Delaware |
06-1059331 |
(State
or other jurisdiction |
(I.R.S.
Employer |
of
incorporation or organization) |
Identification
No.) |
Page
No | ||
PART
I. |
FINANCIAL
INFORMATION |
|
Item
1. Financial Statements |
4 | |
Consolidated
Income Statements |
5 | |
Consolidated
Balance Sheets |
6 | |
Consolidated
Statements of Comprehensive |
||
Income and Changes in Shareholders' Equity |
7 | |
Consolidated
Statements of Cash Flows |
8 | |
Notes
to the Financial Statements |
9 | |
Item
2. Management's Discussion and Analysis |
||
of Financial Condition and Results of Operations |
29 | |
Item
4. Controls and Procedures |
61 | |
PART
II. |
OTHER
INFORMATION |
61 |
Item
6. Exhibits and Reports on Form 8-K |
61 | |
SIGNATURE |
62 | |
EXHIBIT
INDEX |
E-1 |
CIGNA
CORPORATION |
|||||||||||||
CONSOLIDATED
STATEMENTS OF INCOME |
|||||||||||||
(In
millions, except per share amounts) |
|||||||||||||
Three
Months Ended |
Nine
Months Ended |
||||||||||||
September
30, |
September
30, |
||||||||||||
2004 |
2003 |
2004 |
2003 |
||||||||||
|
(As
Restated, See Note 3) |
(As
Restated, See Note 3) |
|||||||||||
REVENUES |
|||||||||||||
Premiums
and fees |
$ |
3,615 |
$ |
3,841 |
$ |
10,746 |
$ |
11,615 |
|||||
Net
investment income |
340
|
623
|
1,298
|
1,949
|
|||||||||
Other
revenues |
513
|
260
|
1,343
|
616
|
|||||||||
Realized
investment gains |
11
|
49
|
447
|
127
|
|||||||||
Total
revenues |
4,479
|
4,773
|
13,834
|
14,307
|
|||||||||
BENEFITS,
LOSSES AND EXPENSES |
|||||||||||||
Benefits,
losses and settlement expenses |
2,617
|
3,020
|
8,066
|
9,599
|
|||||||||
Policy
acquisition expenses |
56
|
66
|
181
|
186
|
|||||||||
Other
operating expenses |
1,305
|
1,406
|
4,025
|
4,040
|
|||||||||
Total
benefits, losses and expenses |
3,978
|
4,492
|
12,272
|
13,825
|
|||||||||
INCOME
FROM CONTINUING OPERATIONS |
|||||||||||||
BEFORE
INCOME TAXES |
501
|
281
|
1,562
|
482
|
|||||||||
Income
taxes (benefits): |
|||||||||||||
Current |
58
|
93
|
649
|
85
|
|||||||||
Deferred |
131
|
(7 |
) |
(104 |
) |
70
|
|||||||
Total
taxes |
189
|
86
|
545
|
155
|
|||||||||
INCOME
FROM CONTINUING OPERATIONS |
312
|
195
|
1,017
|
327
|
|||||||||
INCOME
FROM DISCONTINUED OPERATIONS |
-
|
-
|
-
|
48
|
|||||||||
INCOME
BEFORE CUMULATIVE EFFECT |
|||||||||||||
OF
ACCOUNTING CHANGE |
312
|
195
|
1,017
|
375
|
|||||||||
CUMULATIVE
EFFECT OF ACCOUNTING CHANGE, |
|||||||||||||
NET OF
TAXES |
-
|
-
|
(139 |
) |
-
|
||||||||
NET
INCOME |
$ |
312 |
$ |
195 |
$ |
878 |
$ |
375 |
|||||
EARNINGS
PER SHARE - BASIC |
|||||||||||||
INCOME
FROM CONTINUING OPERATIONS |
$ |
2.31 |
$ |
1.40 |
$ |
7.38 |
$ |
2.34 |
|||||
INCOME
FROM DISCONTINUED OPERATIONS |
-
|
-
|
-
|
0.34
|
|||||||||
INCOME
BEFORE CUMULATIVE EFFECT |
|||||||||||||
OF
ACCOUNTING CHANGE |
2.31
|
1.40
|
7.38
|
2.68
|
|||||||||
CUMULATIVE
EFFECT OF ACCOUNTING CHANGE, |
|||||||||||||
NET OF
TAXES |
-
|
-
|
(1.01 |
) |
-
|
||||||||
NET
INCOME |
$ |
2.31 |
$ |
1.40 |
$ |
6.37 |
$ |
2.68 |
|||||
EARNINGS
PER SHARE - DILUTED |
