CIGNA CORPORATION 09/30/2003 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, LAqBGbrhrRC2bCUN03elSG6tQqMd2hk/7AURCYtKiA4TBIfMtFmR0UqPG3JpEHHc YDcaUuMWwdAfNnfZjFhBAw== 0000950159-03-000867.txt : 20031031 0000950159-03-000867.hdr.sgml : 20031031 20031031102938 ACCESSION NUMBER: 0000950159-03-000867 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 20030930 FILED AS OF DATE: 20031031 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: 03968532 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 cig9-0310q.htm CIGNA CORPORATION 09/30/2003 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 September 30, 2003

[ ] 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

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes x No

As of September 30, 2003, 140,490,168 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	19

	Item 4.	Controls and Procedures	44

PART II.	OTHER INFORMATION

	Item 1.	Legal Proceedings	45

	Item 6.	Exhibits and Reports on Form 8-K	46

SIGNATURE			47

EXHIBIT INDEX			E-1

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 STATEMENTS OF INCOME
(In millions, except per share amounts)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2003			2002			2003		2002


REVENUES
Premiums and fees	$	3,841		$	3,900		$	11,615	$	11,754
Net investment income		623			663			1,949		2,053
Other revenues		260			578			616		1,043
Realized investment gains (losses)		49			(58	)		127		(250	)

Total revenues		4,773			5,083			14,307		14,600

BENEFITS, LOSSES AND EXPENSES
Benefits, losses and settlement expenses		3,020			4,987			9,599		11,259
Policy acquisition expenses		66			78			186		181
Other operating expenses		1,406			1,297			4,036		3,782

Total benefits, losses and expenses		4,492			6,362			13,821		15,222

INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES (BENEFITS)		281			(1,279	)		486		(622	)

Income taxes (benefits):
Current		93			(358	)		85		(89	)
Deferred		(7	)		(47	)		71		(92	)

Total taxes (benefits)		86			(405	)		156		(181	)

INCOME (LOSS) FROM CONTINUING OPERATIONS		195			(874	)		330		(441	)
INCOME (LOSS) FROM DISCONTINUED OPERATIONS		-			(3	)		48		(4	)

NET INCOME (LOSS)	$	195		$	(877	)	$	378	$	(445	)

EARNINGS PER SHARE - BASIC
INCOME (LOSS) FROM CONTINUING OPERATIONS	$	1.40		$	(6.25	)	$	2.36	$	(3.13	)
INCOME (LOSS) FROM DISCONTINUED OPERATIONS		-			(0.02	)		0.35		(0.03	)

NET INCOME (LOSS)	$	1.40		$	(6.27	)	$	2.71	$	(3.16	)

EARNINGS PER SHARE - DILUTED
INCOME (LOSS) FROM CONTINUING OPERATIONS	$	1.39		$	(6.25	)	$	2.35	$	(3.13	)
INCOME (LOSS) FROM DISCONTINUED OPERATIONS		-			(0.02	)		0.34		(0.03	)

NET INCOME (LOSS)	$	1.39		$	(6.27	)	$	2.69	$	(3.16	)

DIVIDENDS DECLARED PER SHARE	$	0.33		$	0.33		$	0.99	$	0.99

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 September 30, 2003					As of December 31, 2002



ASSETS
Investments:
Fixed maturities, at fair value (amortized cost, $26,770; $25,948)				$	29,027					$	27,803
Equity securities, at fair value (cost, $63; $239)					83						295
Mortgage loans					8,656						8,729
Policy loans					1,641						2,405
Real estate					295						253
Other long-term investments					718						791
Short-term investments					130						86

Total investments					40,550						40,362
Cash and cash equivalents					1,961						1,575
Accrued investment income					516						504
Premiums, accounts and notes receivable					2,888						3,206
Reinsurance recoverables					6,434						6,775
Deferred policy acquisition costs					546						494
Property and equipment					985						1,078
Deferred income taxes					1,119						1,257
Goodwill					1,620						1,620
Other assets, including other intangibles					472						624
Separate account assets					33,082						31,255
Assets of discontinued operations					-						200

Total assets				$	90,173					$	88,950

LIABILITIES
Contractholder deposit funds				$	28,244					$	29,374
Unpaid claims and claim expenses					4,541						4,535
Future policy benefits					11,818						11,848
Unearned premiums					280						243

