Global Health Care

  $ 32,617   $ 31,199   $ 29,929   5%   4%

Global Supplemental Benefits

    3,872     3,385     3,149     14     7

Group Disability and Life

  4,441   4,443   4,271     4

Other Operations

    468     472     485     (1)     (3)

Corporate

  (19)     (15)   N/M   100
         

Total operating revenues (1)

  $ 41,379   $ 39,499   $ 37,819     5%     4%

Shareholders' net income (1)

  $ 2,237   $ 1,867   $ 2,094   20%   (11)%
         

Adjusted Income (Loss) From Operations (1)

                             

Global Health Care

  $ 2,173   $ 1,852   $ 1,848   17%   –%

Global Supplemental Benefits

    369     294     262     26     12

Group Disability and Life

  285   125   324   128   (61)

Other Operations

    67     70     75     (4)     (7)

Corporate

  (226)   (237)   (253)   5   6
         

Total adjusted income from operations (1)

  $ 2,668   $ 2,104   $ 2,256     27%     (7)%

Earnings per share (diluted)

                   

Shareholders' net income (1)

  $ 8.77   $ 7.19   $ 8.04     22%     (11)%

Adjusted income from operations (1)

  $ 10.46   $ 8.10   $ 8.66   29%   (6)%
         

Global medical customers (in thousands)

    15,907     15,197     14,999     5%     1%
(1)
See Consolidated Results of Operations beginning on page 38 for reconciliations of operating revenues to total revenues and adjusted income from operations to shareholders' net income on a dollar and per share basis.

The charts on the following pages provide a comparison of our 2017 and 2016 results compared with each prior year.

GRAPHIC


GRAPHIC


 


2017 versus 2016 and 2016 versus 2015
 – Increases in both 2017 and 2016 primarily reflected higher operating revenues driven by business growth as discussed further below.

GRAPHIC


GRAPHIC


 


2017 versus 2016
 – Increase driven by business growth in Global Health Care and Global Supplemental Benefits.

2016 versus 2015 – Increase resulted from business growth across all of our ongoing reportable segments.

(1)
See Consolidated results of operations starting on page 38 for reconciliations of operating revenues to total revenues and adjusted income from operations to shareholders' net income on a dollar and per share basis.
36    CIGNA CORPORATION - 2017 Form 10-K


Back to Contents

PART II
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations


GRAPHIC


GRAPHIC


 


2017 versus 2016
 – Increase due to higher adjusted income from operations across our reporting segments. Debt extinguishment costs and charges resulting from U.S. tax reform, both reported as special items in 2017, partially offset these increases.

2016 versus 2015 – Decrease due to lower adjusted income from operations, primarily in the Group Disability and Life segment. Increased special item charges in 2016 (primarily higher transaction costs and the 2016 risk corridor allowance) also contributed to the decline.


GRAPHIC


GRAPHIC


 


2017 versus 2016
 – Increase driven by higher earnings in each of our ongoing reportable segments. These increases were primarily a result of customer growth in Global Health Care and Global Supplemental Benefits and increased specialty contributions in Global Health Care. Improved claim experience in Group Disability and Life also contributed to the increase.

2016 versus 2015 – Decrease was a result of significantly lower earnings in Group Disability and Life reflecting unfavorable claim experience. Costs related to the Government segment's response to the Centers for Medicare and Medicaid Services ("CMS") audit also contributed to the decline. Increased earnings contributions in Global Supplemental Benefits and the Commercial segment partially offset those unfavorable impacts.

(1)
See Consolidated results of operations starting on page 38 for reconciliations of operating revenues to total revenues and adjusted income from operations to shareholders' net income on a dollar and per share basis.


GRAPHIC


GRAPHIC


 


2017 versus 2016 and 2016 versus 2015
 – Increases in both 2017 and 2016 reflected growth in targeted markets for our Commercial segment. In 2017, these favorable effects were partially offset by expected disenrollment in the Government segment.

Further discussion of detailed components of revenues and expenses can be found in the "Consolidated Results of Operations" section of this MD&A beginning on page 38. For further analysis and explanation of individual segment results, see the "Segment Reporting" section of this MD&A beginning on page 47.

Key Developments

U.S. Tax Reform Legislation

Major U.S. tax reform legislation was signed into law on December 22, 2017. The legislation is highlighted by a reduction in the corporate income tax rate from the current 35% to 21% effective January 1, 2018. As further described on page 39 of this Form 10-K, we expect a significant decline in our effective tax rate beginning in 2018 as a result of the rate reduction. The remaining provisions of the law, most of which take effect on January 1, 2018, are not expected to have a material impact on the Company's results of operations beginning in 2018.

