CIGNA CORPORATION 03/31/2002 FORM 10-Q

-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SJm0Ri1Pwlx4m1xiq0jPPq8Kr6T8v8aFjIwH9Z92gm1PTQqXFPgVSLmYWHLbH+lN UN/Qu71/8+e3Y8Le1DTWTg== 0000950159-02-000281.txt : 20020502 0000950159-02-000281.hdr.sgml : 20020501 ACCESSION NUMBER: 0000950159-02-000281 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20020331 FILED AS OF DATE: 20020502 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CIGNA CORP CENTRAL INDEX KEY: 0000701221 STANDARD INDUSTRIAL CLASSIFICATION: HOSPITAL & MEDICAL SERVICE PLANS [6324] IRS NUMBER: 061059331 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08323 FILM NUMBER: 02632235 BUSINESS ADDRESS: STREET 1: ONE LIBERTY PLACE STREET 2: 1650 MARKET STREET CITY: PHILADELPHIA STATE: PA ZIP: 19192-1550 BUSINESS PHONE: 2157611000 MAIL ADDRESS: STREET 1: TWO LIBERTY PLACE 48TH FLOOR CITY: PHILADELPHIA STATE: PA ZIP: 19192 10-Q 1 cig10q3-02.htm CIGNA CORPORATION 03/31/2002 FORM 10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2002

[ ] 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 1-8323

CIGNA Corporation
(Exact name of registrant as specified in its charter)

Delaware	06-1059331
(State or other jurisdiction	(I.R.S. Employer
of incorporation or organization)	Identification No.)

One Liberty Place, 1650 Market Street
Philadelphia, Pennsylvania 19192
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code (215) 761-1000

Not Applicable
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark 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.

Yes x No

As of March 31, 2002, 140,877,291 shares of the issuer’s common stock were outstanding.

CIGNA CORPORATION

INDEX


			Page No.

PART I.	FINANCIAL INFORMATION

	Item 1.	Financial Statements

		Consolidated Income Statements	1
		Consolidated Balance Sheets	2
		Consolidated Statements of Comprehensive Income and Changes in Shareholders' Equity	3
		Consolidated Statements of Cash Flows	4
		Notes to the Financial Statements	5

	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	13

PART II.	OTHER INFORMATION

	Item 1.	Legal Proceedings	27

	Item 6.	Exhibits and Reports on Form 8-K	27

SIGNATURE			28

EXHIBIT INDEX			29

As used herein, CIGNA refers to one or more of CIGNA Corporation and its consolidated subsidiaries.

Part I. FINANCIAL INFORMATION
Item 1. Financial Statements

CIGNA CORPORATION
CONSOLIDATED INCOME STATEMENTS
(In millions, except per share amounts)

	Three Months Ended March 31,
	2002			2001


REVENUES
Premiums and fees	$	4,000		$	3,799
Net investment income		690			716
Other revenues		225			225
Realized investment losses		(88	)		(8	)

Total revenues		4,827			4,732

BENEFITS, LOSSES AND EXPENSES
Benefits, losses and settlement expenses		3,190			3,090
Policy acquisition expenses		54			60
Other operating expenses		1,252			1,162

Total benefits, losses and expenses		4,496			4,312

INCOME BEFORE INCOME TAXES		331			420

Income taxes (benefits):
Current		158			95
Deferred		(45	)		49

Total taxes		113			144


NET INCOME	$	218		$	276

NET INCOME EXCLUDING GOODWILL
AMORTIZATION IN 2001 (Note 2)	$	218		$	288

EARNINGS PER SHARE - BASIC
NET INCOME	$	1.54		$	1.82

NET INCOME EXCLUDING GOODWILL
AMORTIZATION IN 2001 (Note 2)	$	1.54		$	1.90

EARNINGS PER SHARE - DILUTED
NET INCOME	$	1.52		$	1.78

NET INCOME EXCLUDING GOODWILL
AMORTIZATION IN 2001 (Note 2)	$	1.52		$	1.86

DIVIDENDS DECLARED PER SHARE	$	0.33		$	0.32

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 March 31, 2002						As of December 31, 2001


ASSETS
Investments:
Fixed maturities, at fair value (amortized cost, $23,123; $22,672)				$	23,503					$	23,401
Equity securities, at fair value (cost, $249; $310)					367						404
Mortgage loans					9,682						9,920
Policy loans					2,661						2,774
Real estate					407						432
Other long-term investments					1,170						1,193
Short-term investments					66						137

Total investments					37,856						38,261
Cash and cash equivalents					1,625						1,933
Accrued investment income					501						522
Premiums, accounts and notes receivable					3,166						2,832
Reinsurance recoverables					7,043						6,983
Deferred policy acquisition costs					463						448
Property and equipment					1,092						1,077
Deferred income taxes					1,121						1,033
Goodwill					1,652						1,652
Other assets, including other intangibles					581						585
Separate account assets					37,186						36,263


Total assets				$	92,286					$	91,589


LIABILITIES
Contractholder deposit funds				$	28,266					$	28,961
Unpaid claims and claim expenses					4,286						3,978
Future policy benefits					10,525						10,523
Unearned premiums					231						246

Total insurance and contractholder liabilities					43,308						43,708
Accounts payable, accrued expenses and other liabilities					5,089						4,886
Short-term debt					151						50
Long-term debt					1,510						1,627
Separate account liabilities					37,186						36,263

Total liabilities					87,244						86,534


CONTINGENCIES - NOTE 10

SHAREHOLDERS' EQUITY
Common stock (par value per share, $0.25; shares issued, 272; 271)					68						68
Additional paid-in capital					3,157						3,093
Net unrealized appreciation, fixed maturities	$	100					$	189
Net unrealized appreciation, equity securities		64						50
Net unrealized appreciation, derivatives		7						10
Net translation of foreign currencies		(34	)					(26	)
Minimum pension liability adjustment		(76	)					(76	)

Accumulated other comprehensive income					61						147
Retained earnings					10,053						9,882
Less treasury stock, at cost					(8,297	)					(8,135	)

Total shareholders' equity					5,042						5,055

Total liabilities and shareholders' equity				$	92,286					$	91,589

SHAREHOLDERS' EQUITY PER SHARE				$	35.79					$	35.71

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 March 31,	2002						2001

	Compre- hensive Income			Share- holders' Equity			Compre- hensive Income			Share- holders' Equity



Common stock, January 1				$	68					$	67
Issuance of common stock for employee benefits plans					-						1

Common stock, March 31					68						68


Additional paid-in capital, January 1					3,093						2,966
Issuance of common stock for employee benefits plans					64						107

Additional paid-in capital, March 31					3,157						3,073


Accumulated other comprehensive income, January 1					147						221
Net unrealized appreciation (depreciation), fixed maturities	$	(89	)		(89	)	$	118			118
Net unrealized appreciation (depreciation), equity securities		14			14			(78	)		(78	)

Net unrealized appreciation (depreciation) on securities		(75	)					40
Net unrealized appreciation (depreciation), derivatives		(3	)		(3	)		9			9
Net translation of foreign currencies		(8	)		(8	)		(20	)		(20	)

Other comprehensive income (loss)		(86	)					29

Accumulated other comprehensive income, March 31					61						250


Retained earnings, January 1					9,882						9,081
Net income		218			218			276			276
Common dividends declared					(47	)					(48	)

Retained earnings, March 31					10,053						9,309


Treasury stock, January 1					(8,135	)					(6,922	)
Repurchase of common stock					(131	)					(381	)
Other treasury stock transactions, net					(31	)					(72	)

Treasury stock, March 31					(8,297	)					(7,375	)

TOTAL COMPREHENSIVE INCOME AND SHAREHOLDERS' EQUITY	$	132		$	5,042		$	305		$	5,325

The accompanying Notes to the Financial Statements are an integral part of these statements.

CIGNA CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)

	Three Months Ended March 31,
	2002			2001

CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	218		$	276
Adjustments to reconcile net income to net cash provided by
operating activities:
Insurance liabilities		394			(63	)
Reinsurance recoverables		(98	)		(32	)
Deferred policy acquisition costs		(11	)		(13	)
Premiums, accounts and notes receivable		(374	)		2
Accounts payable, accrued expenses and other liabilities		130			(19	)
Deferred income taxes		(45	)		49
Realized investment losses		88			8
Depreciation and amortization		63			59
Gains on sales of businesses		(18	)		(38	)
Other, net		1			(71	)

Net cash provided by operating activities		348			158


CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from investments sold:
Fixed maturities		525			612
Equity securities		60			148
Mortgage loans		263			167
Other (primarily short-term investments)		759			1,288
Investment maturities and repayments:
Fixed maturities		604			559
Mortgage loans		165			130
Investments purchased:
Fixed maturities		(1,542	)		(1,127	)
Equity securities		(34	)		(141	)
Mortgage loans		(195	)		(241	)
Other (primarily short-term investments)		(657	)		(1,323	)
Proceeds on sale of business		-			83
Deconsolidation of Japanese life insurance operation		-			(327	)
Other, net		(75	)		(79	)

Net cash used in investing activities		(127	)		(251	)


CASH FLOWS FROM FINANCING ACTIVITIES
Deposits and interest credited to contractholder deposit funds		1,424			2,100
Withdrawals and benefit payments from contractholder deposit funds		(1,783	)		(1,992	)
Issuance of long-term debt		-			247
Repayment of debt		(16	)		(16	)
Repurchase of common stock		(134	)		(371	)
Issuance of common stock		25			19
Common dividends paid		(46	)		(47	)

Net cash used in financing activities		(530	)		(60	)

Effect of foreign currency rate changes on cash and cash equivalents		1			(1	)

Net decrease in cash and cash equivalents		(308	)		(154	)
Cash and cash equivalents, beginning of period		1,933			2,206

Cash and cash equivalents, end of period	$	1,625		$	2,052


Supplemental Disclosure of Cash Information:
Income taxes paid, net of refunds	$	56		$	10
Interest paid	$	28		$	20

The accompanying Notes to the Financial Statements are an integral part of these statements.

