UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
R QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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 1-08323
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) |
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(Zip Code) |
(860) 226-6000 | ||
Registrants telephone number, including area code | ||
(860) 226-6741 | ||
Registrants facsimile number, including area code | ||
Not Applicable | ||
(Former name, former address and former fiscal year, if changed since last report) |
Indicate by check mark |
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YES |
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NO | ||||
· 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. |
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R |
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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). |
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R |
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o | ||||
· whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of large accelerated filer, accelerated filer, smaller reporting company, and emerging growth company in Rule 12b-2 of the Exchange Act. | ||||||||
Large accelerated filer R |
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). |
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o |
|
R | ||||
As of July 21, 2017, 251,778,121 shares of the issuers common stock were outstanding.
Cigna Corporation
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2 | |
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3 | |
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4 | |
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6 | |
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7 | |
Managements Discussion and Analysis of Financial Condition and Results of Operations |
48 | |
68 | ||
68 | ||
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69 | ||
70 | ||
71 | ||
71 | ||
72 | ||
73 | ||
E-1 |
As used herein, Cigna or the Company refers to one or more of Cigna Corporation and its consolidated subsidiaries.
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Cigna Corporation
Consolidated Statements of Income
|
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Unaudited Three Months Ended June 30, |
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Unaudited Six Months Ended June 30, |
| ||||||||
(In millions, except per share amounts) |
|
2017 |
|
2016 |
|
2017 |
|
2016 |
| ||||
Revenues: |
|
|
|
|
|
|
|
|
| ||||
Premiums |
|
$ |
8,010 |
|
$ |
7,654 |
|
$ |
16,113 |
|
$ |
15,400 |
|
Fees and other revenues |
|
1,192 |
|
1,197 |
|
2,415 |
|
2,398 |
| ||||
Net investment income |
|
308 |
|
294 |
|
611 |
|
566 |
| ||||
Mail order pharmacy revenues |
|
757 |
|
748 |
|
1,467 |
|
1,445 |
| ||||
Realized investment gains (losses): |
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|
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|
|
|
|
| ||||
Other-than-temporary impairments on fixed maturities |
|
(2) |
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(3) |
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(9) |
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(30) |
| ||||
Other realized investment gains, net |
|
53 |
|
70 |
|
106 |
|
65 |
| ||||
Net realized investment gains |
|
51 |
|
67 |
|
97 |
|
35 |
| ||||
TOTAL REVENUES |
|
10,318 |
|
9,960 |
|
20,703 |
|
19,844 |
| ||||
Benefits and Expenses: |
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|
|
|
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|
|
|
| ||||
Global Health Care medical costs |
|
4,924 |
|
4,777 |
|
9,909 |
|
9,538 |
| ||||
Other benefit expenses |
|
1,335 |
|
1,414 |
|
2,702 |
|
2,782 |
| ||||
Mail order pharmacy costs |
|
626 |
|
630 |
|
1,207 |
|
1,204 |
| ||||
Other operating expenses |
|
2,271 |
|
2,289 |
|
4,801 |
|
4,610 |
| ||||
Amortization of other acquired intangible assets, net |
|
28 |
|
37 |
|
60 |
|
78 |
| ||||
TOTAL BENEFITS AND EXPENSES |
|
9,184 |
|
9,147 |
|
18,679 |
|
18,212 |
| ||||
Income before Income Taxes |
|
1,134 |
|
813 |
|
2,024 |
|
1,632 |
| ||||
Income taxes (benefits): |
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|
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Current |
|
304 |
|
338 |
|
590 |
|
632 |
| ||||
Deferred |
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20 |
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(28) |
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31 |
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(17) |
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TOTAL INCOME TAXES |
|
324 |
|
310 |
|
621 |
|
615 |
| ||||
Net Income |
|
810 |
|
503 |
|
1,403 |
|
1,017 |
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Less: Net (Loss) Attributable to Noncontrolling Interests |
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(3) |
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(7) |
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(8) |
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(12) |
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SHAREHOLDERS NET INCOME |
|
$ |
813 |
|
$ |
510 |
|
$ |
1,411 |
|
$ |
1,029 |
|
Shareholders Net Income Per Share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
3.20 |
|
$ |
2.00 |
|
$ |
5.54 |
|
$ |
4.03 |
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Diluted |
|
$ |
3.15 |
|
$ |
1.97 |
|
$ |
5.45 |
|
$ |
3.97 |
|
Dividends Declared Per Share |
|
$ |
- |
|
$ |
- |
|
$ |
0.04 |
|
$ |
0.04 |
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The accompanying Notes to the Consolidated Financial Statements (unaudited) are an integral part of these statements.
Cigna Corporation
Consolidated Statements of Comprehensive Income
|
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Unaudited Three Months Ended June 30, |
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Unaudited Six Months Ended June 30, |
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(In millions) |
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2017 |
|
2016 |
|
2017 |
|
2016 |
| ||||
Shareholders net income |
|
$ |
813 |
|
$ |
510 |
|
$ |
1,411 |
|
$ |
1,029 |
|
Shareholders other comprehensive income, net of tax: |
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|
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|
|
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|
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Net unrealized appreciation, securities |
|
67 |
|
177 |
|
74 |
|
350 |
| ||||
Net unrealized (depreciation), derivatives |
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- |
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(1) |
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(3) |
|
(4) |
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Net translation of foreign currencies |
|
27 |
|
(40) |
|
139 |
|
41 |
| ||||
Postretirement benefits liability adjustment |
|
12 |
|
8 |
|
26 |
|
19 |
| ||||
Shareholders other comprehensive income, net of tax |
|
106 |
|
144 |
|
236 |
|
406 |
| ||||
Shareholders comprehensive income |
|
919 |
|
654 |
|
1,647 |
|
1,435 |
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Comprehensive income (loss) attributable to noncontrolling interests: |
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Net (loss) attributable to redeemable noncontrolling interests |
|
(1) |
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(2) |
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(3) |
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(3) |
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Net (loss) attributable to other noncontrolling interests |
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(2) |
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(5) |
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(5) |
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(9) |
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Other comprehensive income (loss) attributable to redeemable noncontrolling interests |
|
2 |
|
(1) |
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- |
|
2 |
| ||||
Total comprehensive (loss) attributable to noncontrolling interests |
|
(1) |
|
(8) |
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(8) |
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(10) |
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TOTAL COMPREHENSIVE INCOME |
|
$ |
918 |
|
$ |
646 |
|
$ |
1,639 |
|
$ |
1,425 |
|
The accompanying Notes to the Consolidated Financial Statements (unaudited) are an integral part of these statements.