|||||||||||||
INCOME
FROM CONTINUING OPERATIONS |
$ |
2.29 |
$ |
1.39 |
$ |
7.29 |
$ |
2.33 |
|||||
INCOME
FROM DISCONTINUED OPERATIONS |
-
|
-
|
-
|
0.34
|
|||||||||
INCOME
BEFORE CUMULATIVE EFFECT |
|||||||||||||
OF
ACCOUNTING CHANGE |
2.29
|
1.39
|
7.29
|
2.67
|
|||||||||
CUMULATIVE
EFFECT OF ACCOUNTING CHANGE, |
|||||||||||||
NET OF
TAXES |
-
|
-
|
(0.99 |
) |
-
|
||||||||
NET
INCOME |
$ |
2.29 |
$ |
1.39 |
$ |
6.30 |
$ |
2.67 |
|||||
DIVIDENDS
DECLARED PER SHARE |
$ |
0.025 |
$ |
0.330 |
$ |
0.380 |
$ |
0.990 |
|||||
The
accompanying Notes to the Financial Statements are an integral part of
these statements. |
CIGNA
CORPORATION |
|||||||||||||
CONSOLIDATED
BALANCE SHEETS |
|||||||||||||
(In
millions, except per share amounts) |
|||||||||||||
As
of |
As
of |
||||||||||||
September
30, |
December
31, |
||||||||||||
2004 |
2003 |
||||||||||||
|
(As
Restated, See Note 3) |
||||||||||||
ASSETS |
|||||||||||||
Investments: |
|||||||||||||
Fixed maturities, at fair value (amortized cost, $15,499;
$15,772) |
$ |
16,605 |
$ |
17,121 |
|||||||||
Securities supporting experience-rated pension
policyholder |
|||||||||||||
contracts, at fair value (amortized cost, $-; $10,558) |
-
|
11,222
|
|||||||||||
Equity securities, at fair value (cost, $80; $47) |
114
|
78
|
|||||||||||
Mortgage loans |
3,627
|
8,655
|
|||||||||||
Policy loans |
1,589
|
1,572
|
|||||||||||
Real estate |
71
|
146
|
|||||||||||
Other long-term investments |
427
|
717
|
|||||||||||
Short-term investments |
112
|
147
|
|||||||||||
Total
investments |
22,545
|
39,658
|
|||||||||||
Cash
and cash equivalents |
2,925
|
1,392
|
|||||||||||
Accrued
investment income |
295
|
468
|
|||||||||||
Premiums,
accounts and notes receivable |
2,701
|
3,026
|
|||||||||||
Reinsurance
recoverables |
19,650
|
6,395
|
|||||||||||
Deferred
policy acquisition costs |
505
|
580
|
|||||||||||
Property
and equipment |
816
|
973
|
|||||||||||
Deferred
income taxes |
1,381
|
1,040
|
|||||||||||
Goodwill |
1,620
|
1,620
|
|||||||||||
Other
assets, including other intangibles |
395
|
447
|
|||||||||||
Separate
account assets |
36,040
|
35,393
|
|||||||||||
Total
assets |
$ |
88,873 |
$ |
90,992 |
|||||||||
LIABILITIES |
|||||||||||||
Contactholder
deposit funds |
$ |
24,052 |
$ |
26,979 |
|||||||||
Unpaid
claims and claim expenses |
4,226
|
4,708
|
|||||||||||
Future
policy benefits |
11,457
|
11,545
|
|||||||||||
Unearned
premiums |
385
|
326
|
|||||||||||
Total
insurance and contractholder liabilities |
40,120
|
43,558
|
|||||||||||
Accounts
payable, accrued expenses and other liabilities |
6,565
|
5,960
|
|||||||||||
Long-term
debt |
1,438
|
1,500
|
|||||||||||
Nonrecourse
obligations |
53
|
23
|
|||||||||||
Separate
account liabilities |
36,040
|
35,393
|
|||||||||||
Total
liabilities |
84,216
|
86,434
|
|||||||||||
CONTINGENCIES
- NOTE 13 |
|||||||||||||
SHAREHOLDERS'
EQUITY |
|||||||||||||
Common
stock (par value per share, $0.25; shares issued, 276;
275) |
69
|
69
|
|||||||||||
Additional