CIGNA CORPORATION
NOTES TO THE FINANCIAL STATEMENTS

NOTE 1 – BASIS OF PRESENTATION

The consolidated financial statements include the accounts of CIGNA Corporation and all significant subsidiaries, which are referred to collectively as “CIGNA.” Intercompany transactions and accounts have been eliminated in consolidation. These consolidated financial statements were prepared in conformity with generally accepted accounting principles (GAAP).

The interim financial statements are unaudited but include all adjustments (consisting of normal recurring adjustments) necessary, in the opinion of management, for a fair statement of financial position and results of operations for the period reported. The interim consolidated financial statements and notes should be read in conjunction with the Consolidated Financial Statements and Notes in CIGNA’s 2001 Annual Report to Shareholders and Form 10-K for the year ended 2001.

The preparation of interim financial statements necessarily relies heavily on estimates. This and certain other factors, such as the seasonal nature of portions of the insurance business as well as competitive and other market conditions, call for caution in estimating results for the full year based on interim results of operations.

Certain reclassifications have been made to prior year amounts to conform to the 2002 presentation.

NOTE 2 – RECENT ACCOUNTING
PRONOUNCEMENTS

Goodwill and other intangible assets. As of January 1, 2002, CIGNA adopted Statement of Financial Accounting Standards (SFAS) No. 142, “Goodwill and Other Intangible Assets.” SFAS No. 142 eliminates the practice of amortizing goodwill through periodic charges to earnings and establishes a new methodology for reporting and measuring goodwill and other intangible assets.

In accordance with the standard, CIGNA ceased goodwill amortization on January 1, 2002. Although goodwill is no longer amortized, SFAS No. 142 requires goodwill to be evaluated for impairment at least annually, and written down through earnings when impaired. At implementation, CIGNA’s evaluation of its goodwill, based on discounted cash flow analyses, resulted in no impairment loss.

For comparative purposes, the following table adjusts net income and basic and diluted earnings per share for the three months ended March 31, 2001, as if goodwill amortization had ceased at the beginning of 2001. Goodwill amortization is attributable to the Employee Health Care, Life and Disability segment.


(In millions, except per share amounts)

Reported net income		$276
Adjustment for goodwill
amortization, after-tax		12

Adjusted net income		$288

Reported basic earnings per share		$1.82
Adjustment for goodwill
amortization, after-tax		0.08

Adjusted basic earnings per share		$1.90

Reported diluted earnings per share		$1.78
Adjustment for goodwill
amortization, after-tax		0.08

Adjusted diluted earnings per share		$1.86

CIGNA’s other intangible assets are primarily purchased customer lists and provider contracts. As of January 1, 2002, the gross carrying value of CIGNA’s other intangible assets was $247 million and accumulated amortization was $91 million. These intangible assets will continue to be amortized through periodic charges to earnings.

Impairment of long-lived assets. As of January 1, 2002, CIGNA adopted SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” At implementation, CIGNA reclassified real estate of $119 million to “held and used” that was previously “held for sale.” Adoption of SFAS No. 144 did not have a material effect on CIGNA’s consolidated results of operations.

Under the new standard, beginning on January 1, 2002, CIGNA accounts for real estate as follows:

•

Real estate “held and used” is expected to be held longer than one year and will include real estate when acquired through the foreclosure of

mortgage loans. CIGNA carries real estate held and used at depreciated cost less any write-downs to fair value due to impairment and assesses impairment when cash flows indicate that the carrying value may not be recoverable. Depreciation is generally calculated using the straight-line method based on the estimated useful life of the particular real estate asset.

•

Real estate is “held for sale” when a buyer’s investigation is completed, a deposit has been received and the sale is expected to be completed within the next year. Real estate held for sale is carried at the lower of carrying value or current fair value, less estimated costs to sell, and is not depreciated. Valuation reserves reflect any changes in fair value.

•

Real estate acquired through the foreclosure of mortgage loans prior to implementation of SFAS No. 144 is classified as “held for sale” if it is expected to be sold within 2002.

•

CIGNA uses several methods to determine the fair value of real estate, but relies primarily on discounted cash flow analyses and, in some cases, third party appraisals.

Derivative instruments and hedging activities. As of January 1, 2001, CIGNA implemented SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities.” SFAS No. 133 requires companies to report derivatives on the balance sheet at fair value with changes in fair values reported in net income or accumulated other comprehensive income. SFAS No. 133 allows companies to use hedge accounting when derivatives are designated, qualify and are highly effective as hedges. Under hedge accounting, the changes in fair value of the derivative and the hedged risk are generally recognized together and offset each other when reported in net income.

At implementation, SFAS No. 133 had an immaterial effect on CIGNA’s consolidated financial statements. The effects of derivatives were not material to CIGNA’s consolidated results of operations, liquidity or financial condition for the three months ended March 31, 2002 and 2001.

NOTE 3 – ACQUISITIONS AND DISPOSITIONS

CIGNA’s priorities for use of capital are internal growth, acquisitions and share repurchase. CIGNA conducts regular strategic and financial reviews of its businesses to ensure that its capital is used effectively. As a result of these reviews, CIGNA may acquire or dispose of assets, subsidiaries or lines of business. Significant transactions are described below.

Sales of interests in Japanese life insurance operation. In 2001, CIGNA sold portions of its interest in its Japanese life insurance operation to Yasuda Fire & Marine Insurance Company Ltd. as follows:


Date of Sale	Portion of CIGNA Equity Ownership Interest Sold	Equity Ownership Interest Retained by CIGNA	Proceeds from Sale (in millions)	Gain on Sale, after- tax (in millions)

Jan. 2001	21%	40%	$ 83	$ 8
Nov. 2001	40%	--	$267	$27

As a result of the January 2001 sale, CIGNA stopped consolidating the assets, liabilities, revenues and expenses of this operation and, until the November 2001 sale, accounted for its remaining interest under the equity method of accounting.

Sale of portions of U.S. life reinsurance business. In 2000, CIGNA sold its U.S. individual life, group life and accidental death reinsurance business for cash proceeds of approximately $170 million. The sale generated an after-tax gain of approximately $85 million, which was deferred because the sale was structured as an indemnity reinsurance arrangement.

In the second, third and fourth quarters of 2001, the acquirer entered into agreements with most of the reinsured parties, relieving CIGNA of any remaining obligations to those parties. As a result, CIGNA accelerated into those periods the recognition of the deferred gain. CIGNA recognized $3 million after-tax of the deferred gain in Other Operations in the first quarter of 2001, and less than $1 million in the first quarter of 2002. The remaining deferred gain as of March 31, 2002, was approximately $3 million after-tax.

CIGNA has placed its remaining reinsurance businesses (including its accident, domestic health, international life and health, and specialty life reinsurance businesses) into run-off and has stopped underwriting new reinsurance business.

NOTE 4 – RESTRUCTURING PROGRAM

In the fourth quarter of 2001, CIGNA adopted a restructuring program primarily to consolidate existing health service centers into regional service centers. As a result, CIGNA recognized in operating expenses a pre-tax charge of $96 million ($62 million after-tax) in the Employee Health Care, Life and Disability Benefits segment. The pre-tax charge consisted of $48 million of severance costs ($31 million after-tax) and $48 million in real estate costs ($31 million after-tax) related to vacating certain locations.

The severance charge reflected the expected reduction of approximately 3,100 employees. As a result of the consolidation of health service centers, CIGNA expects to hire approximately 1,100 employees, thereby resulting in a net reduction of approximately 2,000 employees under this program. As of March 31, 2002, 639 employees had been terminated under the program (203 employees were terminated in the first quarter of 2002). The real estate charges consisted of $37 million pre-tax related to vacating leased facilities, which are cash obligations pertaining to non-cancelable lease obligations and lease termination penalties. The charge also included $11 million pre-tax of non-cash asset write-downs. As of March 31, 2002, CIGNA paid $15 million related to severance and vacating leased facilities under this program ($9 million was paid in the first quarter of 2002).