Cigna Corporation
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Unaudited |
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As of |
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As of |
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June 30, |
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December 31, |
| ||
(In millions, except per share amounts) |
|
2017 |
|
2016 |
| ||
Assets: |
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Investments: |
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Fixed maturities, at fair value (amortized cost, $21,222; $19,942) |
|
$ |
22,513 |
|
$ |
20,961 |
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Equity securities, at fair value (cost, $636; $583) |
|
635 |
|
583 |
| ||
Commercial mortgage loans |
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1,741 |
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1,666 |
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Policy loans |
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1,442 |
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1,452 |
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Other long-term investments |
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1,463 |
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1,462 |
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Short-term investments |
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138 |
|
691 |
| ||
Total investments |
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27,932 |
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26,815 |
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Cash and cash equivalents |
|
3,611 |
|
3,185 |
| ||
Premiums, accounts and notes receivable, net |
|
3,419 |
|
3,077 |
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Reinsurance recoverables |
|
6,302 |
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6,478 |
| ||
Deferred policy acquisition costs |
|
2,011 |
|
1,818 |
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Property and equipment |
|
1,509 |
|
1,536 |
| ||
Deferred tax assets, net |
|
199 |
|
304 |
| ||
Goodwill |
|
6,000 |
|
5,980 |
| ||
Other assets, including other intangibles |
|
2,287 |
|
2,227 |
| ||
Separate account assets |
|
8,468 |
|
7,940 |
| ||
TOTAL ASSETS |
|
$ |
61,738 |
|
$ |
59,360 |
|
Liabilities: |
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Contractholder deposit funds |
|
$ |
8,350 |
|
$ |
8,458 |
|
Future policy benefits |
|
9,883 |
|
9,648 |
| ||
Unpaid claims and claim expenses |
|
5,039 |
|
4,917 |
| ||
Global Health Care medical costs payable |
|
2,848 |
|
2,532 |
| ||
Unearned premiums |
|
1,181 |
|
634 |
| ||
Total insurance and contractholder liabilities |
|
27,301 |
|
26,189 |
| ||
Accounts payable, accrued expenses and other liabilities |
|
6,601 |
|
6,414 |
| ||
Short-term debt |
|
141 |
|
276 |
| ||
Long-term debt |
|
4,622 |
|
4,756 |
| ||
Separate account liabilities |
|
8,468 |
|
7,940 |
| ||
TOTAL LIABILITIES |
|
47,133 |
|
45,575 |
| ||
Contingencies Note 16 |
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Redeemable noncontrolling interests |
|
58 |
|
58 |
| ||
Shareholders Equity: |
|
|
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Common stock (par value per share, $0.25; shares issued, 296; authorized, 600) |
|
74 |
|
74 |
| ||
Additional paid-in capital |
|
2,922 |
|
2,892 |
| ||
Accumulated other comprehensive (loss) |
|
(1,146) |
|
(1,382) |
| ||
Retained earnings |
|
15,102 |
|
13,855 |
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Less treasury stock, at cost |
|
(2,406) |
|
(1,716) |
| ||
TOTAL SHAREHOLDERS EQUITY |
|
14,546 |
|
13,723 |
| ||
Other noncontrolling interests |
|
1 |
|
4 |
| ||
Total equity |
|
14,547 |
|
13,727 |
| ||
Total liabilities and equity |
|
$ |
61,738 |
|
$ |
59,360 |
|
SHAREHOLDERS EQUITY PER SHARE |
|
$ |
57.53 |
|
$ |
53.42 |
|
The accompanying Notes to the Consolidated Financial Statements (unaudited) are an integral part of these statements.