paid-in capital |
3,698
|
3,597
|
|||||||||||
Net
unrealized appreciation, fixed maturities |
$ |
417 |
$ |
610 |
|||||||||
Net
unrealized appreciation, equity securities |
18
|
29
|
|||||||||||
Net
unrealized depreciation, derivatives |
(3 |
) |
(12 |
) |
|||||||||
Net
translation of foreign currencies |
(13 |
) |
(14 |
) |
|||||||||
Minimum
pension liability adjustment |
(798 |
) |
(667 |
) |
|||||||||
Accumulated other comprehensive loss |
(379 |
) |
(54 |
) | |||||||||
Retained
earnings |
10,327
|
9,503
|
|||||||||||
Less
treasury stock, at cost |
(9,058 |
) |
(8,557 |
) | |||||||||
Total
shareholders' equity |
4,657
|
4,558
|
|||||||||||
Total
liabilities and shareholders' equity |
$ |
88,873 |
$ |
90,992 |
|||||||||
SHAREHOLDERS'
EQUITY PER SHARE |
$ |
34.69 |
$ |
32.42 |
|||||||||
The
accompanying Notes to the Financial Statements are an integral part of
these statements. |
CIGNA
CORPORATION |
|||||||||||||
CONSOLIDATED
STATEMENTS OF COMPREHENSIVE INCOME AND CHANGES IN |
|||||||||||||
SHAREHOLDERS' EQUITY |
|||||||||||||
(In
millions) |
|||||||||||||
Three
Months Ended September 30, |
2004
|
2003
|
|||||||||||
Compre-
hensive
Income |
|
Share-
holders'
Equity |
|
Compre-
hensive
Income |
|
Share-
holders'
Equity |
|||||||
|
(As
Restated, See Note 3) |
(As
Restated, See Note 3) |
|||||||||||
Common
stock, July 1 |
$ |
69 |
$ |
68 |
|||||||||
Issuance of common stock for employee benefits plans |
-
|
1
|
|||||||||||
Common
stock, September 30 |
69
|
69
|
|||||||||||
Additional
paid-in capital, July 1 |
3,687
|
3,541
|
|||||||||||
Issuance of common stock for employee benefits plans |
11
|
17
|
|||||||||||
Additional
paid-in capital, September 30 |
3,698
|
3,558
|
|||||||||||
Accumulated
other comprehensive income (loss), July 1 |
(597 |
) |
50
|
||||||||||
Net
unrealized appreciation (depreciation), fixed maturities |
$ |
198 |
198
|
$ |
(99 |
) |
(99 |
) | |||||
Net
unrealized depreciation, equity securities |
(7 |
) |
(7 |
) |
(20 |
) |
(20 |
) | |||||
Net unrealized appreciation (depreciation) on securities |
191
|
(119 |
) |
||||||||||
Net
unrealized appreciation (depreciation), derivatives |
3
|
3
|
(4 |
) |
(4 |
) | |||||||
Net
translation of foreign currencies |
3
|
3
|
(4 |
) |
(4 |
) | |||||||
Minimum
pension liability adjustment |
21
|
21
|
-
|
-
|
|||||||||
Other
comprehensive income (loss) |
218
|
(127 |
) |
||||||||||
Accumulated
other comprehensive loss, September 30 |
(379 |
) |
(77 |
) | |||||||||
Retained
earnings, July 1 |
10,019
|
9,126
|
|||||||||||
Net income |
312
|
312
|
195
|
195
|
|||||||||
Common dividends declared |
(4 |
) |
(47 |
) | |||||||||
Retained
earnings, September 30 |
10,327
|
9,274
|
|||||||||||
Treasury
stock, July 1 |
(8,856 |
) |
(8,543 |
) | |||||||||
Repurchase of common stock |
(210 |
) |
-
|
||||||||||
Other treasury stock transactions, net |
8
|
(15 |
) | ||||||||||
Treasury
stock, September 30 |
(9,058 |
) |
(8,558 |
) | |||||||||
TOTAL
COMPREHENSIVE INCOME AND SHAREHOLDERS' EQUITY |