CIGNA expects this restructuring program to be substantially completed during 2002. The table below indicates CIGNA’s restructuring activity (pre-tax) for this program:


	Severance
(Dollars in millions)	No. of Employees		Cost		Real Estate		Total

Balance as of
December 31, 2001	2,664		$43		$36		$79
First quarter 2002 reductions:
Employees	(203	)	(7	)			(7	)
Lease costs					(2	)	(2	)

Balance as of
March 31, 2002	2,461		$36		$34		$70

NOTE 5 – INVESTMENTS

Realized Investment Gains and Losses

Realized gains and losses on investments, excluding policyholder share, were as follows:


	Three Months Ended March 31,
(In millions)	2002		2001


Fixed maturities	$(56	)	$(55	)
Equity securities	(25	)	51
Mortgage loans	(4	)	--
Real estate	(8	)	(3	)
Other	5		(1	)

	(88	)	(8	)
Less income tax benefits	(31	)	(4	)

Net realized investment losses	$(57	)	$(4	)

Fixed Maturities and Equity Securities

Sales of available-for-sale fixed maturities and equity securities, including policyholder share, were as follows:


	Three Months Ended March 31,
(In millions)	2002		2001


Proceeds from sales	$585		$760
Gross gains on sales	$ 26		$ 76
Gross losses on sales	$ (69	)	$ (36	)

NOTE 6 – ACCUMULATED OTHER COMPREHENSIVE INCOME

Changes in accumulated other comprehensive income (which exclude policyholder share) were as follows:


(In millions)	Pre-Tax		Tax (Expense) Benefit		After- Tax

Three Months Ended March 31,

2002


Net unrealized depreciation,
securities:
Unrealized depreciation on
securities held	$(197	)	$70		$(127	)
Losses realized on securities	81		(29	)	52

Net unrealized depreciation,
securities	$(116	)	$41		$(75	)

Net unrealized depreciation,
derivatives	$(4	)	$1		$(3	)

Net translation of foreign
currencies	$(11	)	$3		$(8	)

2001

Net unrealized appreciation,
securities:
Unrealized appreciation on
securities held	$98		$(36	)	$62
Losses realized on securities	4		(2	)	2
Gains realized on sale of business	(31	)	11		(20	)
Reclassification to establish
separate caption for derivatives	(6	)	2		(4	)

Net unrealized appreciation,
securities	$65		$(25	)	$40

Net unrealized appreciation,
derivatives:
Reclassification to establish
separate caption for derivatives	$6		$(2	)	$4
Unrealized appreciation on
derivatives held	8		(3	)	5

Net unrealized appreciation,
derivatives	$14		$(5	)	$9

Net translation of foreign
currencies:
Net translation on foreign
currencies held	$(36	)	$12		$(24	)
Foreign currency translation gains
realized on sale of business	6		(2	)	4

Net translation of foreign
currencies	$(30	)	$10		$(20	)

NOTE 7 – EARNINGS PER SHARE

Basic and diluted earnings per share are computed as follows:


(Dollars in millions, except per share amounts)	Basic	Effect of Dilution		Diluted

Three Months Ended March 31,

2002


Net income	$218	$--		$218

Shares (in thousands):
Weighted average	141,552	--		141,552
Options and restricted stock
grants		1,733		1,733

Total shares	141,552	1,733		143,285

Earnings per share	$1.54	$(0.02	)	$1.52

2001

Net income	$276	$--		$276

Shares (in thousands):
Weighted average	151,806	--		151,806
Options and restricted stock
grants		3,117		3,117

Total shares	151,806	3,117		154,923

Earnings per share	$1.82	$(0.04	)	$1.78

Earnings per share adjusted to
exclude goodwill amortization
in 2001 (Note 2)	$1.90	$(0.04	)	$1.86

Common shares held as Treasury shares were 131,052,329 as of March 31, 2002, and 120,792,774 as of March 31, 2001.

NOTE 8 – REINSURANCE RECOVERABLES

In the normal course of business, CIGNA’s insurance subsidiaries enter into agreements with other insurance companies to assume and cede reinsurance. Reinsurance is ceded primarily to limit losses from large exposures and to permit recovery of a portion of direct losses. Reinsurance does not relieve the originating insurer of liability. CIGNA evaluates the financial condition of its reinsurers and monitors their concentrations of credit risk to confirm that CIGNA and its reinsurers are not unduly exposed to risk in the same geographic regions or industries.

Individual life and annuity reinsurance. CIGNA had a reinsurance recoverable of $5.6 billion at March 31, 2002, and December 31, 2001, from Lincoln National Corporation that arose from the 1998 sale of CIGNA’s individual life insurance and annuity business to Lincoln through an indemnity reinsurance arrangement.

Unicover and London reinsurance. The run-off reinsurance operations include an approximate 35% share in the primary layer of a workers’ compensation reinsurance pool, which was formerly managed by Unicover Managers, Inc. The pool had obtained reinsurance for a significant portion of its exposure to claims, but disputes have arisen regarding this reinsurance (also known as retrocessional) coverage. The retrocessionaires have commenced arbitration in the United States against Unicover and the pool members, seeking rescission or damages. Two of the retrocessionaires brought a separate arbitration in the United Kingdom asserting that CIGNA provided additional retrocessional coverage to them. In the first quarter of 2002, the arbitrators ruled that CIGNA had not provided retrocessional coverage.

CIGNA has also ceded other reinsurance business in the London market. Some retrocessionaires are disputing the validity of these reinsurance contracts with CIGNA. Arbitration over some of these disputes has commenced.

Some of the remaining arbitration matters are likely to be resolved in 2002. The outcomes of the remaining arbitration matters are uncertain. If some of the arbitration results are unfavorable, CIGNA could incur losses material to its consolidated results of operations. However, management does not expect the arbitration results to have a material adverse effect on CIGNA’s liquidity or financial condition.

Other reinsurance. CIGNA could have losses if reinsurers fail to indemnify CIGNA on other reinsurance arrangements, whether because of reinsurer insolvencies or contract disputes. However, management does not expect charges for other unrecoverable reinsurance to have a material effect on CIGNA’s consolidated results of operations, liquidity or financial condition.

Effects of reinsurance. In CIGNA’s consolidated income statements, premiums and fees were net of ceded premiums, and benefits, losses and settlement expenses were net of reinsurance recoveries, in the following amounts:


	Three Months Ended March 31,
(In millions)	2002	2001


Premiums and fees
Individual life
insurance and annuity
business sold	$85	$90
Other	69	63

Total	$154	$153

Reinsurance recoveries
Individual life
insurance and annuity
business sold	$18	$43
Other	152	63

Total	$170	$106

NOTE 9 – SEGMENT INFORMATION

Operating segments generally reflect groups of related products, but the International Life, Health and Employee Benefits segment is based on geography. CIGNA measures the financial results of its segments using operating income (net income excluding after-tax realized investment results).

Summarized segment financial information was as follows:


	Three Months Ended March 31,
(In millions)	2002		2001


Premiums and fees and other revenues
Employee Health Care,
Life and Disability
Benefits	$3,840		$3,595
Employee Retirement
Benefits and Investment
Services	86		91
International Life, Health
and Employee Benefits	198		216
Other Operations	117		140
Corporate	(16	)	(18	)

Total	$4,225		$4,024

Net income (loss)
Operating income (loss):
Employee Health Care,
Life and Disability Benefits	$216		$198
Employee Retirement
Benefits and Investment
Services	57		60
International Life, Health
and Employee Benefits	8		21
Other Operations	18		20
Corporate	(24	)	(19	)

Total operating income	275		280
Realized investment
losses, net of taxes	(57	)	(4	)

Net income	$218		$276

Net income adjusted to exclude
goodwill amortization in 2001
(Note 2)	$218		$288

As discussed in Note 2, CIGNA ceased goodwill amortization as of January 1, 2002 pursuant to SFAS No. 142. Goodwill amortization in the three months ended March 31, 2001, was $12 million after-tax and was attributable to the Employee Health Care, Life and Disability Benefits segment.

NOTE 10 – CONTINGENCIES AND OTHER MATTERS

Financial Guarantees

CIGNA, through its subsidiaries, is contingently liable for various financial guarantees provided in the ordinary course of business.

Separate account assets are contractholder funds maintained in accounts with specific investment objectives. CIGNA records separate account liabilities equal to separate account assets. In certain cases, CIGNA guarantees a minimum level of benefits for retirement and insurance contracts written in separate accounts. CIGNA establishes an additional liability if management believes that CIGNA will be required to make a payment under these guarantees, which include the following:

•

CIGNA guarantees that separate account assets will be sufficient to pay certain retiree or life benefits. The sponsoring employers are primarily responsible for ensuring that assets are sufficient to pay these benefits and are required to maintain assets that exceed 102% to 133% of benefit obligations. If employers do not maintain these levels of separate account assets, CIGNA has the right to redirect the management of the related assets to provide for benefit payments. Benefit obligations under these arrangements were $2.8 billion as of March 31, 2002, and $2.4 billion as of December 31, 2001. There were no additional liabilities required for these guarantees as of March 31, 2002, or December 31, 2001.

•

Under arrangements with certain retirement plan sponsors, CIGNA guarantees that plan participants will receive the value of their accounts if they withdraw their balances. These guarantees could require payment by CIGNA in the event that a significant number of plan participants withdraw their accounts when the market value of the related assets is less than the plan participant account values at the time of withdrawal. Participant account values under these arrangements were $2.2 billion as of March 31, 2002, and $1.8 billion as of December 31, 2001. There were no additional liabilities required for these guarantees as of March 31, 2002, or December 31, 2001.

•

CIGNA guarantees a minimum level of earnings (based on investment, mortality and retirement experience) for a group annuity contract. If the actual investment return is less than the minimum guaranteed level, CIGNA is required to fund the difference. The guaranteed benefit obligation was $324 million as of March 31, 2002, and $334 million as of December 31, 2001. CIGNA had additional liabilities of $14 million for this guarantee as of March 31, 2002, and December 31, 2001.

CIGNA does not expect that these guarantees will have a material adverse effect on CIGNA’s consolidated results of operations, liquidity or financial condition.

CIGNA guaranteed $42 million of industrial revenue bond issues as of March 31, 2002, and December 31, 2001, which will mature in 2007. If the issuers default, CIGNA will be required to make periodic payments based on the original terms of the bonds.

Regulatory and Industry Developments

CIGNA’s businesses are subject to a changing social, economic, legal, legislative and regulatory environment. Some current issues that may affect CIGNA’s businesses include:

•

initiatives to increase health care regulation;

•

efforts to expand tort liability of health plans;

•

class action lawsuits targeting health care companies, including CIGNA;

•

initiatives to restrict insurance pricing and the application of underwriting standards; and

•

efforts to revise federal tax laws.

Health care regulation. Federal and state legislatures, administrative agencies and courts continue efforts to increase regulation of the health care industry and change its operational practices. Regulatory and operational changes could have an adverse effect on CIGNA’s health care operations if they reduce marketplace competition and innovation or result in increased medical or administrative costs without improving the quality of care. Debate at the federal level over “managed care reform” and “patients’ bill of rights” legislation is expected to continue.