Cigna Corporation
Consolidated Statements of Changes in Total Equity
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Accumulated |
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Redeemable |
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Unaudited |
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Additional |
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Other |
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Other Non- |
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Non- |
| |||||||||
For the three months ended June 30, 2017 |
|
Common |
|
Paid-in |
|
Comprehensive |
|
Retained |
|
Treasury |
|
Shareholders |
|
controlling |
|
Total |
|
controlling |
| |||||||||
(In millions) |
|
Stock |
|
Capital |
|
(Loss) |
|
Earnings |
|
Stock |
|
Equity |
|
Interests |
|
Equity |
|
Interests |
| |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
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Balance at April 1, 2017 |
|
$ |
74 |
|
$ |
2,912 |
|
$ |
(1,252) |
|
$ |
14,356 |
|
$ |
(1,864) |
|
$ |
14,226 |
|
$ |
3 |
|
$ |
14,229 |
|
$ |
56 |
|
Effect of issuing stock for employee benefit plans |
|
|
|
10 |
|
|
|
(67) |
|
150 |
|
93 |
|
|
|
93 |
|
|
| |||||||||
Other comprehensive income |
|
|
|
|
|
106 |
|
|
|
|
|
106 |
|
|
|
106 |
|
2 |
| |||||||||
Net income (loss) |
|
|
|
|
|
|
|
813 |
|
|
|
813 |
|
(2) |
|
811 |
|
(1) |
| |||||||||
Repurchase of common stock |
|
|
|
|
|
|
|
|
|
(692) |
|
(692) |
|
|
|
(692) |
|
|
| |||||||||
Other transactions impacting noncontrolling interests |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
- |
|
1 |
| |||||||||
BALANCE AT JUNE 30, 2017 |
|
$ |
74 |
|
$ |
2,922 |
|
$ |
(1,146) |
|
$ |
15,102 |
|
$ |
(2,406) |
|
$ |
14,546 |
|
$ |
1 |
|
$ |
14,547 |
|
$ |
58 |
|
|
|
|
|
|
|
|
|
|
|
|
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For the three months ended June 30, 2016 |
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|
|
|
|
|
|
|
|
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|
|
|
|
|
|
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| |||||||||
Balance at April 1, 2016 |
|
$ |
74 |
|
$ |
2,874 |
|
$ |
(988) |
|
$ |
12,541 |
|
$ |
(1,826) |
|
$ |
12,675 |
|
$ |
9 |
|
$ |
12,684 |
|
$ |
73 |
|
Effect of issuing stock for employee benefit plans |
|
|
|
10 |
|
|
|
(5) |
|
27 |
|
32 |
|
|
|
32 |
|
|
| |||||||||
Other comprehensive income (loss) |
|
|
|
|
|
144 |
|
|
|
|
|
144 |
|
|
|
144 |
|
(1) |
| |||||||||
Net income (loss) |
|
|
|
|
|
|
|
510 |
|
|
|
510 |
|
(5) |
|
505 |
|
(2) |
| |||||||||
Other transactions impacting noncontrolling interests |
|
|
|
(5) |
|
|
|
|
|
|
|
(5) |
|
4 |
|
(1) |
|
1 |
| |||||||||
BALANCE AT JUNE 30, 2016 |
|
$ |
74 |
|
$ |
2,879 |
|
$ |
(844) |
|
$ |
13,046 |
|
$ |
(1,799) |
|
$ |
13,356 |
|
$ |
8 |
|
$ |
13,364 |
|
$ |
71 |
|
The accompanying Notes to the Consolidated Financial Statements (unaudited) are an integral part of these statements.
Cigna Corporation
Consolidated Statements of Changes in Total Equity
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
Redeemable |
| |||||||||
Unaudited |
|
|
|
Additional |
|
Other |
|
|
|
|
|
|
|
Other non- |
|
|
|
Non- |
| |||||||||
For the six months ended June 30, 2017 |
|
Common |
|
Paid-in |
|
Comprehensive |
|
Retained |
|
Treasury |
|
Shareholders |
|
controlling |
|
Total |
|
controlling |
| |||||||||
(In millions) |
|
Stock |
|
Capital |
|
(Loss) |
|
Earnings |
|
Stock |
|
Equity |
|
Interests |
|
Equity |
|
Interests |
| |||||||||
Balance at January 1, 2017 |
|
$ |
74 |
|
$ |
2,892 |
|
$ |
(1,382) |
|
$ |
13,855 |
|
$ |
(1,716) |
|
$ |
13,723 |
|
$ |
4 |
|
$ |
13,727 |
|
$ |
58 |
|
Effect of issuing stock for employee benefit plans |
|
|
|
33 |
|
|
|
(154) |
|
252 |
|
131 |
|
|
|
131 |
|
|
| |||||||||
Other comprehensive income |
|
|
|
|
|
236 |
|
|
|
|
|
236 |
|
|
|
236 |
|
- |
| |||||||||
Net income (loss) |
|
|
|
|
|
|
|
1,411 |
|
|
|
1,411 |
|
(5) |
|
1,406 |
|
(3) |
| |||||||||
Common dividends declared (per share: $0.04) |
|
|
|
|
|
|
|
(10) |
|
|
|
(10) |
|
|
|
(10) |
|
|
| |||||||||
Repurchase of common stock |
|
|
|
|
|
|
|
|
|
(942) |
|
(942) |
|
|
|
(942) |
|
|
| |||||||||
Other transactions impacting noncontrolling interests |
|
|
|
(3 |
) |
|
|
|
|
|
|
(3) |
|
2 |
|
(1) |
|
3 |
| |||||||||
BALANCE AT JUNE 30, 2017 |
|
$ |
74 |
|
$ |
2,922 |
|
$ |
(1,146) |
|
$ |
15,102 |
|
$ |
(2,406) |
|
$ |
14,546 |
|
$ |
1 |
|
$ |
14,547 |
|
$ |
58 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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| |||||||||
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| |||||||||
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|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
For the six months ended June 30, 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
(In millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Balance at January 1, 2016 |
|
$ |
74 |
|
$ |
2,859 |
|
$ |
(1,250) |
|
$ |
12,121 |
|
$ |
(1,769) |
|
$ |
12,035 |
|
$ |
9 |
|
$ |
12,044 |
|
$ |
69 |
|
Effect of issuing stock for employee benefit plans |
|
|
|
31 |
|
|
|
(94) |
|
80 |
|
17 |
|
|
|
17 |
|
|
| |||||||||
Other comprehensive income |
|
|
|
|
|
406 |
|
|
|
|
|
406 |
|
|
|
406 |
|
2 |
| |||||||||
Net income (loss) |
|
|
|
|
|
|
|
1,029 |
|
|
|
1,029 |
|
(9) |
|
1,020 |
|
(3) |
| |||||||||
Common dividends declared (per share: $0.04) |
|
|
|
|
|
|
|
(10) |
|
|
|
(10) |
|
|
|
(10) |
|
|
| |||||||||
Repurchase of common stock |
|
|
|
|
|
|
|
|
|
(110) |
|
(110) |
|
|
|
(110) |
|
|
| |||||||||
Other transactions impacting noncontrolling interests |
|
|
|
(11) |
|
|
|
|
|
|
|
(11) |
|
8 |
|
(3) |
|
3 |
| |||||||||
BALANCE AT JUNE 30, 2016 |
|
$ |
74 |
|
$ |
2,879 |
|
$ |
(844) |
|
$ |
13,046 |
|
$ |
(1,799) |
|
$ |
13,356 |
|
$ |
8 |
|
$ |
13,364 |
|
$ |
71 |
|
The accompanying Notes to the Consolidated Financial Statements (unaudited) are an integral part of these statements.
