XML 39 R10.htm IDEA: XBRL DOCUMENT

Summary of Signficant Accounting Policies

12 Months Ended

Dec. 31, 2016

Significant Accounting Policies [Text Block]

Note 2 – Summary of 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 management's 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 have been made to prior year amounts to conform to the current presentation.

Variable interest entities. See Note 13 for a discussion of consolidated variable interest entities.

Recent Accounting Changes

The following tables provide information about recently adopted and recently issued accounting guidance applicable to Cigna.

Recently Adopted Accounting Guidance

Accounting Standard and Adoption Date	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) Early adopted as of December 31, 2016	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 will impact the Company.
	Effects of adoption: using the nature of distribution approach, the Company reported $144 million of cash receipts related to distributions from partnership earnings in operating activities in 2016. The Company reclassified $137 million for 2015 and $111 million for 2014 from investing to operating activities in the Consolidated Statement of Cash Flows.
Improvements to Employee Share-Based Payment Accounting (ASU 2016-09) Early adopted on January 1, 2016	Requires:
		• Excess tax benefits or deficiencies to be recorded prospectively in the income statement when awards vest or are settled; previously these effects were reported in additional paid-in capital • Cash flows related to excess tax benefits to be classified prospectively as an operating activity in the statement of cash flows (previously financing) • All cash payments made on an employee’s behalf for withheld shares to be presented retrospectively as a financing activity in the statement of cash flows • Prospective changes to the calculation of common stock equivalents for earnings per share
	Permits:
		• Repurchasing more of an employee’s shares for tax withholding purposes than previously allowed without triggering liability accounting • An accounting policy election to record forfeitures as they occur instead of estimating
	Effects of adoption:
		• $29 million of excess tax benefits recorded in net income during 2016 (in Corporate) • $72 million of tax withholding cash flows reported in financing activities in 2016; reclassified $79 million for 2015 and $53 million for 2014 of tax withholding from operating to financing activities in the Consolidated Statement of Cash Flows • Approximately one million additional weighted average shares in 2016 for the diluted earnings per share calculations • No changes in our employee tax withholding practices for stock compensation • The amount of compensation cost recognized in each period continues to be determined based on estimated forfeitures
Disclosures about Short-Duration Insurance Contracts (ASU 2015-09) Adopted December 31, 2016	Requires additional information about an insurance entity’s initial claim estimates and subsequent adjustments to those estimates; methodologies and judgments in estimating claims; and the timing, frequency and severity of claims.
	Effects of adoption:
		• See Note 7 for these disclosures about our Global Health Care medical cost payable liabilities • See Note 8 for these disclosures about our unpaid claims and claim expense liabilities




Accounting Standard and Adoption Date	Requirements and Effects of Adopting New Guidance
Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent) (ASU 2015-07) Adopted January 1, 2016	Removes fair value disclosure requirement for all investments measured using the practical expedient of net asset value (“NAV”) per share. Certain additional disclosures are now required for such investments.
	Effects of adoption: see Note 10 for these disclosures about separate account investments that use NAV as a practical expedient; comparable prior year amounts are also disclosed.
Amendments to the Consolidation Analysis (ASU 2015-02) Adopted January 1, 2016	Defines limited partnerships as variable interest entities unless substantive kick-out rights or participating rights exist.
	Effects of adoption:
		• No material effect on the Company’s financial statements • See Note 13 for disclosures about various limited partnerships newly identified as variable interest entities for which the Company is not the primary beneficiary