In 2001, the U.S. Senate and House of Representatives passed different versions of “patients’ bill of rights” legislation. Congress will attempt to reconcile the two bills in a conference committee. Although both bills provide for independent review of decisions regarding medical care, the bills differ on the circumstances under which lawsuits may be brought against managed care organizations and the scope of their liability.

Final privacy regulations under the Health Insurance Portability and Accountability Act of 1996 became effective April 2001. The regulations cover all aspects of the health care delivery system, and address the use and disclosure of individually identifiable health care information. Compliance with the privacy regulations is required by April 2003. CIGNA expects to undertake significant systems enhancements, training and administrative efforts to satisfy these requirements.

Other possible regulatory changes that could have an adverse effect on CIGNA’s health care operations include:

•

additional mandated benefits or services that increase costs without improving the quality of care;

•

narrowing of the Employee Retirement Income Security Act of 1974 (ERISA) preemption of state laws;

•

changes in ERISA regulations resulting in increased administrative burdens and costs;

•

additional restrictions on the use of prescription drug formularies;

•

additional privacy legislation and regulations that interfere with the proper use of medical information for research, coordination of medical care and disease management;

•

additional rules establishing the time periods for payment of health care provider claims that vary from state to state; and

•

legislation that would exempt independent physicians from antitrust laws.

The health care industry is under increasing scrutiny by various state and federal government agencies and may be subject to government efforts to bring criminal actions in circumstances that would previously have given rise only to civil or administrative proceedings.

Tax benefits for corporate life insurance. In 1996, Congress passed legislation implementing a three-year phase-out period for tax deductibility of policy loan interest for most leveraged corporate life insurance products. As a result, management expects revenues and operating income associated with these products to decline. For the first quarter of 2002, revenues of $71 million and operating income of $12 million were from products affected by this legislation.

Litigation and Other Legal Matters

CIGNA and several health care industry competitors are defendants in proposed federal and state class action lawsuits. The federal lawsuits allege violations under the Racketeer Influenced and Corrupt Organizations Act and ERISA. A class has been certified in an Illinois state court lawsuit against CIGNA in which health care providers allege breach of contract and seek increased reimbursements. In addition, CIGNA is routinely involved in numerous lawsuits arising, for the most part, in the ordinary course of the business of administering and insuring employee benefit programs.

The U.S. Attorney’s Office for the Eastern District of Pennsylvania is investigating compliance with federal health care laws in connection with pharmaceutical companies’ marketing practices and their impact on prices paid by the government to pharmaceutical companies for products under federal health programs. As part of this investigation, CIGNA is responding to subpoenas concerning contractual relationships between pharmaceutical companies and CIGNA’s health care operations.

The Department of Justice and Office of Inspector General are investigating a subsidiary of CIGNA regarding Medicare cost reporting practices for the years 1990 through 1999. Medicare cost reports form the basis for reimbursements to the CIGNA subsidiary by the Centers for Medicare and Medicaid Services for Medicare-covered services the subsidiary provides to eligible individuals.

The outcome of litigation and other legal matters is always uncertain. With the possible exception of certain reinsurance arbitration proceedings (discussed in Note 8), CIGNA does not believe that any legal proceedings currently threatened or pending will result in losses that would be material to CIGNA’s consolidated results of operations, liquidity or financial condition.

Item 2. Management’s Discussion and Analysis of Financial
Condition and Results of Operations

INDEX

Introduction	13

Consolidated Results of Operations	16

Employee Health Care, Life and Disability Benefits	17

Employee Retirement Benefits and Investment Services	19

International Life, Health and Employee Benefits	20

Other Operations	21

Corporate	22

Liquidity and Capital Resources	22

Investment Assets	24

Market Risk of Financial Instruments	25

Cautionary Statement	26

INTRODUCTION

In this filing and in other marketplace communications, CIGNA will make certain predictions relating to its operations. Generally, forward-looking statements can be identified through the use of predictive words (e.g., “Outlook for 2002”). Actual results may differ from CIGNA’s predictions. CIGNA’s discussion of risk factors that could cause results to differ is summarized in the Cautionary Statement at page 26.

The following discussion addresses the financial condition of CIGNA as of March 31, 2002, compared with December 31, 2001, and its results of operations for the three months ended March 31, 2002, compared with the same period last year. This discussion should be read in conjunction with Management’s Discussion and Analysis included in CIGNA’s 2001 Annual Report to Shareholders, to which the reader is directed for additional information.

Acquisitions and Dispositions

Sales of interests in Japanese life insurance operation. CIGNA sold a portion of its interest in its Japanese life insurance operation in January 2001 and sold its remaining interest in this operation in November 2001. See the International Life, Health and Employee Benefits section for further information.

Restructuring Program

CIGNA expects this restructuring program to be substantially completed during 2002. Cash outlays under this program are not expected to have a significant effect on CIGNA’s liquidity. The program is expected to result in net annual after-tax savings of $45-$55 million, reflecting the elimination of salary costs for terminated employees and lower facility costs, partially offset by salary costs for new employees in the regional service centers and higher expenses associated with technology improvement initiatives. CIGNA expects savings from the program to be fully realized beginning in 2003. As a result of additional technology enhancement expenses and other expenses associated with the restructuring program, CIGNA does not expect to achieve significant savings in 2002 from this restructuring program.

The table below indicates CIGNA’s restructuring activity (pre-tax) for this program:


	Severance
(Dollars in millions)	No. of Employees		Cost		Real Estate		Total

Balance as of
December 31, 2001	2,664		$43		$36		$79
First quarter 2002 reductions:
Employees	(203	)	(7	)			(7	)
Lease costs					(2	)	(2	)

Balance as of
March 31, 2002	2,461		$36		$34		$70

Significant Accounting Policies

The preparation of financial statements in conformity with generally accepted accounting principles (GAAP) requires management to make judgments, assumptions and estimates that affect amounts reported in the financial statements. The accounting policies considered most significant by management include CIGNA’s accounting policies pertaining to its investments, reinsurance recoverables, unpaid claims and claim expenses, and future policy benefits. These accounting policies inherently require estimation and actual results could differ from those estimates. Also, changes in CIGNA’s financial and operating environment could influence the accounting estimates that support CIGNA’s financial statements. For a description of CIGNA’s significant accounting policies, see Management’s Discussion and Analysis and Note 2 to the Financial Statements in CIGNA’s 2001 Annual Report to Shareholders. CIGNA does not expect that changes in the estimates determined under these policies would have a material effect on CIGNA’s consolidated financial condition or liquidity, although changes could have a material effect on its consolidated results of operations.

Regulatory and Industry Developments

CIGNA’s businesses are subject to a changing social, economic, legal, legislative and regulatory environment. Some current issues that may affect CIGNA’s businesses include:

•

initiatives to increase health care regulation;

•

efforts to expand tort liability of health plans;

•

class action lawsuits targeting health care companies, including CIGNA;

•

initiatives to restrict insurance pricing and the application of underwriting standards; and

•

efforts to revise federal tax laws.

Other possible regulatory changes that could have an adverse effect on CIGNA’s health care operations include:

•

additional mandated benefits or services that increase costs without improving the quality of care;

•

narrowing of the Employee Retirement Income Security Act of 1974 (ERISA) preemption of state laws;

•

changes in ERISA regulations resulting in increased administrative burdens and costs;

•

additional restrictions on the use of prescription drug formularies;

•

additional privacy legislation and regulations that interfere with the proper use of medical information for research, coordination of medical care and disease management;

•

additional rules establishing the time periods for payment of health care provider claims that vary from state to state; and

•

legislation that would exempt independent physicians from antitrust laws.

Litigation and other legal matters. CIGNA and several health care industry competitors are defendants in proposed federal and state class action lawsuits. The federal lawsuits allege violations under the Racketeer Influenced and Corrupt Organizations Act and ERISA. A class has been certified in an Illinois state court lawsuit against CIGNA in which health care providers allege breach of contract and seek increased reimbursements. In addition, CIGNA is routinely involved in numerous lawsuits arising, for the most part, in the ordinary course of the business of administering and insuring employee benefit programs.

The U. S. Attorney’s Office for the Eastern District of Pennsylvania is investigating compliance with federal health care laws in connection with pharmaceutical companies’ marketing practices and their impact on prices paid by the government to pharmaceutical companies for products under federal health programs. As part of this investigation, CIGNA is responding to subpoenas concerning contractual relationships between pharmaceutical companies and CIGNA’s health care operations.

The outcome of litigation and other legal matters is always uncertain. With the possible exception of

certain reinsurance arbitration proceedings (discussed in Note 8 to the Financial Statements), CIGNA does not believe that any legal proceedings currently threatened or pending will result in losses that would be material to CIGNA’s consolidated results of operations, liquidity or financial condition.

Summary. The eventual effect on CIGNA of the changing environment in which it operates remains uncertain. For additional information on contingencies that could affect CIGNA’s results, see Notes 8 and 10 to the Financial Statements.

Accounting Pronouncements

For information on recent accounting pronouncements, see Note 2 to the Financial Statements.

CONSOLIDATED RESULTS OF OPERATIONS


FINANCIAL SUMMARY	Three Months Ended March 31,
(In millions)	2002		2001


Premiums and fees	$4,000		$3,799
Net investment income	690		716
Other revenues	225		225
Realized investment losses	(88	)	(8	)

Total revenues	4,827		4,732
Benefits and expenses	4,496		4,312

Income before taxes	331		420
Income taxes	113		144

Net income	218		276
Less realized investment
losses, net of taxes	(57	)	(4	)

Operating income	$275		$280

Operating Income

CIGNA focuses on “operating income” to evaluate segment results. Operating income is defined as net income excluding after-tax realized investment results. Since operating income excludes the effects of realized gains and losses attributable to CIGNA’s investment portfolio, management believes it presents the underlying results of operations of CIGNA’s businesses. Operating income is not determined in accordance with GAAP and should not be viewed as a substitute for net income determined in accordance with GAAP. Other companies may define operating income differently than does CIGNA.