$ |
530 |
$ |
4,657 |
$ |
68 |
$ |
4,266 |
|||||
Nine
Months Ended September 30, |
|||||||||||||
Common
stock, January 1 |
$ |
69 |
$ |
68 |
|||||||||
Issuance
of common stock for employee benefits plans |
-
|
1
|
|||||||||||
Common
stock, September 30 |
69
|
69
|
|||||||||||
Additional
paid-in capital, January 1 |
3,597
|
3,503
|
|||||||||||
Issuance
of common stock for employee benefits plans |
101
|
55
|
|||||||||||
Additional
paid-in capital, September 30 |
3,698
|
3,558
|
|||||||||||
Accumulated
other comprehensive loss, January 1 |
(54 |
) |
(202 |
) | |||||||||
Net
unrealized appreciation (depreciation), fixed maturities |
$ |
(193 |
) |
(193 |
) |
$ |
155 |
155
|
|||||
Net
unrealized depreciation, equity securities |
(11 |
) |
(11 |
) |
(24 |
) |
(24 |
) | |||||
Net
unrealized appreciation (depreciation) on securities |
(204 |
) |
131
|
||||||||||
Net
unrealized appreciation (depreciation), derivatives |
9
|
9
|
(9 |
) |
(9 |
) | |||||||
Net
translation of foreign currencies |
1
|
1
|
16
|
16
|
|||||||||
Minimum
pension liability adjustment |
(131 |
) |
(131 |
) |
(13 |
) |
(13 |
) | |||||
Other
comprehensive income (loss) |
(325 |
) |
125
|
||||||||||
Accumulated
other comprehensive loss, September 30 |
(379 |
) |
(77 |
) | |||||||||
Retained
earnings, January 1 |
9,503
|
9,038
|
|||||||||||
Net
income |
878
|
878
|
375
|
375
|
|||||||||
Common
dividends declared |
(54 |
) |
(139 |
) | |||||||||
Retained
earnings, September 30 |
10,327
|
9,274
|
|||||||||||
Treasury
stock, January 1 |
(8,557 |
) |
(8,510 |
) | |||||||||
Repurchase
of common stock |
(494 |
) |
-
|
||||||||||
Other
treasury stock transactions, net |
(7 |
) |
(48 |
) | |||||||||
Treasury
stock, September 30 |
(9,058 |
) |
(8,558 |
) | |||||||||
TOTAL
COMPREHENSIVE INCOME AND SHAREHOLDERS' EQUITY |
$ |
553 |
$ |
4,657 |
$ |
500 |
$ |
4,266 |
|||||
The
accompanying Notes to the Financial Statements are an integral part of
these statements. |
CIGNA
CORPORATION |
|||||||
CONSOLIDATED
STATEMENTS OF CASH FLOWS |
|||||||
(In
millions) |
|||||||
Nine
Months Ended September 30, |
|||||||
2004 |
2003 |
||||||
|
(As
Restated, See Note 3) | ||||||
CASH
FLOWS FROM OPERATING ACTIVITIES |
|||||||
Income
from continuing operations |
$ |
1,017 |
$ |
327 |
|||
Adjustments
to reconcile income from continuing operations |
|||||||
to net cash provided by operating activities: |
|||||||
Insurance
liabilities |
(601 |
) |
13
|
||||
Reinsurance
recoverables |
127
|
198
|
|||||
Deferred
policy acquisition costs |
(72 |
) |
(49 |
) | |||
Premiums,
accounts and notes receivable |
309
|
75
|
|||||
Accounts
payable, accrued expenses and other liabilities |
(203 |
) |
(346 |
) | |||
Current
income taxes |
98
|
405
|
|||||
Deferred
income taxes |
(104 |
) |
70
|
||||
Realized
investment (gains) |
(447 |
) |
(127 |
) | |||
Depreciation
and amortization |
174
|
187
|
|||||
Gains
on sales of businesses (excluding discontinued operations)
|
(239 |
) |
(57 |
) | |||
Proceeds