Cigna Corporation
Consolidated Statements of Cash Flows
|
|
Unaudited |
| ||||
|
|
Six Months Ended June 30, |
| ||||
(In millions) |
|
2017 |
|
2016 |
| ||
Cash Flows from Operating Activities |
|
|
|
|
| ||
Net income |
|
$ |
1,403 |
|
$ |
1,017 |
|
Adjustments to reconcile net income to net cash provided by (used in) operating activities: |
|
|
|
|
| ||
Depreciation and amortization |
|
286 |
|
310 |
| ||
Realized investment (gains) |
|
(97) |
|
(35) |
| ||
Deferred income taxes (benefits) |
|
31 |
|
(17) |
| ||
Net changes in assets and liabilities, net of non-operating effects: |
|
|
|
|
| ||
Premiums, accounts and notes receivable |
|
(222) |
|
(520) |
| ||
Reinsurance recoverables |
|
64 |
|
(4) |
| ||
Deferred policy acquisition costs |
|
(137) |
|
(123) |
| ||
Other assets |
|
(71) |
|
(83) |
| ||
Insurance liabilities |
|
973 |
|
607 |
| ||
Accounts payable, accrued expenses and other liabilities |
|
(159) |
|
(58) |
| ||
Current income taxes |
|
83 |
|
54 |
| ||
Distributions from partnership investments (1) |
|
74 |
|
71 |
| ||
Other, net |
|
48 |
|
48 |
| ||
NET CASH PROVIDED BY OPERATING ACTIVITIES (1) |
|
2,276 |
|
1,267 |
| ||
Cash Flows from Investing Activities |
|
|
|
|
| ||
Proceeds from investments sold: |
|
|
|
|
| ||
Fixed maturities and equity securities |
|
930 |
|
712 |
| ||
Investment maturities and repayments: |
|
|
|
|
| ||
Fixed maturities and equity securities |
|
945 |
|
738 |
| ||
Commercial mortgage loans |
|
118 |
|
69 |
| ||
Other sales, maturities and repayments (primarily short-term and other long-term investments) (1) |
|
1,059 |
|
285 |
| ||
Investments purchased or originated: |
|
|
|
|
| ||
Fixed maturities and equity securities |
|
(2,938) |
|
(1,701) |
| ||
Commercial mortgage loans |
|
(194) |
|
(16) |
| ||
Other (primarily short-term and other long-term investments) |
|
(444) |
|
(401) |
| ||
Property and equipment purchases |
|
(194) |
|
(254) |
| ||
Acquisitions, net of cash acquired |
|
(14) |
|
(4) |
| ||
NET CASH (USED IN) INVESTING ACTIVITIES (1) |
|
(732) |
|
(572) |
| ||
Cash Flows from Financing Activities |
|
|
|
|
| ||
Deposits and interest credited to contractholder deposit funds |
|
686 |
|
779 |
| ||
Withdrawals and benefit payments from contractholder deposit funds |
|
(733) |
|
(703) |
| ||
Net change in short-term debt |
|
(14) |
|
(111) |
| ||
Repayment of long-term debt |
|
(250) |
|
- |
| ||
Repurchase of common stock |
|
(895) |
|
(139) |
| ||
Issuance of common stock |
|
76 |
|
14 |
| ||
Other, net |
|
(13) |
|
(63) |
| ||
NET CASH (USED IN) FINANCING ACTIVITIES |
|
(1,143) |
|
(223) |
| ||
Effect of foreign currency rate changes on cash and cash equivalents |
|
25 |
|
14 |
| ||
Net increase in cash and cash equivalents |
|
426 |
|
486 |
| ||
Cash and cash equivalents, January 1, |
|
3,185 |
|
1,968 |
| ||
Cash and cash equivalents, June 30, |
|
$ |
3,611 |
|
$ |
2,454 |
|
Supplemental Disclosure of Cash Information: |
|
|
|
|
| ||
Income taxes paid, net of refunds |
|
$ |
504 |
|
$ |
579 |
|
Interest paid |
|
$ |
123 |
|
$ |
122 |
|
(1) As required in adopting Accounting Standard Update (ASU) 2016-15, the Company retrospectively reclassified $71 million of cash distributions from partnership earnings from investing to operating activities for the six months ended June 30, 2016. The comparable amount reported in operating activities in 2017 was $74 million. See Note 2 for further discussion.
The accompanying Notes to the Consolidated Financial Statements (unaudited) are an integral part of these statements.
CIGNA CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
TABLE OF CONTENTS
Note |
Footnote |
Page |
|
|
|
BUSINESS AND CAPITAL STRUCTURE |
| |
8 | ||
9 | ||
11 | ||
11 | ||
12 | ||
INSURANCE INFORMATION |
| |
13 | ||
14 | ||
16 | ||
INVESTMENTS |
| |
19 | ||
30 | ||
34 | ||
36 | ||
37 | ||
WORKFORCE MANAGEMENT AND COMPENSATION |
| |
39 | ||
COMPLIANCE, REGULATION AND CONTINGENCIES |
| |
39 | ||
40 | ||
RESULTS DETAILS |
| |
45 |
Note 1 Description of Business
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, Cignas newly 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 insurance and other subsidiaries. The majority of these products are offered through employers and other groups (e.g. governmental and non-governmental organizations, unions and associations). Cigna also offers commercial health and dental insurance, Medicare and Medicaid products and health, life and accident insurance coverages to individuals in the U.S. and selected international markets. In addition to its ongoing operations described above, Cigna also has certain run-off operations.