The following table presents operating income, as defined above, adjusted for a nonrecurring item. This nonrecurring item is not associated with normal operations and is identified in the table below. Management believes that results excluding this item, defined as adjusted operating income, represent an appropriate basis to assess the results of operations of CIGNA’s businesses.


	Three Months Ended March 31,
(In millions)	2002	2001


Operating income	$275	$280
Gain on sale of partial
interest in Japanese life
insurance operation (page 20)	--	(8	)

Adjusted operating income	275	272
Adjustment to exclude
goodwill amortization in 2001	--	12

Adjusted operating income
excluding goodwill amortization	$275	$284

As discussed in Note 2 to the Financial Statements, CIGNA adopted Statement of Financial Accounting Standards (SFAS) No. 142, “Goodwill and Other Intangible Assets” and ceased goodwill amortization as of January 1, 2002. For comparative purposes, throughout this discussion CIGNA presents “operating income excluding goodwill amortization,” which adjusts operating income to exclude goodwill amortization in 2001.

Adjusted operating income excluding goodwill amortization decreased 3% for the three months of 2002 primarily due to lower results in the International Life, Health and Employee Benefits segment (resulting from the sale of CIGNA’s interest in the Japanese life insurance operation in 2001), Corporate and the Employee Retirement Benefits and Investment Services segment. These declines were partially offset by increased earnings in the Employee Health Care, Life and Disability Benefits segment.

Realized Investment Losses

The increase in realized investment losses for the three months of 2002 compared to the same period last year reflects lower gains on sales of equity securities, higher losses on sales of fixed maturities and impairments on equity securities, partially offset by lower impairments on investments in collateralized debt obligations. Further information regarding collateralized debt obligations is presented on page 24.

Outlook for 2002

Subject to the factors noted in the Cautionary Statement on page 26, management expects full year adjusted operating income to improve slightly in 2002 compared to 2001 adjusted operating income of $1.1 billion, which excludes the nonrecurring items presented on page 17 of CIGNA’s 2001 Annual Report to Shareholders and goodwill amortization (described in Note 2 to the accompanying Financial Statements).

EMPLOYEE HEALTH CARE, LIFE AND
DISABILITY BENEFITS


FINANCIAL SUMMARY	Three Months Ended March 31,
(In millions)	2002		2001


Premiums and fees	$3,642		$3,434
Net investment income	142		157
Other revenues	198		161

Segment revenues	3,982		3,752
Benefits and expenses	3,651		3,447

Income before taxes	331		305
Income taxes	115		107

Operating income	216		198
Adjustment to exclude
goodwill amortization in 2001	--		12

Operating income excluding
goodwill amortization	$216		$210

Realized investment
gains (losses), net of taxes	$(32	)	$10

Operating Income

Operating income excluding goodwill amortization in 2001 increased 3% for the three months of 2002 compared with the same period last year.

CIGNA further separates this segment into Health Maintenance Organization (HMO) and Indemnity operations. HMO includes medical managed care and specialty health care operations such as managed behavioral health, medical cost and utilization management, managed dental, managed pharmacy programs, pharmaceutical fulfillment services and vision services. Indemnity includes medical and dental indemnity, disability and group life insurance operations.

Operating income excluding goodwill amortization in 2001 for the HMO and Indemnity operations was as follows:


	Three Months Ended March 31,
(In millions)	2002	2001


HMO operations	$121	$125
Indemnity operations	95	85

Total	$216	$210

HMO results excluding goodwill amortization in 2001 declined for the first quarter of 2002 due to:

•

lower earnings in HMO alternative funding programs reflecting higher operating expenses for technology and customer service initiatives;

•

lower Medicare earnings; and

•

lower net investment income.

These declines were partially offset by improved results in the specialty health care operations primarily due to business growth, as well as increased earnings in the guaranteed cost HMO business reflecting rate increases.

Indemnity results excluding goodwill amortization in 2001 increased for the first quarter of 2002 due to:

•

improved results in the long-term disability business, primarily due to higher rates and improved claim execution; and

•

higher earnings for the experience-rated health care business, reflecting rate increases.

These improvements were partially offset by lower earnings in the group life insurance business in the first quarter of 2002 due to unfavorable mortality experience.

Premiums and Fees

Premiums and fees increased 6% for the first quarter of 2002, primarily due to rate increases.

Alternative Funding Programs and Premium Equivalents

Under alternative funding programs, the customer or plan sponsor, rather than CIGNA, assumes all or a portion of the responsibility for funding claims, and CIGNA provides claims processing and other services. In contrast to most other major companies in the health care industry, a significant portion of CIGNA’s health care business consists of alternative funding programs. CIGNA generally earns a lower margin on alternative funding programs than under guaranteed cost or retrospectively experience-rated programs.

Premiums and fees associated with alternative funding programs for the first quarter of 2002 were $780 million compared to $691 million for the first quarter of 2001. These amounts are included in the table below.

“Adjusted premiums and fees,” which consist of premiums and fees plus “premium equivalents,” is a useful measure of volume in CIGNA’s health care operations. Premium equivalents generally equal paid claims under alternative funding programs. CIGNA would have recorded the amount of these paid claims as additional premiums if these programs had been written as guaranteed cost or retrospectively experience-rated programs. Thus, premium equivalents are an indicator of business volume associated with alternative funding programs. However, premium equivalents do not represent premium and fee revenue recognized under GAAP and may not be comparable to similarly titled measures presented by other companies.

Adjusted premiums and fees for the Employee Health Care, Life and Disability Benefits segment were as follows:


	Three Months Ended March 31,
(In millions)	2002	2001


Premiums and fees	$3,642	$3,434
Premium equivalents	5,480	4,932

Adjusted premiums and fees	$9,122	$8,366

The increase in premium equivalents is primarily due to higher medical costs in HMO and indemnity alternative funding programs that, in turn, increase the amount of paid claims.

Net Investment Income

Net investment income decreased 10% for the first quarter of 2002, primarily resulting from lower yields.

Other Revenues

Other revenues increased 23% for the first quarter of 2002 primarily due to business growth in the specialty health care operations (predominantly pharmaceutical fulfillment services).

Medical Membership

As of March 31, medical membership was as follows for the HMO and Indemnity operations:


(In millions)	2002	2001


HMO	7.0	6.9
Indemnity (estimated)	7.3	7.4

The growth in HMO medical membership is primarily due to HMO alternative funding programs, partially offset by slight declines in guaranteed cost HMO program membership.

The decline in Indemnity medical membership is primarily due to cancellations in traditional indemnity programs, partially offset by growth in Preferred Provider Organization membership.

EMPLOYEE RETIREMENT BENEFITS AND
INVESTMENT SERVICES


FINANCIAL SUMMARY	Three Months Ended March 31,
(In millions)	2002		2001


Premiums and fees	$86		$91
Net investment income	414		408

Segment revenues	500		499
Benefits and expenses	419		413

Income before taxes	81		86
Income taxes	24		26

Operating income	$57		$60

Realized investment
losses, net of taxes	$(22	)	$(9	)

Operating Income

Operating income for the three months of 2002 compared with the same period last year primarily reflects higher expenses and level asset-based fees. The effect of stock market declines on asset-based fees was offset by fee growth resulting from increased assets generated by favorable cash flow and, to a lesser extent, a shift to higher margin products.

Revenues

Premiums and fees are principally asset management and administrative charges on general and separate account assets and amounts earned from non-leveraged corporate life insurance. Net investment income primarily represents earnings from general account assets. Most of this net investment income is credited to customers and included in benefits and expenses.

The 5% decline in premiums and fees for the three months of 2002 compared with the same period last year primarily reflects lower revenues from corporate life insurance.

Assets Under Management

Assets under management are a determinant of earnings for this segment because a significant portion of this segment’s revenues are based on asset values. The following table shows assets under management and related activity, including amounts attributable to separate accounts for the three months ended March 31. Assets under management fluctuate because of changes in the market value of fixed maturities and equity securities.


(In millions)	2002		2001


Balance - January 1	$55,306		$55,154
Premiums and deposits	1,997		2,287
Investment income	620		636
Decrease in fair value of assets	(402	)	(2,832	)
Customer withdrawals	(1,048	)	(1,137	)
Other, including participant
withdrawals and benefit payments	(1,064	)	(1,897	)

Balance - March 31	$55,409		$52,211

Changes in assets under management are discussed below.

Premiums and deposits. For the three months of 2002, approximately 69% of premiums and deposits were from existing customers, and 31% were from sales to new customers and new plan sales to existing customers. For the three months of 2001, approximately 63% of premiums and deposits were from existing customers, and 37% were from sales to new customers and new plan sales to existing customers.

Fair value of assets. The decline in fair value of assets for the three months of 2002 was significantly lower than the same period last year. The 2002 decline is primarily attributable to fixed maturities due to higher long-term interest rates. The fair value of assets decreased for the three months of 2001 primarily due to market value depreciation of equity securities in separate accounts.