from sales and maturities of securities supporting |
|||||||
experience-rated pension policyholder contracts, |
|||||||
net of purchases |
1,039
|
-
|
|||||
Other,
net |
83
|
145
|
|||||
Net
cash provided by operating activities of continuing operations
|
1,181
|
841
|
|||||
CASH
FLOWS FROM INVESTING ACTIVITIES |
|||||||
Proceeds
from investments sold: |
|||||||
Fixed maturities |
2,245
|
5,815
|
|||||
Equity securities |
62
|
282
|
|||||
Mortgage loans |
64
|
641
|
|||||
Other (primarily short-term investments) |
5,803
|
5,334
|
|||||
Investment
maturities and repayments: |
|||||||
Fixed maturities |
655
|
1,915
|
|||||
Mortgage loans |
662
|
922
|
|||||
Investments
purchased: |
|||||||
Fixed maturities |
(3,624 |
) |
(8,516 |
) | |||
Equity securities |
(14 |
) |
(54 |
) | |||
Mortgage loans |
(668 |
) |
(1,442 |
) | |||
Other (primarily short-term investments) |
(5,575 |
) |
(4,883 |
) | |||
Proceeds
from sale of businesses |
2,103
|
227
|
|||||
Property
and equipment, net |
(32 |
) |
(67 |
) | |||
Other,
net |
(24 |
) |
(16 |
) | |||
Net
cash provided by investing activities of continuing
operations |
1,657
|
158
|
|||||
CASH
FLOWS FROM FINANCING ACTIVITIES |
|||||||
Deposits and interest credited to contractholder deposit
funds |
2,235
|
5,878
|
|||||
Withdrawals and benefit payments from contractholder deposit
funds |
(2,908 |
) |
(6,222 |
) | |||
Net change in short-term debt |
-
|
(3 |
) | ||||
Repayment of long-term debt |
(76 |
) |
(127 |
) | |||
Repurchase common stock |
(526 |
) |
-
|
||||
Issuance of common stock |
24
|
-
|
|||||
Common dividends paid |
(54 |
) |
(139 |
) | |||
Net
cash used in financing activities of continuing operations
|
(1,305 |
) |
(613 |
) | |||
Net
increase in cash and cash equivalents |
1,533
|
386
|
|||||
Cash
and cash equivalents, beginning of period |
1,392
|
1,575
|
|||||
Cash
and cash equivalents, end of period |
$ |
2,925 |
$ |
1,961 |
|||
Supplemental
Disclosure of Cash Information: |
|||||||
Income taxes paid (received), net |
$ |
543 |
$ |
(326 |
) | ||
Interest paid |
$ |
79 |
$ |
83 |
|||
The
accompanying Notes to the Financial Statements are an integral part of
these statements. |
Three
Months Ended
September 30 |
2004 |
2003 |
|||||||||||
(In
millions) |
As
Reported |
As
Restated |
As
Reported |
As
Restated |
|||||||||
Other
Operating Expenses |
$ |
1,292 |
$ |
1,305 |
$ |
1,406 |
$ |
1,406 |
|||||
Income
from
Continuing Operations |
$ |
320 |
$ |
312 |
$ |
195 |
$ |
195 |
|||||
Net
Income |
$ |
320 |
$ |
312 |
$ |
195 |
$ |
195 |
|||||
Income
from
Continuing Operations
per share |
|||||||||||||
Basic |
$ |
2.37 |
$ |
2.31 |
$ |
1.40 |
$ |
1.40 |
|||||
Diluted |
$ |
2.34 |
$ |
2.29 |
$ |
1.39 |
$ |
1.39 |
|||||
Net
Income per share |
|||||||||||||
Basic |
$ |
2.37 |
$ |
2.31 |
$ |
1.40 |
$ |
1.40 |
|||||
Diluted |
$ |
2.34 |
$ |
2.29 |
$ |
1.39 |
$ |
1.39 |
Nine
Months Ended
September 30 |
2004 |
2003 |
|||||||||||
(In
millions) |
As
Reported |
As
Restated |
As
Reported |
