July 19, 2002

Jonathan G. Katz, Secretary
United States Securities and Exchange Commission
450 Fifth Street, NW
Washington, DC 20549-0609

RE: File No. S7-16-02
Comments on Release No. 33-8098; 34-45907

Dear Mr. Katz:

CIGNA Corporation appreciates the opportunity to comment on the Commission's proposals to improve investors' understanding of the application of companies' critical accounting policies through enhanced disclosure of critical accounting estimates and the initial adoption of accounting policies. We are fully supportive of the Commission's efforts to improve the financial reporting process, and believe that some level of additional disclosure about critical accounting estimates would help investors better assess the financial reporting of an enterprise and its risk profile. We offer the following comments and suggestions on the proposals.

Enhanced disclosure requirements should be focused on the most critical estimates. We agree with the Commission that, for most companies, there should be no more than three to five such estimates discussed in detail. Other items considered less critical, but still requiring a reasonably high level of estimation, could be disclosed, but without the same degree of detail used to discuss the most critical items.

Items disclosed as the most critical should be those that cause the greatest concern to management due to the magnitude of potential volatility on results of operations. The probable volatility of results due to the critical estimates should be the key element in determining the most critical estimates because that is a primary concern of the users of financial information.

The required disclosures should focus on:

This would permit a reader of the financial statements to assess, in a general way, how a change in the estimate would affect the financial statements. Consistent with these objectives we suggest that the final rule encourage presenting information in a tabular format to convey the data in a clear, concise manner. We have prepared a chart (Appendix A), utilizing the examples provided in the proposed rule, that provides a more concise illustration of the discussion of critical accounting estimates. This format achieves the key objectives of identifying critical estimates and providing some indication of the sensitivity of the critical estimates to possible changes.

Certain critical accounting estimates may involve sensitive information that could harm the registrant if the proposed disclosures are made. If the disclosure itself could reasonably be expected to influence the ultimate outcome of the estimated item, such as certain accruals for the outcome of litigation, tax audits or other disputes, that detailed disclosure, beyond identification of the estimated item, should not be required.

The method that a registrant uses to calculate the required sensitivity analysis should not be prescribed. By allowing flexibility in the choice of methodology, registrants are most likely to disclose the required sensitivity analysis using the methodology that management has developed and used for business decisions.

An auditor examination of disclosures regarding critical accounting estimates should not be required. The focus of enhanced disclosure requirements for critical accounting policies should be on critical accounting estimates as determined by management. It is our experience that auditors review and comment on Management's Discussion and Analysis as a normal practice. The efforts of management and auditors spent addressing the protocols necessary for auditor assurance to be given on these disclosures would be better spent on substantive audit processes associated with the underlying financial statements.

We are supportive of the proposed disclosures for initial adoption of accounting policies. However, these disclosures would be most useful if, instead of requiring disclosure of the effects of alternatives to the policy chosen, they required disclosure of the rationale and methodology used for selecting the chosen accounting policy.

Should the Commission or its Staff have questions concerning the comments in this letter or desire additional information to assist in preparing the adopting release, please do not hesitate to contact me at 215-761-2327.

Very truly yours,

/s/ James A. Sears

James A. Sears
Vice President and
Chief Accounting Officer
CIGNA Corporation

SEC Examples - Tabular Format - Appendix A
(assumes examples are applicable to the same company)

Critical Accounting Estimates

We consider an accounting estimate to be critical if:

The table below presents information about the nature of and rationale for XYZ Company's critical accounting estimates, as well as the hypothetical effects of changes in the material assumptions used to develop each estimate:

Balance Sheet Caption Critical Estimate Item Nature of Estimates Required Assumptions / Approach Used Effect if Different Assumptions / Approach Used
Accrued warranty costs Warranty obligations Estimating warranty obligations requires us to forecast future copper prices, since copper is a significant raw material used in warranty repairs.

The price of copper has historically been extremely volatile and estimating future copper prices has, in prior periods, had a significant effect in determining the amount of our warranty obligations. The determination of warranty obligations is a critical accounting estimate for all of our segments.

Management uses a hedging program to protect against short-term (within five years) volatility in copper prices. Copper costs expected to be incurred six to ten years in the future are forecasted based on long-range price forecasts for copper which are published by private research companies specializing in copper markets. During 2001, we decreased our estimated cost of unhedged copper purchases, which increased net income by $15 million. No changes to estimated costs were made in 2000. We increased our estimated costs in 1999, resulting in an $18 million reduction in net income. A 50% increase in copper prices would have increased accrued warranty costs and cost of sales by $45 million, while operating income would have decreased by $45 million.

A significant increase in our estimated warranty obligation could increase our leverage ratio which could limit our ability to borrow money through our revolving credit facilities.

Accounts receivable Allowance for product returns The allowance for product returns reflects the estimate of future returns of software titles within the 120 day return agreements with distributors and retailers. Management monitors the level of product sales and inventory at distributors' warehouses, analyzing historical returns, distribution channel inventory, current economic trends, changes in demand, the introduction of new competing software, and acceptance of our products.

Using this information, management determines the allowance for product returns for both of our segments. Actual returns in 2001, 2000 and 1999 were within 5% of our estimates for these periods.

Management estimates that the range of estimated future product returns would be $130 million to $160 million, as compared to the recorded amount of $145 million.
Property, Plant & Equipment Impairment of Property, Plant & Equipment in the hard drive segment When the carrying value of property, plant and equipment is not expected to be recoverable, write-downs to fair value must be recognized in net income. Management estimates fair value primarily using the present value of future cash flows. Management estimates cash flows using internal budgets based on recent sales data for existing products, planned timing of new product launches, customer commitments related to existing and newly developed products, and current unsold inventory held by distributors. A decrease of future cash flows from hard drive sales of 10% would have resulted in an impairment charge of $30 million before taxes.

Management has discussed the development and selection of these critical accounting estimates with the audit committee of our board of directors and the audit committee has reviewed the company's disclosure presented above relating to them. In addition, there are other items within our financial statements that require estimation, but are not as critical as those discussed above. These include: the allowance for doubtful accounts receivable, pension and other postretirement liabilities, and worker's compensation accruals. Changes in estimates used in these and other items could have a significant effect on our financial statements.