INTERNATIONAL LIFE, HEALTH AND EMPLOYEE BENEFITS


FINANCIAL SUMMARY	Three Months Ended March 31,
(In millions)	2002	2001


Premiums and fees	$198	$186
Net investment income	11	12
Other revenues	--	30

Segment revenues	209	228
Benefits and expenses	197	195

Income before taxes	12	33
Income taxes	4	12

Operating income	8	21
Gain on sale of partial
interest in Japanese life
insurance operation	--	8

Adjusted operating income	$8	$13

Adjusted Operating Income

Adjusted operating income declined for the three months of 2002 because the same period of last year includes CIGNA’s share in the earnings of the Japanese life insurance operation ($11 million after-tax) which was fully divested in the fourth quarter of 2001.

Excluding the gain on sale of the partial interest in the Japanese life insurance operation and excluding its operating results, adjusted operating income for the three months of 2001 was $2 million. On this basis, the increase in the first quarter of 2002 compared with the same period of last year reflects:

•

lower health care losses;

•

improved results for employee benefit products provided to expatriate employees at multinational companies; and

•

improved results in the life, accident and health operations primarily in Asia.

Premiums and Fees

Premiums and fees increased 6% for the three months of 2002 compared to the same period last year reflecting:

•

growth in the life, accident and health operations in Asia; and

•

higher premiums and fees for health care and other employee benefit products for expatriate employees of multinational companies.

Other Revenues

Other revenues for the three months of 2001 reflect CIGNA’s share in the earnings of the Japanese life insurance operation ($17 million pre-tax) and the gain ($12 million pre-tax) associated with the sale of a portion of CIGNA’s interest in this operation.

Japanese Life Insurance Operation

In 2001, CIGNA sold portions of its interest in its Japanese life insurance operation to Yasuda Fire & Marine Insurance Company Ltd. as follows:


Date of Sale	Portion of CIGNA Equity Ownership Interest Sold	Equity Ownership Interest Retained by CIGNA	Proceeds from Sale (in millions)	Gain on Sale, after-tax (in millions)

Jan. 2001	21%	40%	$83	$8
Nov. 2001	40%	--	$267	$27

International Expansion

CIGNA expects to pursue international growth through acquisitions, joint ventures and other investments. Such projects inevitably involve start-up costs that could result in initial losses for those operations.

OTHER OPERATIONS


FINANCIAL SUMMARY	Three Months Ended March 31,
(In millions)	2002		2001


Premiums and fees	$74		$88
Net investment income	122		128
Other revenues	43		52

Segment revenues	239		268
Benefits and expenses	209		239

Income before taxes	30		29
Income taxes	12		9

Operating income	$18		$20

Realized investment losses,
net of taxes	$(3	)	$(5	)

Other Operations consist of:

•

the deferred gains recognized from both the 1998 sale of the individual life insurance and annuity business and the 2000 sale of certain reinsurance operations;

•

corporate life insurance on which policy loans are outstanding (leveraged corporate life insurance);

•

run-off reinsurance business;

•

settlement annuity business; and

•

certain investment management services initiatives.

Operating Income

The decline in operating income for the three months of 2002 compared with the same period last year is primarily due to lower earnings from the run-off reinsurance business.

Premiums and Fees

Premiums and fees decreased 16% for the three months of 2002 compared with the same period last year primarily due to lower premiums from leveraged corporate life insurance and the run-off reinsurance business.

Other Matters

CORPORATE


FINANCIAL SUMMARY	Three Months Ended March 31,
(In millions)	2002		2001


Operating loss	$(24	)	$(19	)

Corporate reflects amounts not allocated to segments, such as interest expense on corporate debt, net investment income on unallocated investments, intersegment eliminations and certain corporate overhead expenses.

The increased operating loss for the three months of 2002 is primarily due to lower net investment income on unallocated corporate investments, principally due to declining interest rates and lower invested assets resulting from share repurchase activity.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity

CIGNA normally meets its operating requirements by:

•

maintaining appropriate levels of liquidity in its investment portfolio;

•

using cash flows from operating activities; and

•

matching investment maturities to the estimated duration of the related insurance and contractholder liabilities.

Operating cash flows consist of operating income adjusted to reflect the timing of cash receipts and disbursements for premiums and fees, investment income, and benefits, losses and expenses.

Cash flows for the three months ended March 31 were as follows:


(In millions)	2002		2001


Operating activities	$348		$158
Investing activities	$(127	)	$(251	)
Financing activities	$(530	)	$(60	)

Cash and cash equivalents decreased $308 million in 2002 and $154 million in 2001. Amounts shown for cash flows from investing and financing activities are discussed below:

2002:

•

Cash used in investing activities primarily consisted of net investment purchases of $52 million and acquisitions of property and equipment totaling $71 million.

•

Cash used in financing activities consisted primarily of net withdrawals from contractholder deposit funds of $359 million and payments of dividends on and repurchases of common stock of $180 million.

2001:

•

Cash used in investing activities consisted of a decline in cash of $327 million resulting from the deconsolidation of the Japanese life insurance operation (as discussed in the International Life, Health and Employee Benefits section) and net investment purchases, partially offset by $83 million in proceeds from the sale of CIGNA's interest in the Japanese life insurance operation.

•

Cash used in financing activities consisted of payments of dividends on and repurchase of CIGNA's common stock ($418 million), partially offset by net issuance of debt ($231 million) as well as net deposits and interest credited to contractholder deposit funds ($108 million).

Capital Resources

CIGNA’s capital resources (primarily retained earnings and the proceeds from the issuance of long-term debt and equity securities) provide protection for policyholders, furnish the financial strength to support the business of underwriting insurance risks and facilitate continued business growth. CIGNA’s priorities for use of capital are internal growth, acquisitions and share repurchase.

Senior management and the Board of Directors, guided by regulatory requirements, determine the amount of capital resources that CIGNA maintains. Management allocates resources to new long-term business commitments when returns, considering the risks, look promising and when the resources available to support existing business are adequate.

CIGNA’s financial strength provides the capacity and flexibility to raise funds in the capital markets. CIGNA issued the following debt securities in 2001:

•

$250 million of 7% notes due in 2011, issued in January; and

•

$250 million of 6.375% notes due in 2011, issued in October.

CIGNA has $500 million remaining under an effective shelf registration statement filed with the Securities and Exchange Commission, which may be issued as debt securities, equity securities or both. Management and the Board of Directors will consider market conditions and internal capital requirements when deciding whether CIGNA should issue new securities.

In March 2002, CIGNA entered into a syndicated bank letter of credit agreement of $650 million in support of an internal reinsurance arrangement associated with obligations of a subsidiary.

As of March 31, 2002, and December 31, 2001, CIGNA had available $255 million in committed lines of credit. These lines are provided by U.S. banks and have terms ranging from one to three years.

CIGNA’s long-term debt outstanding as of March 31, 2002, was $1.5 billion compared to $1.6 billion as of December 31, 2001. CIGNA’s short-term debt was $151 million as of March 31, 2002, an increase of $101 million from December 31, 2001.

•

CIGNA does not expect that these guarantees will have a material adverse effect on CIGNA’s consolidated results of operations, liquidity or financial condition.

Stock repurchase activity for the three months ended March 31 was as follows:


(In millions, except per share amounts)	2002	2001


Shares repurchased	1.4	3.5
Cost of shares repurchased	$131	$381
Average price per share	$95.05	$109.91

From April 1, 2002 through May 1, 2002, CIGNA repurchased an additional 325,100 shares for $34 million. The total remaining share repurchase authorization as of May 1, 2002, was $250 million.

INVESTMENT ASSETS

Information regarding investment assets held by CIGNA is presented below. CIGNA’s investment assets do not include separate account assets. Additional information regarding CIGNA’s investment assets and related accounting policies is included in Notes 2, 6, 7 and 8 to the Financial Statements in CIGNA’s 2001 Annual Report to Shareholders and Form 10-K.


(In millions)	March 31, 2002	December 31, 2001


Fixed maturities	$23,503	$23,401
Equity securities	367	404
Mortgage loans	9,682	9,920
Policy loans	2,661	2,774
Real estate	407	432
Other long-term investments	1,170	1,193
Short-term investments	66	137

Total investment assets	$37,856	$38,261

A significant portion of CIGNA’s investment assets is attributable to experience-rated policyholder contracts. The following table shows the percentage of certain categories of investment assets that are held under policyholder contracts:


	March 31, 2002	December 31, 2001


Fixed maturities	45%	45%
Mortgage loans	55%	56%
Real estate	55%	55%
Other long-term investments	52%	53%

Fixed Maturities and Mortgage Loans

Investments in fixed maturities (bonds) include publicly traded and privately placed debt securities, mortgage and other asset-backed securities and redeemable preferred stocks. CIGNA’s mortgage loans are diversified by property type, location and borrower to reduce exposure to potential losses.

CIGNA’s investment in collateralized debt obligations, which are secured by pools of corporate debt obligations, as of March 31, 2002, was $306 million compared to $321 million as of December 31, 2001, excluding policyholder share. During the first quarter of 2002, CIGNA recorded pre-tax losses of $15 million ($10 million after-tax) as a result of an increased level of defaults in the

underlying pools of corporate debt obligations, reflecting economic conditions.

Problem and Potential Problem Investments

“Problem” bonds and mortgage loans are delinquent or have been restructured as to terms (interest rate or maturity date). “Potential problem” bonds and mortgage loans are fully current, but management believes they have certain characteristics that increase the likelihood that they will become “problems.” CIGNA also considers mortgage loans to be potential problems if the borrower has requested restructuring, or principal or interest payments are past due by more than 30 but fewer than 60 days.

CIGNA recognizes interest income on “problem” bonds and mortgage loans only when payment is actually received because of the risk profile of the underlying investment.