Recently Issued Accounting Guidance Not Yet Adopted

Accounting Standard and Effective Date Applicable for Cigna	Requirements and Expected Effects of New Guidance Not Yet Adopted
Simplifying the Test for Goodwill Impairment (ASU 2017-04) Required as of January 1, 2020, with early adoption permitted as of January 1, 2017	Simplifies the accounting for goodwill impairment by eliminating the need to determine the fair value of individual assets and liabilities of a reporting unit to measure a goodwill impairment.
	Expected effects: the Company is evaluating this new standard and its expected timing of adoption.
Clarifying the Definition of a Business (ASU 2017-01) Required as of January 1, 2018, with early adoption permitted as of January 1, 2017	Revises the definition of a business and provides a more robust framework for entities to use in determining when a set of assets and activities is a business.
	Expected effects: if a group of assets acquired after adoption is not considered a business, no goodwill will be recorded and most intangible assets recorded from the acquisition will be amortized to shareholders’ net income over their useful lives. The Company is evaluating this new standard and its expected timing of adoption.
Intra-Entity Asset Transfers of Assets Other than Inventory (ASU 2016-16) Required as of January 1, 2018, with early adoption permitted as of January 1, 2017	Requires:
		• Entities to recognize the tax impacts of all intra-entity sales of assets other than inventory even though the pre-tax effects of those transactions are eliminated in consolidation • Modified retrospective approach for adoption, with a cumulative-effect adjustment recorded in retained earnings
	Expected effects: the Company is evaluating this new standard, its expected timing of adoption and effects on its financial statements and disclosures.



Accounting Standard and Effective Date Applicable for Cigna	Requirements and Expected Effects of New Guidance Not Yet Adopted
Measurement of Credit Losses on Financial Instruments (ASU 2016-13) Required as of January 1, 2020, with early adoption permitted as of January 1, 2019	Requires:
		• A new approach (based on expected credit losses) to estimate and recognize credit losses for certain financial instruments such as mortgage loans, reinsurance recoverables and other receivables • Changes in the criteria for impairment of available-for-sale debt securities • Modified retrospective approach for adoption, with a cumulative-effect adjustment recorded in retained earnings
	Expected effects: the Company is evaluating this new standard, its expected timing of adoption and effects on its financial statements and disclosures. It is possible that an additional allowance for future expected credit losses for certain financial instruments may be required at adoption.
Leases (ASU 2016-02) Required as of January 1, 2019	Requires:
		• Balance sheet recognition of assets and liabilities arising from leases, including from leases embedded in other contracts • Additional disclosures of the amount, timing and uncertainty of cash flows from leases will be required • Modified retrospective approach for leases in effect as of and after the date of adoption with a cumulative-effect adjustment recorded in retained earnings
	Expected effects: the Company is still evaluating the impact the standard could have on the Consolidated Financial Statements; however, while the Company has not yet quantified the amount, we do expect the standard will have a material impact on our Consolidated Balance Sheets due to the recognition of additional assets and liabilities for operating leases. The actual increase in assets and liabilities will depend on the volume and terms of leases in place at adoption.
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 $260 million as of December 31, 2016 will be reported at fair value at adoption • An increase to retained earnings of approximately $60 million, after-tax, if implemented as of December 31, 2016. Actual cumulative effect adjustment will depend on investments held and market conditions at adoption.

Accounting Standard and Effective Date Applicable for Cigna	Requirements and Expected Effects of New Guidance Not Yet Adopted
Revenue from Contracts with Customers (ASU 2014-09 and related amendments) Required as of January 1, 2018, with early adoption permitted as of January 1, 2017	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 • Extensive new disclosures including the presentation of additional 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 Company’s non-insurance, administrative service contracts but does not apply to certain contracts within the scope of other GAAP, such as insurance contracts • The Company will adopt the new guidance as of January 1, 2018 but has not yet selected a method of adoption • The Company does not currently expect the adoption of the new guidance to have a material impact to its pattern of revenue recognition
		• The Company is continuing to evaluate the new requirements. Specifically, the Company is evaluating the combination of contract guidance for certain customers where 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 Company’s status as principal or agent for certain performance obligations.

Significant Accounting Policies

The Company's accounting policies are either described in this Note or are described in the applicable Notes to the Consolidated Financial Statements as indicated in the table below.

Note Number	Footnote and policy	Page
4	Earnings per share	94
7	Global Health Care medical costs payable	97
8	Unpaid claims and claim expenses	99
9	Reinsurance	102
	· GMDB	103
	· GMIB	104
10	Fair value measurements	105
	· Fixed maturities, equity securities, short-term investments and derivatives	107
	· Separate accounts	111
	· Commercial mortgage loans	113
	· Contractholder deposit funds	113
	· Long-term debt	113
11	Investments	114
	· Fixed maturities and equity securities	114
	· Commercial mortgage loans	116
	· Other long-term investments	119
	· Short-term investments and cash equivalents	119
	· Net investment income	119
	· Realized investment gains and losses	120
12	Derivative financial instruments	121
13	Variable interest entities	123
15	Pension and other postretirement benefit plans	126
16	Employee incentive plans	130
17	Goodwill, other intangibles and property and equipment	133
20	Income taxes	137
21	Contingencies and other matters	139