The financial results of the Companys businesses are reported in the following segments:
Global Health Care aggregates the Commercial and Government operating segments due to their similar economic characteristics, products and services and regulatory environment:
· |
The Commercial operating segment (Commercial segment) encompasses both the U.S. commercial and certain international health care businesses serving employers and their employees, other groups and individuals. 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 (Government segment) offers Medicare Advantage and Medicare Part D plans to seniors. This segment also offers Medicaid plans in selected markets. |
Global Supplemental Benefits includes supplemental health, life and accident insurance products offered in selected international markets and in the U.S.
Group Disability and Life provides group long-term and short-term disability, group life, accident and specialty insurance products and related services.
Other Operations consist of:
· corporate-owned life insurance (COLI);
|
· |
run-off reinsurance business that is predominantly comprised of guaranteed minimum death benefit (GMDB) and guaranteed minimum income benefit (GMIB) business effectively exited through reinsurance with Berkshire Hathaway Life Insurance Company of Nebraska (Berkshire) in 2013; |
|
|
|
|
|
· |
deferred gains recognized from the 1998 sale of the individual life insurance and annuity business and the 2004 sale of the retirement benefits business; and | ||
|
| ||
· |
run-off settlement annuity business. |
Corporate reflects amounts not allocated to operating segments, such as net interest expense (defined as interest on corporate debt less net investment income on investments not supporting segment operations), interest on uncertain tax positions, certain litigation matters, intersegment eliminations, compensation cost for stock options and related excess tax benefits, expense associated with frozen pension plans and certain costs for corporate projects, including overhead.
Note 2 Significant Accounting Policies
Basis of Presentation
The Consolidated Financial Statements include the accounts of Cigna Corporation and its subsidiaries. Intercompany transactions and accounts have been eliminated in consolidation. These Consolidated Financial Statements were prepared in conformity with accounting principles generally accepted in the United States of America (GAAP). Amounts recorded in the Consolidated Financial Statements necessarily reflect managements estimates and assumptions about medical costs, investment valuation, interest rates and other factors. Significant estimates are discussed throughout these Notes; however, actual results could differ from those estimates. The impact of a change in estimate is generally included in earnings in the period of adjustment. Certain reclassifications may be made to prior year amounts to conform to the current presentation.
These interim Consolidated Financial Statements are unaudited but include all adjustments (including normal recurring adjustments) necessary, in the opinion of management, for a fair statement of financial position and results of operations for the periods reported. The interim Consolidated Financial Statements and Notes should be read in conjunction with the Consolidated Financial Statements and Notes included in the Companys 2016 Annual Report on Form 10-K (2016 Form 10-K). The preparation of interim Consolidated Financial Statements necessarily relies heavily on estimates. This and certain other factors, including the seasonal nature of portions of the health care and related benefits business, as well as competitive and other market conditions, call for caution in estimating full-year results based on interim results of operations.
Recent Accounting Pronouncements
The Companys 2016 Form 10-K includes discussion of significant recent accounting pronouncements that either have impacted or may impact our financial statements in the future.
The following tables provide information about recently adopted and recently issued or changed accounting guidance (applicable to Cigna) that have occurred since the Company filed its 2016 Form 10-K.
Recently Adopted Accounting Guidance
Accounting Standard and |
|
Requirements and Effects of Adopting New Guidance |
Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force) (Accounting Standards Update (ASU) 2016-15)
|
|
Specifies how certain transactions should be classified in the statement of cash flows. While the standard addresses multiple types of transactions, only a change in the treatment of distributions from equity method investments impacted the Company.
|
Early adopted as of December 31, 2016 |
|
Effects of adoption: using the nature of distribution approach, the Company reported $74 million of cash receipts related to distributions from partnership earnings in operating activities for the six months ended June 30, 2017. The Company reclassified $71 million of cash receipts for the six months ended June 30, 2016 from investing to operating activities in the Consolidated Statements of Cash Flows. |
Recently Issued Accounting Guidance Not Yet Adopted
Accounting Standard and |
|
Requirements and Expected Effects of New Guidance Not Yet Adopted |
Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost (ASU 2017-07)
Required as of January 1, 2018 |
|
Requires employers to separate the service cost component from the other components of net benefit cost. Under the new guidance, only service cost is eligible for capitalization (as either deferred policy acquisition costs or capitalized software). This change in the capitalization rule is to be applied prospectively upon adoption. In addition, income statement captions used for each component of net benefit cost must be disclosed.
Expected effects: the Company expects the effect of this new guidance to be immaterial to its results of operations.
|
Recognition and Measurement of Financial Assets and Financial Liabilities (ASU 2016-01)
Required as of January 1, 2018
|
|
Requires:
· Entities to measure equity investments at fair value in net income if they are neither consolidated nor accounted for under the equity method · Cumulative effect adjustment to the beginning balance of retained earnings at adoption
Expected effects:
· Certain limited partnership interests carried at cost of $230 million as of June 30, 2017 will be reported at fair value at adoption · An increase to retained earnings of approximately $50 million, after-tax, if implemented as of June 30, 2017. Actual cumulative effect adjustment will depend on investments held and market conditions at adoption.
|
Revenue from Contracts with Customers (ASU 2014-09 and related amendments)
Required as of January 1, 2018 |
|
Requires:
· Companies to estimate and allocate the expected customer contract revenues among distinct goods or services based on relative standalone selling prices · Revenues to be recognized as goods or services are delivered · New disclosures including the presentation of relevant categories of revenues and information about related contract assets and liabilities · Adoption through retrospective restatement with or without using certain practical expedients or adoption with a cumulative effect adjustment
Expected effects:
· Applies to the Companys non-insurance, administrative service and mail order pharmacy contracts but does not apply to certain contracts within the scope of other GAAP, such as the Company's insurance and investment contracts accounted for under ASC 944 · The Company expects to adopt the new guidance through retrospective restatement · The Company does not expect the adoption of the new guidance to have a material impact to its pattern of revenue recognition or net income. Adoption of this new guidance could result in reclassifications within the Consolidated Statements of Income. · The Company is continuing to evaluate the new requirements. Specifically, the Company is evaluating the combination of contract guidance for certain customers when the Company provides both insurance and non-insurance products, the deferral of revenue for services provided after the termination of certain administrative contracts and the Companys status as principal or agent for certain performance obligations.