The following table shows problem and potential problem bonds and mortgage loans as well as foreclosed real estate, net of valuation reserves and write-downs, and includes amounts attributable to policyholder contracts:


(In millions)	March 31, 2002	December 31, 2001


Problem bonds	$284	$224
Potential problem bonds	$114	$137
Problem mortgage loans	$104	$111
Potential problem mortgage loans	$118	$78
Foreclosed real estate held and used	$107	$110
Foreclosed real estate held for sale	$107	$123

Summary

The effect of investment asset write-downs and changes in valuation reserves on CIGNA’s net income and amounts attributable to policyholder contracts was as follows:


	Three Months Ended March 31,
(In millions)	2002	2001


CIGNA	$47	$34
Policyholder contracts	$40	$16

CIGNA’s portion of these losses is a component of realized investment losses, which are discussed on page 17.

Non-accruals (“problem” investments) resulted in lower net income of $4 million after-tax in the three months ended March 31, 2002 and $2 million after-tax in the three months ended March 31, 2001, compared to amounts that would have been recorded if interest on non-accrual investments had been recognized in accordance with the original terms of these investments.

The weakened economy is likely to cause additional investment losses. These losses could materially affect future results of operations, although CIGNA does not currently expect them to have a material effect on CIGNA’s liquidity or financial condition, or to result in a significant decline in the aggregate carrying value of its assets.

MARKET RISK OF FINANCIAL INSTRUMENTS

CIGNA's assets and liabilities include financial instruments subject to the risk of potential losses from adverse changes in market rates and prices. The primary market risk exposures are interest-rate risk, foreign currency exchange rate risk, and equity price risk. There have been no material changes in market risk exposures since December 31, 2001.

CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

CIGNA and its representatives may from time to time make written and oral forward-looking statements, including statements contained in press releases, in CIGNA’s filings with the Securities and Exchange Commission, in its reports to shareholders and in meetings with analysts and investors. These statements may contain information about financial prospects, economic conditions, trends and known uncertainties. CIGNA cautions that actual results could differ materially from those that management expects, depending on the outcome of certain factors. Some factors that could cause actual results to differ materially from the forward-looking statements include:

increases in medical costs that are higher than anticipated in establishing premium rates in CIGNA's health care operations, including increased use and costs of medical services;

increased medical, administrative, technology or other costs resulting from legislative, regulatory and litigation challenges to, and new regulatory requirements imposed on, CIGNA's health care business (see Health care regulation on page 15 for more information);

heightened competition, particularly price competition, which could reduce product margins and constrain growth in CIGNA's businesses;

significant reductions in customer retention;

significant changes in interest rates;

significant and sustained stock market declines which could, among other things, trigger payments contingent on certain variable annuity account values;

significant deterioration in economic conditions, which could have an adverse effect on CIGNA's operations and investments; and

changes in federal income tax laws.

This list of important factors is not intended to be exhaustive. There may be other risk factors that would preclude CIGNA from realizing the predictions made in the forward-looking statements. While CIGNA may periodically update this discussion of risk factors, CIGNA does not undertake to update any forward-looking statement that may be made by or on behalf of CIGNA prior to its next required filing with the Securities and Exchange Commission.

Part II. OTHER INFORMATION

Item 1.

Legal Proceedings.

CIGNA described ACE Limited v. CIGNA Corporation and CIGNA Holdings, Inc. in its Form 10-K for the fiscal year ended December 31, 2001. Binding arbitration on a portion of the case is scheduled to begin in May 2002. The trial date for the remainder of the case is in June 2003.

Item 6.

Exhibits and Reports on Form 8-K.

(a)

See Exhibit Index.

(b)

During the quarterly period ended March 31, 2002, and between such date and the filing of this Form 10-Q, CIGNA filed the following reports on Form 8-K:

•

dated May 2, 2002, Item 5 - containing a news release regarding its first quarter 2002 results.

•

dated March 11, 2002, Item 9 - containing a Regulation FD disclosure.

•

dated March 4, 2002, Item 9 - containing a Regulation FD disclosure.

•

dated February 8, 2002, Item 5 - containing a news release regarding its fourth quarter and full year 2001 results.

•

dated January 9, 2002, Item 5 - containing a news release regarding the realignment of service operations and a fourth quarter 2001 restructuring charge.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed by the undersigned duly authorized officer, on its behalf and in the capacity indicated.

CIGNA CORPORATION

By:

/s/ James A. Sears

James A. Sears

Vice President and

Chief Accounting Officer

Date: May 2, 2002

Exhibit Index

Number	Description	Method of Filing

10	CIGNA Executive Incentive Plan (as Amended and Restated January 1, 2002)	Filed herewith

12	Computation of Ratio of Earnings to Fixed Charges	Filed herewith

EX-10 3 cigmar02ex10.htm EXHIBIT 10

EXHIBIT 10

CIGNA EXECUTIVE INCENTIVE PLAN
(Amended and Restated as of January 1, 2002)

ARTICLE 1
Statement of Purpose

The CIGNA Executive Incentive Plan is intended to provide annual incentive bonuses to executive officers of the Company if annual performance goals are achieved. The Plan is also intended to qualify as a performance based compensation plan under Section 162(m) of the Internal Revenue Code.

ARTICLE 2
Definitions

The terms used in this Plan include the feminine as well as the masculine gender and the plural as well as the singular, as the context in which they are used requires. The following terms, unless the context requires otherwise, are defined as follows:

2.1

“Award” means the incentive compensation determined by the Committee under Section 4.4 of the Plan.

2.2

“Board” means the CIGNA board of directors.

2.3

“CIGNA” means CIGNA Corporation, a Delaware corporation, or any successor.

2.4

“CIGNA LTIP” means the CIGNA Long-Term Incentive Plan, or any successor plan under which grants of Common Stock or Restricted Stock are authorized.

2.5

“Code” means the Internal Revenue Code of 1986, as amended.

2.6

“Committee” means the People Resources Committee of the Board or any successor committee with responsibility for compensation, or any subcommittee, as long as the number of Committee members and their qualifications shall at all times be sufficient to meet the requirements for “outside directors” under Section 162(m), as in effect from time to time.

2.7

“Common Stock” means CIGNA common stock other than Restricted Stock.

2.8

“Company” means CIGNA and/or its Subsidiaries.

2.9

“Deferred Compensation Plan” means the CIGNA Deferred Compensation Plan, a similar or successor plan, or other arrangement for the deferral of compensation specified by the Committee.

2.10

“Disability” means permanent and total disability as defined in Code Section 22(e)(3).

2.11

“Employer” means the Company that employs a Participant during a Performance Period.

2.12

“Executive Officer” means any Company employee who is an “executive officer” as defined in Rule 3b-7 promulgated under the Exchange Act.

2.13

“Exchange Act” means the Securities Exchange Act of 1934.

2.14

“Participant” means an employee described in Article 3 of the Plan.

2.15

“Performance Period” means the period for which an Award may be made. Unless otherwise specified by the Committee, the Performance Period shall be a calendar year.

2.16

“Plan” means the CIGNA Executive Incentive Plan, as it may be amended from time to time. This Plan is deemed to be a Qualifying Incentive Plan under Section 9.1 of the CIGNA LTIP.

2.17

“Restricted Stock” means CIGNA common stock that is subject to restrictions on sale, transfer, or other alienation for a period specified by the Committee.

2.18

“Retirement” means a Termination of Employment, after appropriate notice to the Company, (a) on or after age 65 with eligibility for immediate annuity benefits under a qualified pension or retirement plan of the Company, or (b) upon such terms and conditions approved by the Committee, or officers of the Company designated by the Board or the Committee.

2.19

“SEC” means the Securities and Exchange Commission.

2.20

“Section 162(m)” means Code Section 162(m) and regulations promulgated thereunder by the Secretary of the Treasury.

2.21

“Subsidiary” means any corporation of which more than 50% of the total combined voting power of all classes of stock entitled to vote, or other equity interest, is directly or indirectly owned by CIGNA; or a partnership, joint venture or other unincorporated entity of which more than a 50% interest in the capital, equity or profits is directly or indirectly owned by CIGNA; provided that such corporation, partnership, joint venture or other unincorporated entity is included in the Company’s consolidated financial statements under generally accepted accounting principles.

2.22

“Termination of Employment” means (a) the termination of the Participant’s active employment relationship with the Company, unless otherwise expressly provided by the Committee, or (b) the occurrence of a transaction by which the Participant’s employing Company ceases to be a Subsidiary.

ARTICLE 3
Participation

Any Executive Officer designated by the Committee shall be a Participant in the Plan and shall continue to be a Participant until any Award he may receive has been paid or forfeited under the terms of the Plan.

ARTICLE 4
Incentive Awards

4.1 Objective Performance Goals. The Committee shall establish written, objective performance goals for a Performance Period not later than 90 days after the beginning of the Performance Period (but not after more than 25% of the Performance Period has elapsed), or by some other date required or permitted under Section 162(m). The objective performance goals shall be stated as specific amounts of, or specific changes in, one or more of the financial measures described in Section 4.2 of the Plan. The objective performance goals need not be the same for different Performance Periods and for any Performance Period may be stated: (a) as goals for CIGNA, for one or more of its subsidiaries, divisions, business units, lines of business, or for any combination of the foregoing; (b) on an absolute basis or relative to the performance of other companies or of a specified index or indices, or be based on any combination of the foregoing; and (c) separately for one or more of the Participants, collectively for the entire group of Participants, or in any combination of the two.

4.2 Financial Measures. The Committee shall use any one or more of the following financial measures to establish objective performance goals under Section 4.1 of the Plan: revenues, earnings, earnings per share, shareholders’ equity, return on equity, assets, return on assets, capital, return on capital, book value, economic value added, operating margins, cash flow, shareholder return, expenses, expense ratios, or market share. The Committee may specify any reasonable definition of the financial measures it uses. Such definitions may provide for reasonable adjustments and may include or exclude items, including but not limited to: realized investment gains and losses; extraordinary, unusual or non-recurring items; effects of accounting changes, currency fluctuations, acquisitions, divestitures, reserve strengthening, or financing activities; expenses for restructuring or productivity initiatives; and other non-operating items.