Total insurance and contractholder liabilities					44,883						46,000
Accounts payable, accrued expenses and other liabilities					6,430						6,123
Short-term debt					-						130
Long-term debt					1,500						1,500
Nonrecourse obligations					43						-
Separate account liabilities					33,082						31,255
Liabilities of discontinued operations					-						75

Total liabilities					85,938						85,083

CONTINGENCIES - NOTE 12

SHAREHOLDERS' EQUITY
Common stock (par value per share, $0.25; shares issued, 274; 273)					69						68
Additional paid-in capital					3,263						3,212
Net unrealized appreciation, fixed maturities	$	667					$	512
Net unrealized appreciation, equity securities		2						26
Net unrealized appreciation (depreciation), derivatives		(3	)					6
Net translation of foreign currencies		(16	)					(32	)
Minimum pension liability adjustment		(727	)					(714	)

Accumulated other comprehensive loss					(77	)					(202	)
Retained earnings					9,538						9,299
Less treasury stock, at cost					(8,558	)					(8,510	)

Total shareholders' equity					4,235						3,867

Total liabilities and shareholders' equity				$	90,173					$	88,950

SHAREHOLDERS' EQUITY PER SHARE				$	30.14					$	27.75

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

CIGNA CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME AND CHANGES IN
SHAREHOLDERS' EQUITY
(In millions)

Three Months Ended September 30,	2003						2002

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



Common stock, July 1				$	68					$	68
Issuance of common stock for employee benefit plans					1						-

Common stock, September 30					69						68

Additional paid-in capital, July 1					3,246						3,201
Issuance of common stock for employee benefits plans					17						4

Additional paid-in capital, September 30					3,263						3,205

Accumulated other comprehensive income (loss), July 1					50						182
Net unrealized appreciation (depreciation), fixed maturities	$	(99	)		(99	)	$	250			250
Net unrealized depreciation, equity securities		(20	)		(20	)		(37	)		(37	)

Net unrealized appreciation (depreciation) on securities		(119	)					213
Net unrealized appreciation (depreciation), derivatives		(4	)		(4	)		3			3
Net translation of foreign currencies		(4	)		(4	)		(1	)		(1	)

Other comprehensive income (loss)		(127	)					215

Accumulated other comprehensive income (loss), September 30					(77	)					397

Retained earnings, July 1					9,390						10,221
Net income (loss)		195			195			(877	)		(877	)
Common dividends declared					(47	)					(46	)

Retained earnings, September 30					9,538						9,298

Treasury stock, July 1					(8,543	)					(8,465	)
Repurchase of common stock					-						(45	)
Other treasury stock transactions, net					(15	)					-

Treasury stock, September 30					(8,558	)					(8,510	)

TOTAL COMPREHENSIVE INCOME (LOSS) AND SHAREHOLDERS' EQUITY	$	68		$	4,235		$	(662	)	$	4,458

Nine Months Ended September 30,

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

Common stock, September 30					69						68


Additional paid-in capital, January 1					3,212						3,093
Issuance of common stock for employee benefits plans					51						112

Additional paid-in capital, September 30					3,263						3,205

Accumulated other comprehensive income (loss), January 1					(202	)					147
Net unrealized appreciation, fixed maturities	$	155			155		$	319			319
Net unrealized depreciation, equity securities		(24	)		(24	)		(59	)		(59	)

Net unrealized appreciation on securities		131						260
Net unrealized depreciation, derivatives		(9	)		(9	)		(1	)		(1	)
Net translation of foreign currencies		16			16			(9	)		(9	)
Minimum pension liability adjustment		(13	)		(13	)		-			-

Other comprehensive income		125						250

Accumulated other comprehensive income (loss), September 30					(77	)					397

Retained earnings, January 1					9,299						9,882
Net income (loss)		378			378			(445	)		(445	)
Common dividends declared					(139	)					(139	)

Retained earnings, September 30					9,538						9,298

Treasury stock, January 1					(8,510	)					(8,135	)
Repurchase of common stock					-						(343	)
Other treasury stock transactions, net					(48	)					(32	)

Treasury stock, September 30					(8,558	)					(8,510	)

TOTAL COMPREHENSIVE INCOME (LOSS) AND SHAREHOLDERS' EQUITY	$	503		$	4,235		$	(195	)	$	4,458

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

CIGNA CORPORATION

CIGNA CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)