|
Note 3 Mergers and Acquisitions
Termination of Proposed Merger with Anthem, Inc. (Anthem)
On May 12, 2017, Cigna announced that the merger agreement between the Company and Anthem had been terminated. See Note 16 for discussion of ongoing litigation related to the termination of the merger agreement.
The following table presents merger-related costs incurred by the Company for the three months and six months ended June 30, 2017 and 2016. Merger-related costs primarily consist of fees for legal, advisory and other professional services. In addition, because the merger was not consummated, certain merger-related costs that were previously not deductible for federal income tax purposes became deductible. The Company recognized an incremental tax benefit for these newly deductible costs in the second quarter of 2017 as presented below.
|
|
Three Months Ended |
| ||||||||||
|
|
June 30, 2017 |
|
June 30, 2016 |
| ||||||||
(In millions) |
|
Before-tax |
|
After-tax |
|
Before-tax |
|
After-tax |
| ||||
Merger-related transaction costs |
|
$ |
16 |
|
$ |
12 |
|
$ |
34 |
|
$ |
26 |
|
Tax (benefit) - previously non-deductible costs |
|
- |
|
(59) |
|
- |
|
- |
| ||||
Merger-related transaction costs (benefits), net |
|
$ |
16 |
|
$ |
(47) |
|
$ |
34 |
|
$ |
26 |
|
|
|
Six Months Ended |
| ||||||||||
|
|
June 30, 2017 |
|
June 30, 2016 |
| ||||||||
(In millions) |
|
Before-tax |
|
After-tax |
|
Before-tax |
|
After-tax |
| ||||
Merger-related transaction costs |
|
$ |
79 |
|
$ |
61 |
|
$ |
74 |
|
$ |
62 |
|
Tax (benefit) - previously non-deductible costs |
|
- |
|
(59) |
|
- |
|
- |
| ||||
Merger-related transaction costs, net |
|
$ |
79 |
|
$ |
2 |
|
$ |
74 |
|
$ |
62 |
|
Acquisitions
The Company completed certain acquisitions during 2017, the results of which were not material to its results of operations, liquidity or financial condition.
Basic and diluted earnings per share (EPS) were computed as follows:
|
|
Three Months Ended |
| ||||||||||||||||
|
|
June 30, 2017 |
|
June 30, 2016 |
| ||||||||||||||
(Shares in thousands, dollars in millions, except per |
|
Basic |
|
Effect of |
|
Diluted |
|
Basic |
|
Effect of |
|
Diluted |
| ||||||
Shareholders net income |
|
$ |
813 |
|
|
|
$ |
813 |
|
$ |
510 |
|
|
|
$ |
510 |
| ||
Shares: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Weighted average |
|
254,087 |
|
|
|
254,087 |
|
255,381 |
|
|
|
255,381 |
| ||||||
Common stock equivalents |
|
|
|
3,974 |
|
3,974 |
|
|
|
4,119 |
|
4,119 |
| ||||||
Total shares |
|
254,087 |
|
3,974 |
|
258,061 |
|
255,381 |
|
4,119 |
|
259,500 |
| ||||||
EPS |
|
$ |
3.20 |
|
$ |
(0.05) |
|
$ |
3.15 |
|
$ |
2.00 |
|
$ |
(0.03) |
|
$ |
1.97 |
|
|
|
Six Months Ended |
| ||||||||||||||||
|
|
June 30, 2017 |
|
June 30, 2016 |
| ||||||||||||||
(Shares in thousands, dollars in millions, except per |
|
Basic |
|
Effect of |
|
Diluted |
|
Basic |
|
Effect of |
|
Diluted |
| ||||||
Shareholders net income |
|
$ |
1,411 |
|
|
|
$ |
1,411 |
|
$ |
1,029 |
|
|
|
$ |
1,029 |
| ||
Shares: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Weighted average |
|
254,879 |
|
|
|
254,879 |
|
255,101 |
|
|
|
255,101 |
| ||||||
Common stock equivalents |
|
|
|
4,034 |
|
4,034 |
|
|
|
4,372 |
|
4,372 |
| ||||||
Total shares |
|
254,879 |
|
4,034 |
|
258,913 |
|
255,101 |
|
4,372 |
|
259,473 |
| ||||||
EPS |
|
$ |
5.54 |
|
$ |
(0.09) |
|
$ |
5.45 |
|
$ |
4.03 |
|
$ |
(0.06) |
|
$ |
3.97 |
|
The following outstanding employee stock options were not included in the computation of diluted earnings per share for the three months and six months ended June 30, 2017 and 2016 because their effect was anti-dilutive.
|
|
Three Months Ended |
|
Six Months Ended |
| ||||
(In millions) |
|
June 30, 2017 |
|
June 30, 2016 |
|
June 30, 2017 |
|
June 30, 2016 |
|
Anti-dilutive options |
|
1.2 |
|
2.6 |
|
1.9 |
|
2.0 |
|
The Company held 43,286,059 shares of common stock in Treasury as of June 30, 2017, and 39,587,801 shares as of June 30, 2016.