4.3 Performance Evaluation. Within a reasonable time after the close of a Performance Period, the Committee shall determine whether the objective performance goals established for that Performance Period have been met. If the objective performance goals and any other

material terms established by the Committee have been met, the Committee shall so certify in writing.

4.4 Award. If the Committee has made the written certification under Section 4.3 for a Performance Period, each Participant to whom the certification applies shall be eligible for an Award for that Performance Period. The Award for each such Participant shall consist of (a) cash in the amount of $3 million and (b) in lieu of additional cash, 75,000 shares of Common Stock and/or Restricted Stock to be paid under Article 9 of the CIGNA LTIP. For any Performance Period, however, the Committee shall have the sole and absolute discretion to reduce the amount of, or eliminate entirely, the Award to one or more of the Participants. Payment of all or part of an Award in Common Stock or Restricted Stock shall be made under and subject to the terms and conditions of the CIGNA LTIP and the applicable grant. In the event of a stock dividend, stock split, or other subdivision or combination of the Common Stock, the number of shares of Common Stock and/or Restricted Stock that a Participant may receive as an Award under the Plan will be adjusted accordingly. If the outstanding shares of Common Stock and/or Restricted Stock are changed or converted into, exchanged or exchangeable for, a different number or kind of shares or other securities of CIGNA or of another corporation, by reason of a reorganization, merger, consolidation, reclassification or combination, the Committee shall make an appropriate adjustment in the number and/or kind of shares that may be awarded under this Plan.

4.5

Payment of the Award.

(a)

When the Committee makes its determination under Section 4.4, it shall also determine in its sole discretion whether a payment of an Award in the form of cash or Common Stock shall be made immediately or deferred until a later date or the occurrence of a particular event. An Award in the form of Restricted Stock shall be deemed granted by the Committee on the date of the Award.

(b)

If the Committee determines that payment of an Award is to be made immediately, then as soon as practicable after the Committee’s determination under Section 4.4, but subject to Section 4.6(a), the Employer shall pay the cash Award to the Participant and/or CIGNA Corporation shall issue and deposit the Common Stock and/or Restricted Stock into the stock account maintained for the Participant under the CIGNA LTIP.

(c)

If the Committee defers payment of a cash Award, then, on the date or after the event specified by the Committee, the Employer shall make the cash Payment, together with any interest or hypothetical investment return as may be specified by the Committee in its deferral determination. If the Committee defers payment of a Common Stock Award, the deferral shall be treated as a deferral of Common Stock under the terms of the Deferred Compensation Plan.

(d)

The Participant may voluntarily defer receipt of an Award in the form of cash or Common Stock under the terms of the Deferred Compensation Plan. Any interest rate or

hypothetical investment return credited on a voluntarily deferred Award shall be one that will produce a rate of return not considered to be an impermissible increase in compensation under Section 162(m).

(e)

Deferred Awards will not be funded but will be a general obligation of the Employer and will be payable out of that Employer’s general assets.

(f)

The Employer shall have the right to deduct from any cash Award any applicable Federal, state and local income and employment taxes and any other amounts that the Company is required to deduct. Deductions from an Award in the form of Common Stock and/or Restricted Stock shall be governed by Section 15.6 of the CIGNA LTIP and the terms of the Award.

4.6

Eligibility for Payments.

(a)

Except as otherwise provided in this Section 4.6:

(1)

A Participant shall be eligible to receive an Award for a Performance Period only if the Participant is employed by the Company continuously from the beginning of the Performance Period to the date of the Committee’s determination under Section 4.4; and

(2)

A Participant shall be eligible to receive payment of an Award deferred by the Committee only if the Participant is also employed by the Company continuously from the date of the Committee’s determination under Section 4.4 to the date or event specified by the Committee.

(b)

Under paragraph 4.6(a), a leave of absence that lasts less than three months and that is approved in accordance with applicable Company policies is not a break in continuous employment. In the case of a leave of absence of three months or longer, (1) the Committee shall determine whether the leave of absence constitutes a break in continuous employment and (2) if a Participant is on a leave of absence on the date that an Award or payment of the Award is to be made, the Committee may require that the Participant return to active employment with the Company at the end of the leave of absence as a condition of receiving the Award or payment. Any determination as to a Participant’s eligibility for an Award or payment under this Section 4.6(b) may be deferred for a reasonable period after such return.

(c)

If a Participant’s Termination of Employment occurs after the end of a Performance Period but before the Committee makes an Award, and the Termination of Employment is on account of Retirement, death or Disability, the Committee shall determine whether to make an Award to or on behalf of the Participant.

(d)

If a Participant’s Termination of Employment occurs after the Committee makes a deferred Award under paragraph 4.5(a) but before the Award payment is made:

(1)

The Award payment shall be made as if the Participant had remained continuously employed until the date of payment if the Termination of Employment is on account of Disability;

(2)

The Award payment shall be made as soon as practicable (and the payee shall be determined under the provisions of the Deferred Compensation Plan applicable to distributions upon the death of a participant), if the Termination of Employment is on account of death; and

(3)

The Committee shall determine whether an Award payment shall be made to the Participant or forfeited if the Termination of Employment is on account of Retirement.

(e)

Notwithstanding any other provision of the Plan, if a Participant’s Termination of Employment occurs after he receives an Award in the form of Restricted Stock, the terms of the stock grant and the CIGNA LTIP shall be applicable.

ARTICLE 5
Administration

5.1 General Administration. The Plan is to be administered by the Committee, subject to such requirements for review and approval by the Board as the Board may establish. Subject to the terms and conditions of the Plan, the Committee is authorized and empowered in its sole discretion to select Participants and to make Awards in such amounts and upon such terms and conditions as it shall determine.

5.2 Administrative Rules. The Committee shall have full power and authority to adopt, amend and rescind administrative guidelines, rules and regulations pertaining to this Plan and to interpret the Plan and rule on any questions respecting any of its provisions, terms and conditions.

5.3 Committee Members Not Eligible. No member of the Committee shall be eligible to participate in this Plan.

5.4 Decisions Binding. All decisions of the Committee concerning this Plan shall be binding on CIGNA and its Subsidiaries and their respective boards of directors, and on all Participants and other persons claiming rights under the Plan.

5.5 Section 162(m); Shareholder Approval. Awards under this Plan are intended to satisfy the applicable requirements for the performance-based compensation exception under Section 162(m). It is intended that the Plan be administered, interpreted and construed so that Award

payments remain tax deductible to the Company. Any Awards under this Plan shall be contingent upon shareholder approval of the Plan in accordance with Section 162(m) and applicable Treasury regulations. Unless and until such shareholder approval is obtained, no Award shall be made under this Plan.

ARTICLE 6
Amendments; Termination

The Plan may be amended or terminated by the Board or Committee. All amendments to this Plan, including an amendment to terminate the Plan, shall be in writing. An amendment shall not be effective without the prior approval of the shareholders of CIGNA Corporation if such approval is necessary to continue to qualify Awards as performance based compensation under Section 162(m), or otherwise under Internal Revenue Service or SEC regulations, the rules of the New York Stock Exchange or any other applicable law or regulations. Unless otherwise expressly provided by the Board or Committee, no amendment to this Plan shall apply to Awards made before the effective date of the amendment. A Participant’s rights with respect to any Awards made to him may not be abridged by any amendment, modification or termination of the Plan without his individual consent.

ARTICLE 7
Other Provisions

7.1 Duration of the Plan. The Plan shall remain in effect until all Awards made under this Plan have been paid or forfeited under the terms of this Plan, and all Performance Periods related to Awards made under the Plan have expired.

7.2 Awards Not Assignable. No Award, or any right thereto, shall be assignable or transferable by a Participant except by will or by the laws of descent and distribution. Any other attempted assignment or alienation shall be void and of no force or effect.

7.3 Participant’s Rights. The right of any Participant to receive any Award payments under the provisions of the Plan shall be an unsecured claim against the general assets of the Employer. The Plan shall not create, nor be construed in any manner as having created, any right by a Participant to any Award for a Performance Period because of a Participant’s Participation in the Plan for any prior Performance Period, or because the Committee has made a written certification under Section 4.3 of the Plan for the Performance Period.

7.4 Termination of Employment. CIGNA and each Subsidiary retain the right to terminate the employment of any employee at any time for any reason or no reason, and an Award is not, and shall not be construed in any manner to be, a waiver of such right.

7.5 Successors. Any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of CIGNA’s business or assets, shall assume CIGNA’s liabilities under this Plan and perform any duties and responsibilities in the same

manner and to the same extent that CIGNA would be required to perform if no such succession had taken place.

EX-12 4 cigmar02ex12.htm EXHIBIT 12

EXHIBIT 12

CIGNA CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in millions)

	Three Months Ended March 31,
	2002		2001



Income before income taxes	$	331	$	420

Adjustments:
Loss (income) from equity investee		1		(17	)


Income before income taxes, as adjusted	$	332	$	403


Fixed charges included in income:

Interest expense	$	30	$	29
Interest portion of rental expense		16		11


		46		40

Interest credited to contractholders		264		260


	$	310	$	300


Income available for fixed charges (including interest
credited to contractholders)	$	642	$	703


Income available for fixed charges (excluding interest
credited to contractholders)	$	378	$	443


RATIO OF EARNINGS TO FIXED CHARGES:

Including interest credited to contractholders		2.1		2.3


SUPPLEMENTAL RATIO:

Excluding interest credited to contractholders		8.2		11.1

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