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Schedule II - Condensed Financial Information of Registrant

12 Months Ended

Dec. 31, 2016

Condensed Financial Information of Cigna Corporation (Registrant) [Abstract]

Condensed Financial Information of Cigna Corporation (Registrant)

CIGNA CORPORATION AND SUBSIDIARIES

SCHEDULE II

CONDENSED FINANCIAL INFORMATION OF CIGNA CORPORATION

(REGISTRANT)

STATEMENTS OF INCOME

(in millions)

	For the years ended
	December 31,
	2016			2015			2014

Operating expenses:
Interest	$	244	$		246	$		258
Intercompany interest		3			2			5
Loss on early extinguishment of debt		-			100			-
Other		281			147			82
Total operating expenses		528			495			345
Loss before income taxes		(528)			(495)			(345)
Income tax benefit⁽¹⁾		(146)			(135)			(89)
Loss of parent company⁽¹⁾		(382)			(360)			(256)
Equity in income of subsidiaries		2,249			2,454			2,358
Shareholders' net income⁽¹⁾		1,867			2,094			2,102

Shareholders' other comprehensive income (loss):

Net unrealized appreciation (depreciation) on securities		(56)			(202)			143
Net unrealized appreciation (depreciation) on derivatives		(4)			15			11
Net translation of foreign currencies		(95)			(212)			(144)
Postretirement benefits liability adjustment		23			85			(426)
Shareholders' other comprehensive loss		(132)			(314)			(416)
Shareholders' comprehensive income⁽¹⁾	$	1,735		$	1,780		$	1,686

As required in adopting Accounting Standards Update (“ASU”) 2016-09, the Company recorded $29 million of income tax benefits for the year ended December 31, 2016 that previously would have been reported in additional paid-in capital. No retrospective adjustments were made to income tax benefits for the years ended 2015 and 2014. See Note 1 for further discussion.

See Notes to Financial Statements on the following pages.

CIGNA CORPORATION AND SUBSIDIARIES

SCHEDULE II

CONDENSED FINANCIAL INFORMATION OF CIGNA CORPORATION

(REGISTRANT)

BALANCE SHEETS

(in millions)

	As of December 31,
	2016		2015

Assets:
Cash and cash equivalents	$	18	$	16
Short-term investments		57		54
Investments in subsidiaries		20,315		18,799
Intercompany receivable		173		182
Other assets		415		497
Total assets	$	20,978	$	19,548


Liabilities:
Intercompany payable	$	998	$	1,086
Short-term debt		257		100
Long-term debt		4,658		4,910
Other liabilities		1,342		1,417
Total liabilities		7,255		7,513


Shareholders' Equity:
Common stock (shares issued, 296; authorized, 600)		74		74
Additional paid-in capital		2,892		2,859
Accumulated other comprehensive loss		(1,382)		(1,250)
Retained earnings		13,855		12,121
Less treasury stock, at cost		(1,716)		(1,769)
Total shareholders' equity		13,723		12,035
Total liabilities and shareholders' equity	$	20,978	$	19,548

See Notes to Financial Statements on the following pages.

CIGNA CORPORATION AND SUBSIDIARIES

SCHEDULE II

CONDENSED FINANCIAL INFORMATION OF CIGNA CORPORATION

(REGISTRANT)

STATEMENTS OF CASH FLOWS

(in millions)

	For the years ended
	December 31,
	2016		2015		2014

Cash Flows from Operating Activities:
Shareholders' Net Income	$	1,867	$	2,094	$	2,102
Adjustments to reconcile shareholders' net income
to net cash provided by operating activities:
Equity in income of subsidiaries		(2,249)		(2,454)		(2,358)
Dividends received from subsidiaries		580		880		1,648
Other liabilities		(9)		112		(73)
Loss on early extinguishment of debt		-		100		-
Other, net⁽¹⁾		187		112		226
Net cash provided by operating activities⁽¹⁾		376		844		1,545

Cash Flows from Investing Activities:
Short-term investment purchased, net		(3)		(54)		-
Other, net		(8)		(14)		11
Net cash provided by / (used in) investing activities		(11)		(68)		11