The outstanding amounts of debt and capital leases were as follows:
|
|
June 30, |
|
December 31, |
| ||
(In millions) |
|
2017 |
|
2016 |
| ||
Short-term: |
|
|
|
|
| ||
Current maturities of long-term debt |
|
$ |
131 |
|
$ |
250 |
|
Other, including capital leases |
|
10 |
|
26 |
| ||
Total short-term debt |
|
$ |
141 |
|
$ |
276 |
|
Long-term: |
|
|
|
|
| ||
$131 million, 6.35% Notes due 2018 |
|
$ |
- |
|
$ |
131 |
|
$250 million, 4.375% Notes due 2020 (1) |
|
252 |
|
252 |
| ||
$300 million, 5.125% Notes due 2020 (1) |
|
302 |
|
301 |
| ||
$78 million, 6.37% Notes due 2021 |
|
78 |
|
78 |
| ||
$300 million, 4.5% Notes due 2021 (1) |
|
302 |
|
302 |
| ||
$750 million, 4% Notes due 2022 |
|
744 |
|
744 |
| ||
$100 million, 7.65% Notes due 2023 |
|
100 |
|
100 |
| ||
$17 million, 8.3% Notes due 2023 |
|
17 |
|
17 |
| ||
$900 million, 3.25% Notes due 2025 |
|
894 |
|
893 |
| ||
$300 million, 7.875% Debentures due 2027 |
|
299 |
|
299 |
| ||
$83 million, 8.3% Step Down Notes due 2033 |
|
82 |
|
82 |
| ||
$500 million, 6.15% Notes due 2036 |
|
498 |
|
498 |
| ||
$300 million, 5.875% Notes due 2041 |
|
296 |
|
296 |
| ||
$750 million, 5.375% Notes due 2042 |
|
743 |
|
743 |
| ||
Other, including capital leases |
|
15 |
|
20 |
| ||
Total long-term debt |
|
$ |
4,622 |
|
$ |
4,756 |
|
(1) The Company has entered into interest rate swap contracts hedging a portion of these fixed-rate debt instruments. See Note 11 for further information about the Companys interest rate risk management and these derivative instruments.
The Company repaid $250 million of long-term notes that matured in the first quarter of 2017.
The Company has a five-year revolving credit and letter of credit agreement for $1.5 billion that permits up to $500 million to be used for letters of credit. This agreement extends through December 12, 2019 and is diversified among 16 banks, with 3 banks each having 12% of the commitment and the remainder spread among 13 banks in varying amounts. The credit agreement includes options subject to consent by the administrative agent and the committing banks to increase the commitment amount to $2 billion and to extend the term past December 12, 2019. The credit agreement is available for general corporate purposes, including for the issuance of letters of credit. The credit agreement contains customary covenants and restrictions, including a financial covenant that the Company may not permit its leverage ratio total consolidated debt to total consolidated capitalization (each as defined in the credit agreement) to be greater than 0.50. The leverage ratio calculation excludes the following items that are included in accumulated other comprehensive loss on the Companys consolidated balance sheets: net unrealized appreciation on fixed maturities and the portion of the post-retirement benefits liability adjustment attributable to pension.
In addition to the $4.8 billion of debt outstanding as of June 30, 2017, the Company had $10.7 billion of borrowing capacity within the maximum debt coverage covenant in the credit agreement. This additional borrowing capacity includes the $1.5 billion available under the credit agreement. Letters of credit outstanding as of June 30, 2017 totaled $13 million.
The Company was in compliance with its debt covenants as of June 30, 2017.
Note 6 Global Health Care Medical Costs Payable
Medical costs payable for the Global Health Care segment reflects estimates of the ultimate cost of claims that have been incurred but not reported, including expected development on reported claims, those that have been reported but not yet paid (reported claims in process), and other medical care expenses and services payable that are primarily comprised of accruals for incentives and other amounts payable to health care professionals and facilities. See Note 7 to the Consolidated Financial Statements in the Companys 2016 Form 10-K for further information about the assumptions and estimates used to establish this liability.
Activity in medical costs payable was as follows:
|
|
Three Months Ended |
|
Six Months Ended |
| ||||||||
|
|
June 30, |
|
June 30, |
|
June 30, |
|
June 30, |
| ||||
(In millions) |
|
2017 |
|
2016 |
|
2017 |
|
2016 |
| ||||
Beginning balance |
|
$ |
2,770 |
|
$ |
2,646 |
|
$ |
2,532 |
|
$ |
2,355 |
|
Less: Reinsurance and other amounts recoverable |
|
256 |
|
207 |
|
275 |
|
243 |
| ||||
Beginning balance, net |
|
2,514 |
|
2,439 |
|
2,257 |
|
2,112 |
| ||||
Incurred costs related to: |
|
|
|
|
|
|
|
|
| ||||
Current year |
|
4,986 |
|
4,796 |
|
10,147 |
|
9,621 |
| ||||
Prior years |
|
(62) |
|
(19) |
|
(238) |
|
(83) |
| ||||
Total incurred |
|
4,924 |
|
4,777 |
|
9,909 |
|
9,538 |
| ||||
Paid costs related to: |
|
|
|
|
|
|
|
|
| ||||
Current year |
|
4,674 |
|
4,595 |
|
7,893 |
|
7,580 |
| ||||
Prior years |
|
175 |
|
252 |
|
1,684 |
|
1,701 |
| ||||
Total paid |
|
4,849 |
|
4,847 |
|
9,577 |
|
9,281 |
| ||||
Ending balance, net |
|
2,589 |
|
2,369 |
|
2,589 |
|
2,369 |
| ||||
Add: Reinsurance and other amounts recoverable |
|
259 |
|
208 |
|
259 |
|
208 |
| ||||
Ending balance |
|
$ |
2,848 |
|
$ |
2,577 |
|
$ |
2,848 |
|
$ |
2,577 |
|
Reinsurance and other amounts recoverable includes amounts due from reinsurers and policyholders to cover incurred but not reported and pending claims for certain business where the Company administers the plan benefits but the right of offset does not exist. See Note 8 for additional information on reinsurance.