Investments – Policy Loans

Policy loans are carried at unpaid principal balances plus accumulated interest, the total of which approximates fair value. These loans are collateralized by life insurance policy cash values and therefore have minimal exposure to credit loss. Interest rates are reset annually based on an index.
Cash and Cash Equivalents

Cash and cash equivalents are carried at cost that approximates fair value. Cash equivalents consist of short-term investments with maturities of three months or less from the time of purchase. The Company reclassifies cash overdraft positions to accounts payable, accrued expenses and other liabilities when the legal right of offset does not exist.
Premiums, Accounts and Notes Receivable and Reinsurance Recoverables

Premiums, accounts and notes receivable and reinsurance recoverables are reported net of allowances for doubtful accounts and unrecoverable reinsurance of $203 million as of December 31, 2016 and $ 78 million as of December 31, 2015. The Company estimates these allowances for doubtful accounts and unrecoverable reinsurance using management's best estimates of collectability, taking into consideration the age of the outstanding amounts, historical collection patterns and other economic factors. See Note 22 for additional discussion of the allowance established in 2016 for the risk corridor receivable.
Deferred Policy Acquisition Costs

Costs eligible for deferral include incremental, direct costs of acquiring new or renewal insurance and investment contracts and other costs directly related to successful contract acquisition. Examples of deferrable costs include commissions, sales compensation and benefits, policy issuance and underwriting costs and premium taxes. The Company records acquisition costs differently depending on the product line. Acquisition costs for:

Universal life products are deferred and amortized in proportion to the present value of total estimated gross profits over the expected lives of the contracts.
Supplemental health, life and accident insurance (primarily individual products) and group health and accident insurance products are deferred and amortized, generally in proportion to the ratio of periodic revenue to the estimated total revenues over the contract periods.
Other products are expensed as incurred.

Deferred policy acquisition costs also include the value of business acquired with certain acquisitions.

Each year, deferred policy acquisition costs are tested for recoverability. For universal life and other individual products, management estimates the present value of future revenues less expected payments. For group health and accident insurance products, management estimates the sum of unearned premiums and anticipated net investment income less future expected claims and related costs. If management's estimates of these sums are less than the deferred costs, the Company reduces deferred policy acquisition costs and records an expense. The Company recorded amortization for policy acquisition costs of $292 million in 2016, $286 million in 2015 and $289 million in 2014 primarily in other operating expenses.

Other Assets, including Other Intangibles

Other assets, including other intangibles consist primarily of GMIB assets, accrued net investment income, other intangible assets and various other insurance-related assets. See Note 17 for the Company's accounting policy for other intangibles. Additionally, these other assets include the carrying value of our equity-method investments in joint ventures in China and other foreign jurisdictions.
Contractholder Deposit Funds
Liabilities for contractholder deposit funds primarily include deposits received from customers for investment-related and universal life products and investment earnings on their fund balances. These liabilities are adjusted to reflect administrative charges and, for universal life fund balances, mortality charges. In addition, this caption includes: 1) premium stabilization reserves under group insurance contracts representing experience refunds left with the Company to pay future premiums; 2) deposit administration funds used to fund non-pension retiree insurance programs; 3) retained asset accounts; and 4) annuities or supplementary contracts without significant life contingencies. Interest credited on these funds is accrued ratably over the contract period.
Future Policy Benefits

Future policy benefits represent the present value of estimated future obligations under long-term life and supplemental health insurance policies and annuity products currently in force. These obligations are estimated using actuarial methods and consist primarily of reserves for annuity contracts, life insurance benefits, GMDB contracts (see Note 9 for additional information) and certain health, life and accident insurance products of our Global Supplemental Benefits segment.