Cash Flows from Financing Activities:
Net change in amounts due to / from affiliates		(78)		(161)		61
Net change in short-term debt		(100)		-		-
Net proceeds on issuance of long-term debt		-		894		-
Repayment of long-term debt		-		(938)		-
Issuance of common stock		36		154		110
Common dividends paid		(10)		(10)		(11)
Repurchase of common stock		(139)		(671)		(1,612)
Tax withholding on stock compensation⁽¹⁾		(72)		(79)		(53)
Net cash (used in) financing activities⁽¹⁾		(363)		(811)		(1,505)
Net increase (decrease) in cash and cash equivalents		2		(35)		51
Cash and cash equivalents, beginning of year		16		51		-
Cash and cash equivalents, end of year	$	18	$	16	$	51

(1) As required in adopting ASU 2016-09, the Company retrospectively reclassified $79 million in 2015 and $53 million in 2014 of cash payments from operating to financing activities. These payments were related to employee tax obligations associated with stock compensation. The comparable amount reported in financing activities for the year ended December 31, 2016 was $72 million. See Note 1 for further discussion.

See Notes to Financial Statements on the following pages.

CIGNA CORPORATION AND SUBSIDIARIES

SCHEDULE II

CONDENSED FINANCIAL INFORMATION OF CIGNA CORPORATION

(REGISTRANT)

NOTES TO CONDENSED FINANCIAL STATEMENTS

The accompanying condensed financial statements should be read in conjunction with the Consolidated Financial Statements and the accompanying notes thereto contained in this Annual Report on Form 10-K (“Form 10-K”).

Note 1—For purposes of these condensed financial statements, Cigna Corporation's (the “Company”) wholly-owned and majority-owned subsidiaries are recorded using the equity basis of accounting.

In the first quarter of 2016, the Company implemented the Financial Accounting Standards Board's new guidance that changed the accounting for certain aspects of share-based payments to employees (Accounting Standards Update (“ASU”) 2016-09. The standard had the following impacts for the year ended December 31, 2016:

$29 million of tax benefits was recorded in net income that previously would have been reported in additional paid-in capital.
$79 million and $53 million of tax withholding for the year ended December 31, 2015 and December 31, 2014 were retrospectively reclassified from operating to financing activities in the Cigna Corporation Statements of Cash Flows. The comparable tax withholding amount reported in financing activities for the year ended December 31, 2016 was $72 million.

Note 2—Short-term and long-term debt consisted of the following at December 31:

(In millions)		December 31, 2016		December 31, 2015
Short-term:
Commercial Paper	$	-	$	100
Current maturities of long-term debt		250		-
Other, including capital leases		7		-
Total short-term debt	$	257	$	100
Long-term:
Uncollateralized debt:
$250 million, 5.375% Notes due 2017		-		249
$131 million, 6.35% Notes due 2018		131		131
$250 million, 4.375% Notes due 2020⁽¹⁾		252		254
$300 million, 5.125% Notes due 2020⁽¹⁾		301		303
$300 million, 4.5% Notes due 2021⁽¹⁾		302		304
$750 million, 4% Notes due 2022		744		743
$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		893		892
$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		295
$750 million, 5.375% Notes due 2042		743		743
Total long-term debt	$	4,658	$	4,910
(1) The Company has entered into interest rate swap contracts hedging a portion of these fixed-rate debt instruments.

The following debt transactions occurred in April 2015:

The Company redeemed its 2.75% Notes due 2016, including accrued interest from November 15, 2014 through the settlement date of April 13, 2015. The redemption price equaled the present value of the remaining principal and interest payments on the Notes being redeemed, discounted at a rate equal to the 10-year Treasury Rate plus a fixed spread of 30 basis points. The Company paid $626 million including accrued interest and expenses, resulting in a pre-tax loss on early debt extinguishment of $21 million ($14 million after-tax) that was recognized in the second quarter of 2015.
The Company redeemed its 8.50% Notes due 2019, including accrued interest from November 1, 2014 through the settlement date of April 13, 2015. The redemption price equaled the present value of the remaining principal and interest payments on the Notes being redeemed, discounted at a rate equal to the 10-year Treasury Rate plus a fixed spread of 50 basis points. The Company paid $329 million including accrued interest and expenses, resulting in a pre-tax loss on early debt extinguishment of $79 million ($51 million after-tax) that was recognized in the second quarter of 2015.