We recorded additional tax expense of $232 million in 2017 resulting from this legislation, comprised of $144 million due to the revaluation of deferred tax assets and liabilities to reflect the reduction in the corporate tax rate and $88 million due to the assessment of U.S. taxes related to the Company's accumulated unremitted foreign earnings. The legislation provides an election to pay these taxes over eight years and we expect to adopt this election. Both the revaluation of deferred tax assets and liabilities and the taxes on accumulated unremitted foreign earnings are considered provisional as certain adjustments used to calculate the tax at year-end were based on estimates.

CIGNA CORPORATION - 2017 Form 10-K    37


Back to Contents

PART II
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

Also as a result of tax reform, the Company recorded a reduction in operating expenses of $56 million ($36 million after-tax) reflecting a decrease in a liability to reimburse a reinsurer for taxes related to a block of business sold through reinsurance. An offsetting tax effect is included in the $144 million charge discussed above, resulting in no after-tax effect for this item.

See Note 20 to our Consolidated Financial Statements for additional information.

Termination of Proposed Merger with Anthem, Inc.

On May 12, 2017, we announced that the merger agreement between Cigna and Anthem, Inc. had been terminated.

See Note 21(E) to our Consolidated Financial Statements in this Form 10-K for additional details.

Consolidated Results of Operations (GAAP Basis)

Financial Summary

      For the Years Ended
December 31,
    Increase
(Decrease)
    Increase
(Decrease)
   
(In millions)     2017     2016     2015     2017 vs. 2016     2016 vs. 2015    
Premiums   $ 32,307   $ 30,626   $ 29,642   $ 1,681   5 % $ 984   3 %  
Fees and other revenues     4,867     4,760     4,488     107     2     272     6    
Net investment income   1,226   1,147   1,153   79   7   (6 ) (1 )  
Mail order pharmacy revenues     2,979     2,966     2,536     13         430     17    
Operating revenues   41,379   39,499   37,819   1,880   5   1,680   4    
Net realized investment gains     237     169     57     68     40     112     196    
Total revenues   41,616   39,668   37,876   1,948   5   1,792   5    
Global Health Care medical costs     19,967     19,009     18,354     958     5     655     4    
Other benefit expenses   5,439   5,477   4,936   (38)   (1 ) 541   11    
Mail order pharmacy costs     2,456     2,468     2,134     (12)         334     16    
Other operating expenses   10,033   9,584   8,982   449   5   602   7    
Amortization of other acquired intangible assets, net     115     151     143     (36)     (24 )   8     6    
Benefits and expenses   38,010   36,689   34,549   1,321   4   2,140   6    
Income before income taxes     3,606     2,979     3,327     627     21     (348 )   (10 )  
Income taxes   1,374   1,136   1,250   238   21   (114 ) (9 )  
Net income     2,232     1,843     2,077     389     21     (234 )   (11 )  
Less: net (loss) attributable to noncontrolling interests   (5)   (24)   (17)   19   79   (7 ) (41 )  
Shareholders' net income   $ 2,237   $ 1,867   $ 2,094   $ 370     20 % $ (227 )   (11 )%  

Reconciliation of Shareholders' Net Income (GAAP) to Adjusted Income from Operations (non-GAAP):

      For the Years Ended
December 31,
    Increase (Decrease)     Increase (Decrease)
(In millions)     2017     2016     2015     2017 vs. 2016     2016 vs. 2015
Shareholders' net income   $ 2,237   $ 1,867   $ 2,094   $ 370   20%   $ (227)   (11)%
After-tax adjustments required to reconcile to adjusted income from operations                                          

– Net realized investment (gains)

  (156)   (109)   (40)   (47)     (69)  

– Amortization of other acquired intangible assets, net

    66     94     80     (28)           14      
Special items                            

– U.S. tax reform (see Note 20 to our Consolidated Financial Statements)

    196             196                

– Debt extinguishment costs (see Note 5 to our Consolidated Financial Statements)

  209     65   209     (65)  

– Long-term care guaranty fund assessment (see Note 21(D) to our Consolidated Financial Statements)

    83             83                

– Transaction-related costs (see Note 3 to our Consolidated Financial Statements)

  33   147   57   (114)     90  

– Risk corridor allowance (see Note 22 to our Consolidated Financial Statements)

        80         (80)           80      

– Charges associated with litigation matters discussed in Note 21(E) to our Consolidated Financial Statements

    25     (25)     25  
             
Adjusted income from operations   $ 2,668   $ 2,104   $ 2,256   $ 564     27%   $ (152)     (7)%
38    CIGNA CORPORATION - 2017 Form 10-K


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PART II
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations


      For the Years Ended
December 31,
    Change
Favorable
(Unfavorable)
    Change
Favorable
(Unfavorable)
Other Key Consolidated Financial Data     2017     2016     2015     2017 vs. 2016     2016 vs. 2015
Earnings per share (diluted)