Obligations for annuities represent specified periodic benefits to be paid to an individual or groups of individuals over their remaining lives. Obligations for life insurance policies and GMDB contracts represent benefits to be paid to policyholders, net of future premiums to be received. Management estimates these obligations based on assumptions as to premiums, interest rates, mortality or morbidity, future claim adjudication expenses and surrenders, allowing for adverse deviation as appropriate. Mortality, morbidity and surrender assumptions are based on the Company's own experience and published actuarial tables. Interest rate assumptions are based on management's judgment considering the Company's experience and future expectations, and range from 0.1% to 9%. Obligations for the run-off settlement annuity business include adjustments for realized and unrealized investment returns consistent with GAAP when a premium deficiency exists.
Redeemable Noncontrolling Interests

Products and services are offered in Turkey and India through joint venture entities for which the Company is the principal equity holder or primary beneficiary. Accordingly, these entities are consolidated. The redeemable noncontrolling interests on our Consolidated Balance Sheets represent our joint venture partners' preferred and common stock interests in these entities. Our joint venture partners may, at their election, require the Company to purchase their redeemable noncontrolling interests. We also have the right to require our joint venture partners to sell their redeemable noncontrolling interests to us. The redeemable noncontrolling interests were recorded at fair value as of the dates of purchase. When the estimated redemption value for a redeemable noncontrolling interest exceeds its carrying value, an adjustment to increase the redeemable noncontrolling interest is recorded with an offsetting reduction to additional paid-in capital. When an adjustment is made to the carrying value of the redeemable noncontrolling interest, the calculation of shareholders' net income per share will be adjusted if the redemption value exceeds the greater of the carrying value or fair value.
Accounts Payable, Accrued Expenses and Other Liabilities

Accounts payable, accrued expenses and other liabilities include liabilities for pension, other postretirement and postemployment benefits (see Note 15), GMIB contract liabilities (see Note 9), self-insured exposures, management compensation, cash overdraft positions and various insurance-related liabilities, including experience-rated refunds, reinsurance contracts and the minimum medical loss ratio rebate accrual under The Patient Protection and Affordable Care Act (the “Health Care Reform Act” or “ACA”). Legal costs to defend the Company's litigation and arbitration matters are expensed when incurred in cases where the Company cannot reasonably estimate the ultimate cost to defend. In cases where the Company can reasonably estimate the cost to defend, a liability for these costs is accrued when the claim is reported.
Translation of Foreign Currencies

The Company generally conducts its international business through foreign operating entities that maintain assets and liabilities in local currencies that are generally their functional currencies. The Company uses exchange rates as of the balance sheet date to translate assets and liabilities into U.S. dollars. Translation gains or losses on functional currencies, net of applicable taxes, are recorded in accumulated other comprehensive income (loss). The Company uses average monthly exchange rates during the year to translate revenues and expenses into U.S. dollars.
Premiums and Related Expenses

Premiums for group life, accident and health insurance and managed care coverages are recognized as revenue on a pro rata basis over the contract period. Benefits and expenses are recognized when incurred and, for our Global Health Care insured business, medical costs are presented net of pharmaceutical manufacturer rebates. For experience-rated contracts, premium revenue includes an adjustment for experience-rated refunds based on contract terms and calculated using the customer's experience (including estimates of incurred but not reported claims).

Premium revenue also includes an adjustment to reflect the estimated effect of rebates due to customers under the commercial minimum medical loss ratio provisions of the Health Care Reform Act. These rebates are settled in the year following the policy year.

Premiums received for the Company's Medicare Advantage Plans and Medicare Part D products from the Centers for Medicare and Medicaid Services (“CMS”) and customers are recognized as revenue ratably over the contract period. CMS provides risk-adjusted premium payments for Medicare Advantage Plans and Medicare Part D products based on the demographics and wellness of enrollees. The Company recognizes periodic changes to risk-adjusted premiums as revenue when the amounts are determinable and collection is reasonably assured. Additionally, Medicare Part D premiums include payments from CMS for risk sharing adjustments. The risk sharing adjustments that are estimated quarterly based on claim experience, compare actual incurred drug benefit costs to estimated costs submitted in original contracts and may result in more or less revenue from CMS. Final revenue adjustments are determined and settled with CMS in the year following the contract year. Premium revenue also includes an adjustment to reflect the estimated effect of rebates due to CMS under the Medicare Advantage and Medicare Part D minimum medical loss ratio provisions of the Health Care Reform Act.

Accounting for the Health Care Reform Act's Risk Mitigation Programs. Beginning in 2014, as prescribed by the Health Care Reform Act, programs went into effect to reduce the risk for participating health insurance companies selling coverage on the public exchanges.