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 2019 and is diversified among 16 banks with three banks each having 12% of the commitment and the remainder spread among 13 banks. The credit agreement includes options to increase the commitment amount to $2 billion and to extend the term past December 2019, subject to consent by the administrative agent and the committing banks. 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 – that is total consolidated debt to total consolidated capitalization (each as defined in the credit agreement) – to exceed 0.50. The leverage ratio excludes the following items that are included in accumulated other comprehensive loss on the Company's Consolidated Balance Sheets: net unrealized appreciation in fixed maturities and the portion of the post-retirement benefits liability adjustment attributable to pension. The Company was in compliance with its debt covenants as of December 31, 2016.

The Company had $9.7 billion of borrowing capacity within the maximum debt coverage covenant in the letter of credit agreement, in addition to the $5 billion of debt outstanding as of December 31, 2016. This additional borrowing capacity includes the $1.5 billion available under the credit agreement. Letters of credit outstanding as of December 31, 2016 totaled $14 million.

On March 11, 2015, the Company issued $900 million of 10-Year Notes due April 15, 2025 at a stated interest rate of 3.25% ($892 million, net of discount and issuance costs, with an effective annual interest rate of 3.36%). Interest is payable on April 15 and October 15 of each year beginning October 15, 2015. The proceeds of this debt were used to repay debt maturing in 2016 and in 2019 as described below.

The Company may redeem these Notes, at any time, in whole or in part, at a redemption price equal to the greater of:

100% of the principal amount of the Notes to be redeemed; or
the present value of the remaining principal and interest payments on the Notes being redeemed discounted at the applicable Treasury rate plus 17.5 basis points.

Maturities of long-term debt are as follows (in millions): $250 in 2017, $131 in 2018, none in 2019, $549 in 2020, $299 in 2021 and $3,694 in years after 2021. Interest expense on long-term and short-term debt was $244 in 2016, $246 million in 2015 and $252 million in 2014. The 2015 expense excludes losses on the early extinguishment of debt.

Note 3—Intercompany liabilities consist primarily of payables to Cigna Holdings, Inc. of $658 million as of December 31, 2016 and $875 million as of December 31, 2015. Interest was accrued at an average monthly rate of 0.93% for 2016 and 0.60% for 2015.

Note 4 — As of December 31, 2016, the Company had guarantees and similar agreements in place to secure payment obligations or solvency requirements of certain wholly-owned subsidiaries as follows:

Various indirect, wholly-owned subsidiaries have obtained surety bonds in the normal course of business. If there is a claim on a surety bond and the subsidiary is unable to pay, the Company guarantees payment to the company issuing the surety bond. The aggregate amount of such surety bonds as of December 31, 2016 was $98 million.
The Company is obligated under a $6 million letter of credit required by the insurer of its high-deductible self-insurance programs to indemnify the insurer for claim liabilities that fall within deductible amounts for policy years dating back to 1994.
The Company also provides solvency guarantees aggregating $34 million under state and federal regulations in support of its indirect wholly-owned medical HMOs in several states.
The Company has arranged an $8 million letter of credit in support of Cigna Europe Insurance Company, an indirect wholly-owned subsidiary. The Company has agreed to indemnify the banks providing the letters of credit in the event of any draw. Cigna Europe Insurance Company is the holder of the letters of credit.
The Company has agreed to indemnify payment of losses included in Cigna Europe Insurance Company's reserves on the assumed reinsurance business transferred from ACE. As of December 31, 2016, the reserve was $14 million.
The Company guarantees the payment of up to $10 million for certain expenses of an indirect wholly-owned subsidiary operating as a Professional Employer Organization in the state of Kansas.
The Company operates a global notional currency pool in support of certain foreign subsidiaries and provides a guarantee of borrowing by subsidiaries from the notional pool. The aggregate amount of such borrowing at December 31, 2016 was $31 million.
The Company guarantees that it would compensate the lessors for a shortfall of up to $42 million in the market value of certain leased equipment at the end of the lease. Guarantees of $10 million expire in 2017, $25 million expire in 2022 and $7 million expire in 2026. The Company recorded liabilities for these guarantees of $5 million as of December 31, 2016.

In 2016, no payments have been made on these guarantees. The Company provided other guarantees to subsidiaries that, in the aggregate, do not represent a material risk to the Company's results of operations, liquidity or financial condition.

- Definition

The entire disclosure for condensed financial information, including the financial position, cash flows, and the results of operations of the registrant (parent company) as of the same dates or for the same periods for which audited consolidated financial statements are being presented. Alternatively, the details of this disclosure can be reported by the specific parent company taxonomy elements, indicating the appropriate date and period contexts in an instance document.

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