As
Restated |
|||||||||
Other
Operating Expenses |
$ |
3,970 |
$ |
4,025 |
$ |
4,036 |
$ |
4,040 |
|||||
Income
from
Continuing Operations |
$ |
1,052 |
$ |
1,017 |
$ |
330 |
$ |
327 |
|||||
Net
Income |
$ |
913 |
$ |
878 |
$ |
378 |
$ |
375 |
|||||
Income
from
Continuing Operations
per share |
|||||||||||||
Basic |
$ |
7.63 |
$ |
7.38 |
$ |
2.36 |
$ |
2.34 |
|||||
Diluted |
$ |
7.55 |
$ |
7.29 |
$ |
2.35 |
$ |
2.33 |
|||||
Net
Income per share |
|||||||||||||
Basic |
$ |
6.62 |
$ |
6.37 |
$ |
2.71 |
$ |
2.68 |
|||||
Diluted |
$ |
6.55 |
$ |
6.30 |
$ |
2.69 |
$ |
2.67 |
As
of
September
30, 2004 |
As
of
December
31, 2003 |
||||||||||||
(In
millions) |
As
Reported |
As
Restated |
As
Reported |
As
Restated |
|||||||||
Deferred
Tax Asset |
$ |
1,326 |
$ |
1,381 |
$ |
1,001 |
$ |
1,040 |
|||||
Shareholders’
Equity |
$ |
4,602 |
$ |
4,657 |
$ |
4,519 |
$ |
4,558 |
(In
millions, |
Three
Months
Ended
September
30, |
Nine
Months
Ended
September
30, |
|||||||||||
except
per share amounts) |
2004 |
2003 |
2004 |
2003 |
|||||||||
(As
Restated) |
|||||||||||||
Net
income as reported |
$ |
312 |
$ |
195 |
$ |
878 |
$ |
375 |
|||||
Compensation
expense
for restricted stock grants,
net of taxes,
included in net income as
reported |
2 |
4 |
3 |
8 |
|||||||||
Compensation
expense for
stock options, net of
taxes, included in net
income as reported |
8 |
— |
35 |
3 |
|||||||||
Total
compensation
expense for stock
options and restricted
stock grants under
fair value method for all
awards, net of taxes |
(14 |
) |
(13 |
) |
(36 |
) |
(35 |
) | |||||
Pro
forma net income |
$ |
308 |
$ |
186 |
$ |
880 |
$ |
351 |
|||||
Basic
- as reported |
$ |
2.31 |
$ |
1.40 |
$ |
6.37 |
$ |
2.68 |
|||||
Basic
- pro forma |
$ |
2.28 |
$ |
1.33 |
$ |
6.38 |
$ |
2.51 |
|||||
Diluted
- as reported |
$ |
2.29 |
$ |
1.39 |
$ |
6.30 |
$ |
2.67 |
|||||
Diluted
- pro forma |
$ |
2.20 |
$ |
1.32 |
$ |
6.32 |
$ |
2.50 |
FINANCIAL
SUMMARY
(In
millions) |
Nine
Months
Ended
September
30, 2003 |
|||
Income
Statement Data |
||||
Revenues |
$ |
— |
||
Loss
before income tax benefits |
$ |
(3 |
) | |
Income
tax benefits |
(1 |
) | ||
Loss
from operations |
(2 |
) | ||
Gains
on sales, net of taxes of $25 |
50 |
|||
Income
from discontinued operations |
$ |
48 |
(In
millions) |
Health
Care/
Disability
and
Life* |
Corporate |
Total |
|||||||
First
quarter 2004 charge: |
||||||||||
Severance |
$ |
39 |
$ |
31 |
$ |
70 |
||||
Real estate and other |
5 |
— |
5 |
|||||||
Total |
44 |
31 |
75 |
|||||||
First
quarter 2004 payments: |
||||||||||
Severance |
(2 |
) |
(4 |
) |
(6 |
) | ||||
Balance
as of March 31, 2004 |
42 |
27 |
69 |
|||||||
Second
quarter 2004 charge: |
||||||||||
Severance |
— |
4 |
4 |
|||||||
Real estate and other |
3 |
— |
3 |
|||||||
Total |
3 |
4 |
7 |
|||||||
Second
quarter 2004 payments: |
||||||||||
Severance |
(10 |
) |
(8 |
) |
(18 |
) | ||||
Real estate and other |
(1 |
) |
— |
(1 |
) | |||||
Balance
as of June 30, 2004 |
34 |
23 |
57 |
|||||||
Third