A three-year (2014-2016) reinsurance program is designed to provide reimbursement to insurers for high cost individual business sold on or off the public exchanges. The reinsurance entity established by the U.S. Department of Health and Human Services (“HHS”) is funded by a per-customer reinsurance fee assessed on all insurers, Health Maintenance Organizations (“HMOs”) and self-insured group health plans, excluding certain products such as Medicare Advantage and Medicare Part D. Only non-grandfathered individual plans are eligible for recoveries if claims exceed a specified threshold, up to a reinsurance cap.
A permanent risk adjustment program reallocates funds from insurers with lower risk populations to insurers with higher risk populations based on the relative risk scores of participants in non-grandfathered plans in the individual and small group markets, both on and off the exchanges. We estimate our receivable or payable based on the risk of our members compared to the risk of other members in the same state and market, considering data obtained from industry studies and HHS.
A three-year (2014-2016) risk corridor program is designed to limit insurer gains and losses by comparing allowable medical costs to a target amount as defined by HHS. This program applies to individual and small group qualified health plans, operating on and off the exchanges. Variances from the target amount exceeding certain thresholds may result in amounts due to or due from HHS.

Reinsurance contributions associated with non-grandfathered individual plans are reported as reductions in premium revenues, and estimated reinsurance recoveries are established with offsetting reductions in Global Health Care medical costs. Reinsurance fee contributions for other insured business are reported in other operating expenses. Final recoverable amounts are determined and settled with HHS in the year following the policy year. For the risk adjustment and risk corridor programs, the Company records receivables or payables as adjustments to premium revenue based on our year-to-date experience when the amounts are reasonably estimable and collection is reasonably assured. Final revenue adjustments are determined by HHS in the year following the policy year. For additional discussion on our revenue recognition considerations for the risk corridor program in 2016, see Note 22.

Premiums for individual life, accident and supplemental health insurance and annuity products, excluding universal life and investment-related products, are recognized as revenue when due. Benefits and expenses are matched with premiums.

Revenue for universal life products is recognized as follows:

Investment income on assets supporting universal life products is recognized in net investment income as earned.
Charges for mortality, administration and policy surrender are recognized in premiums as earned. Administrative fees are considered earned when services are provided.

Benefits and expenses for universal life products consist of benefit claims in excess of policyholder account balances and income earned by policyholders. Expenses are recognized when claims are incurred, and income is credited to policyholders in accordance with contract provisions.

The unrecognized portion of premiums received is recorded as unearned premiums.

Fees, Related Expenses and Mail Order Pharmacy Revenues and Costs

Contract fees for administrative services only (“ASO”) programs and pharmacy programs and services are recognized in fees and other revenues as services are provided, net of estimated pharmaceutical manufacturer rebates payable to ASO clients using our network of retail pharmacies and estimated refunds under performance guarantees. Expenses associated with these programs and services are recognized in other operating expenses as incurred, net of estimated pharmaceutical rebates from manufacturers for prescriptions filled through our network of retail pharmacies.

In some cases, the Company provides performance guarantees associated with meeting certain service standards, clinical outcomes or financial metrics. If these service standards, clinical outcomes or financial metrics are not met, the Company may be financially at risk up to a stated percentage of the contracted fee or a stated dollar amount. The Company defers revenues for estimated payouts associated with these performance guarantees. Approximately 10% of ASO fees reported for the year ended December 31, 2016 were at risk under performance guarantees, with reimbursements estimated to be less than 1% of revenues.

Revenues for investment-related products are recognized as follows:

Investment income on assets supporting investment-related products is recognized in net investment income as earned.
Contract fees based upon related administrative expenses are recognized in fees and other revenues as they are earned ratably over the contract period.

Benefits and expenses for investment-related products consist primarily of income credited to policyholders in accordance with contract provisions.

Mail order pharmacy revenues and the cost of prescriptions are recognized as each prescription is shipped. Mail order pharmacy revenues are presented net of estimated pharmaceutical manufacturer rebates payable to ASO clients using our mail order business. Mail order pharmacy costs include the cost of prescriptions sold and other costs to operate this business including supplies, shipping and handling, net of estimated pharmaceutical rebates from manufacturers for prescriptions filled through our mail order business.