The total of incurred but not reported liabilities plus expected development on reported claims, including reported claims in process, was $2.7 billion at June 30, 2017 and $2.4 billion at June 30, 2016. The remaining balance in both periods reflects amounts due for physician incentives and other medical care expenses and services payable.
For the periods ended June 30, incurred costs related to prior years were attributable to the following factors:
|
|
Three Months Ended |
| ||||||||
(Dollars in millions) |
|
June 30, 2017 |
|
June 30, 2016 |
| ||||||
|
|
$ |
|
%(1) |
|
$ |
|
%(2) |
| ||
Actual completion factors |
|
$ |
30 |
|
0.2% |
|
$ |
12 |
|
0.1% |
|
Medical cost trend |
|
23 |
|
0.1 |
|
- |
|
- |
| ||
Other (3) |
|
9 |
|
- |
|
7 |
|
- |
| ||
Total favorable (unfavorable) variance |
|
$ |
62 |
|
0.3% |
|
$ |
19 |
|
0.1% |
|
|
|
Six Months Ended |
| ||||||||
(Dollars in millions) |
|
June 30, 2017 |
|
June 30, 2016 |
| ||||||
|
|
$ |
|
%(1) |
|
$ |
|
%(2) |
| ||
Actual completion factors |
|
$ |
108 |
|
0.6% |
|
$ |
63 |
|
0.3% |
|
Medical cost trend |
|
121 |
|
0.6 |
|
28 |
|
0.1 |
| ||
Other (3) |
|
9 |
|
- |
|
(8) |
|
- |
| ||
Total favorable (unfavorable) variance |
|
$ |
238 |
|
1.2% |
|
$ |
83 |
|
0.4% |
|
(1) Percentage of current year incurred costs as reported for the year ended December 31, 2016.
(2) Percentage of current year incurred costs as reported for the year ended December 31, 2015.
(3) Other amounts in 2017 primarily related to an increase in the 2016 reinsurance reimbursement rate from the Centers for Medicare and Medicaid Services (CMS) under the Patient Protection and Affordable Care Act (the Health Care Reform Act). Other amounts in 2016 primarily related to increased medical costs in the Government segment resulting from additional provider risk sharing.
Incurred costs related to prior years in the table above, although adjusted through shareholders net income, do not directly correspond to an increase or decrease to shareholders net income. The primary reason for this difference is that decreases to prior year incurred costs pertaining to the portion of the liability established for moderately adverse conditions are not considered as impacting shareholders net income if they are offset by increases in the current year provision for moderately adverse conditions.
The net impact of prior year development on shareholders net income was a $36 million increase for the three months and a $97 million increase for the six months ended June 30, 2017. The net impact of prior year development for the three months and six months ended June 30, 2016 was not significant. Favorable prior year development for the three months and six months ended June 30, 2017 was attributed almost equally between medical cost trend and completion factors, resulting from lower than expected utilization of medical services.
Note 7 Liabilities for Unpaid Claims and Claim Expenses
The following information relates to the Companys unpaid claims and claim expense liabilities that are related to short-duration insurance contracts. See Note 8 to the Consolidated Financial Statements in the Companys 2016 Form 10-K for further information about the assumptions and estimates used to establish this liability.
The liability for unpaid claims and claim expenses by segment as of June 30 is as follows:
(In millions) |
|
June 30, 2017 |
|
June 30, 2016 |
| ||
Group Disability and Life |
|
$ |
4,400 |
|
$ |
4,245 |
|
Global Supplemental Benefits |
|
452 |
|
373 |
| ||
Other Operations |
|
187 |
|
213 |
| ||
Unpaid claims and claim expenses |
|
$ |
5,039 |
|
$ |
4,831 |
|
Activity in the Companys Group Disability and Life and the Global Supplemental Benefits segments liabilities for unpaid claims and claim expenses are presented in the following table. Liabilities associated with the Companys Other Operations segment are excluded because they pertain to obligations for long-duration insurance contracts or, if short-duration, the liabilities have been fully reinsured.
|
|
Three Months Ended |
|
Six Months Ended |
| ||||||||
(In millions) |
|
June 30, 2017 |
|
June 30, 2016 |
|
June 30, 2017 |
|
June 30, 2016 |
| ||||
Beginning balance |
|
$ |
4,809 |
|
$ |
4,513 |
|
$ |
4,726 |
|
$ |
4,359 |
|
Less: Reinsurance |
|
123 |
|
115 |
|
121 |
|
115 |
| ||||
Beginning balance, net |
|
4,686 |
|
4,398 |
|
4,605 |
|
4,244 |
| ||||
Incurred claims related to: |
|
|
|
|
|
|
|
|
| ||||
Current year |
|
1,076 |
|
1,124 |
|
2,224 |
|
2,112 |
| ||||
Prior years: |
|
|
|
|
|
|
|
|
| ||||
Interest accretion |
|
40 |
|
42 |
|
83 |
|
85 |
| ||||
All other incurred |
|
(7) |
|
(19) |
|
(71) |
|
86 |
| ||||
Total incurred |
|
1,109 |
|
1,147 |
|
2,236 |
|
2,283 |
| ||||
Paid claims related to: |
|
|
|
|
|
|
|
|
| ||||
Current year |
|
703 |
|
683 |
|
1,074 |
|
1,010 |
| ||||
Prior years |
|
367 |
|
360 |
|
1,058 |
|
1,020 |
| ||||
Total paid |
|
1,070 |
|
1,043 |
|
2,132 |
|
2,030 |
| ||||
Foreign currency |
|
(3) |
|
(4) |
|
13 |
|
1 |
| ||||
Ending balance, net |
|
4,722 |
|
4,498 |
|
4,722 |
|
4,498 |
| ||||
Add: Reinsurance |
|
130 |
|
120 |
|
130 |
|