quarter 2004 charge: |
||||||||||
Real estate and other |
3 |
1 |
4 |
|||||||
Third
quarter 2004 payments: |
||||||||||
Severance |
(7 |
) |
(8 |
) |
(15 |
) | ||||
Real
estate and other |
(1 |
) |
— |
(1 |
) | |||||
Balance
as of
September 30, 2004 |
$ |
29 |
$ |
16 |
$ |
45 |
· |
$169
million for the addition of an explicit assumption for both actual and
projected future partial surrenders. This estimate is based on annual
election rates that vary depending on the net amount at risk for each
policy (see below for more information); |
· |
$56
million primarily reflecting refinements to assumptions relating to the
timing of lapses, death benefits and premiums to better reflect CIGNA's
experience; |
· |
$39
million due to higher assumed mortality reflecting adverse experience
based on annuitant deaths during the period from late 2000 into 2003;
and |
· |
$22
million resulting from a decrease in assumed mean investment performance
reflecting experience and future expectations based on history for similar
investments and considering CIGNA's program to reduce equity market
exposures. |
· |
$580
million, reflecting the reduction in assumed future equity market returns
as a result of implementing the program. CIGNA determines liabilities
under the reinsurance contracts using an assumption for expected future
performance of equity markets. A consequence of implementing the program
is, effectively, a reduction in the assumption for expected future
performance of equity markets, as the futures contracts essentially
eliminate the opportunity to achieve previously expected market
returns; |
· |
$100
million, reflecting deterioration in equity markets that occurred in the
third quarter of 2002 (prior to implementation of the program);
and |
· |
$40
million, driven by changes for the
following: |
· |
lower
assumed lapse rates based on expectations that lower surrenders will occur
due to increased death benefits resulting from stock market
declines; |
· |
higher
assumed mortality based on experience since
mid-2001; |
· |
higher
assumed market volatility, based on recent experience and expected higher
S&P 500 volatility; and |
· |
a
lower assumed discount rate to reflect anticipated funding of the reserve
increase at yields lower than the existing
assumption. |
· |
The
reserves represent estimates of the present value of net amounts expected
to be paid, less the present value of net future premiums. Included in net
amounts expected to be paid is the excess of the guaranteed death benefits
over the values of the contractholders’ accounts (based on underlying
equity and bond mutual fund investments). |
· |
The
reserves include an estimate for partial surrenders that essentially lock
in the death benefit for a particular policy based on annual election
rates that vary from 0-14% depending on the net amount at risk for each
policy. |
· |
The
mean investment performance assumption is 5% considering CIGNA's program
to reduce equity market exposures using futures and forward contracts
(described above). |
· |
The
volatility assumption is 15-30%, varying by equity fund type; 3-7%,
varying by bond fund type; and 1% for money market
funds. |
· |
The
mortality assumption is 70-75% of the 1994 Group Annuity Mortality table,
with 1% annual improvement beginning January 1,
2000. |
· |
The
lapse rate assumption is 0-15%, depending on contract type, policy
duration and the ratio of the net amount at risk to account
value. |
· |
The
discount rate is 5.75%. |
As
of |
|||||||
(Dollars
in millions) |
September
30,
2004 |
December
31,
2003 |
|||||
Highest
annuity value |
|||||||
Account value |
$ |
37,095 |
$ |
41,497 |
|||
Net amount at risk |
$ |
9,980 |
$ |
10,951 |
|||
Average attained age of
contractholders |
65 |
65 |
|||||
Anniversary
value reset |
|||||||
Account value |
$ |
3,021 |
$ |
4,474 |
|||
Net amount at risk |
$ |
266 |
$ |
309 |
|||
Average attained age of
contractholders |
59 |
59 |
|||||
Other
|
|||||||
Account value |
$ |
4,147 |
$ |
6,530 |
|||
Net amount at risk |
$ |
1,316 |
$ |
1,660 |
|||
Average attained age of
contractholders |
63 |
64 |
|||||
Total |
|||||||
Account value |
$ |
44,263 |
$ |
52,501 |
|||
Net amount at risk |
$ |
11,563 |
$ |
12,920 |
|||
Average attained age of
contractholders (weighted by
exposure) |
65 |
64 |
|||||
Number of contractholders |
1.2
million |
1.4
million |
Three
Months
Ended
September
30, |
Nine
Months
Ended
September
30, |
||||||||||||
(In
millions) |
2004 |
2003 |
2004 |
2003 |
|||||||||
Service
cost |
$ |
18 |
$ |
20 |
$ |
56 |
$ |
60 |
|||||
Interest
cost |
55 |
55 |
165 |
166 |
|||||||||
Expected
return on plan
assets |
(47 |
) |
(50 |
) |
(143 |
) |
(150 |
) | |||||
Amortization
of: |
|||||||||||||
Net loss from past
experience |
28 |
6 |
76 |
17 |
|||||||||
Prior service cost |
(1 |
) |
— |
(1 |
) |
— |
|||||||
Net
pension cost |
$ |
53 |
$ |
31 |
$ |
153 |
$ |
93 |
Three
Months
Ended
September
30, |
Nine
Months
Ended
September
30, |
||||||||||||
(In
millions) |
2004 |
2003 |
2004 |
2003 |
|||||||||
Service
cost |
$ |
1 |
$ |
1 |
$ |
2 |
$ |
2 |
|||||
Interest
cost |
7 |
9 |
24 |
27 |
|||||||||
Expected
return on plan
assets |
(1 |
) |
(1 |
) |
(2 |
) |
(2 |
) | |||||
Amortization
of prior
service cost |
(4 |
) |
(5 |
) |
(12 |
) |
(13 |
) | |||||
Net
other postretirement
benefit cost |
$ |
3 |
$ |
4 |
$ |
12 |
$ |
14 |
Three
Months
Ended
September
30, |
Nine
Months
Ended
September
30, |
||||||||||||
(In
millions) |
2004 |
2003 |
2004 |
2003 |
|||||||||
Operational
effectiveness
review and sale of the
retirement benefits business |
$ |
5 |
$ |
— |
$ |
19 |
$ |
— |
|||||
2002
Health Care restructuring |
— |
1 |
— |
10 |
|||||||||
Total
curtailment gains |
$ |
5 |
$ |
1 |
$ |
19 |
$ |
10 |
Three
Months
Ended
September
30, |
Nine
Months
Ended
September
30, |
||||||||||||
(In
millions) |
2004 |
2003 |
2004 |
2003 |
|||||||||
Fixed
maturities |
$ |
3 |
$ |
(37 |
) |
$ |
119 |
$ |
(20 |
) | |||
Equity
securities |
7 |
37 |
19 |
7 |