	Nine Months Ended September 30,
	2003			2002



CASH FLOWS FROM OPERATING ACTIVITIES
Income (loss) from continuing operations	$	330		$	(441	)
Adjustments to reconcile income (loss) from continuing operations
to net cash provided by operating activities:
Insurance liabilities		13			1,778
Reinsurance recoverables		198			99
Deferred policy acquisition costs		(49	)		(34	)
Premiums, accounts and notes receivable		75			(158	)
Accounts payable, accrued expenses and other liabilities		(346	)		(218	)
Current income taxes		405			(497	)
Deferred income taxes		71			(92	)
Realized investment (gains) losses		(127	)		250
Depreciation and amortization		187			159
Gains on sales of businesses (excluding discontinued operations)		(57	)		(57	)
Other, net		141			(95	)

Net cash provided by operating activities of continuing operations		841			694

CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from investments sold:
Fixed maturities		5,815			3,518
Equity securities		282			101
Mortgage loans		641			741
Other (primarily short-term investments)		5,334			3,122
Investment maturities and repayments:
Fixed maturities		1,915			1,579
Mortgage loans		922			496
Investments purchased:
Fixed maturities		(8,516	)		(6,142	)
Equity securities		(54	)		(114	)
Mortgage loans		(1,442	)		(461	)
Other (primarily short-term investments)		(4,883	)		(2,578	)
Proceeds on sales of businesses		226			-
Property and equipment, net		(67	)		(196	)
Other, net		(15	)		(27	)

Net cash provided by investing activities of continuing operations		158			39

CASH FLOWS FROM FINANCING ACTIVITIES
Deposits and interest credited to contractholder deposit funds		5,878			6,027
Withdrawals and benefit payments from contractholder deposit funds		(6,222	)		(5,731	)
Net change in short-term debt		(3	)		-
Repayment of long-term debt		(127	)		(49	)
Repurchase of common stock		-			(355	)
Issuance of common stock		-			62
Common dividends paid		(139	)		(138	)

Net cash used in financing activities of continuing operations		(613	)		(184	)

Effect of foreign currency rate changes on cash and cash equivalents		-			2

Net increase in cash and cash equivalents		386			551
Cash and cash equivalents, beginning of period		1,575			1,918

Cash and cash equivalents, end of period	$	1,961		$	2,469

Supplemental Disclosure of Cash Information:
Income taxes paid (received), net	$	(326	)		342
Interest paid	$	83			88

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 accounting principles generally accepted in the United States.

The interim financial statements are unaudited but include all adjustments (consisting only 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 2002 Annual Report to Shareholders and Form 10-K for the year ended 2002.

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 full year results based on interim results of operations.

Results of operations of Lovelace Health Systems, Inc. (Lovelace), an integrated health care system and subsidiary of CIGNA, are reported as discontinued operations because CIGNA sold that business in January 2003 (see Note 5). Unless otherwise indicated, amounts in these Notes exclude the effects of discontinued operations. Certain other reclassifications have also been made to prior period amounts to conform to the 2003 presentation.

NOTE 2 – RECENT ACCOUNTING PRONOUNCEMENTS

Consolidation. In January 2003, the Financial Accounting Standards Board (FASB) issued Interpretation No. 46, “Consolidation of Variable Interest Entities” (FIN 46), that provides criteria for consolidating certain entities based on majority ownership of expected losses or residual returns. In October 2003, the FASB postponed the implementation date for FIN 46 from July 1, 2003 to December 31, 2003. CIGNA expects to implement FIN 46 on December 31, 2003, and expects to record additional assets and liabilities, primarily associated with real estate joint ventures, of up to $125 million each, including $110 million of nonrecourse liabilities. In the unlikely event that all of the underlying assets of these entities had no value and all other parties to these entities failed to meet their obligations, CIGNA estimates that its maximum exposure to loss at September 30, 2003 would approximate $90 million, representing CIGNA’s net investment in and additional commitments to these entities, including recourse liabilities.

Under FIN 46, CIGNA expects to disclose certain variable interest entities that it currently consolidates for which CIGNA serves as asset manager. These entities issue investment products secured by commercial loan pools and have assets and liabilities of approximately $205 million at September 30, 2003. CIGNA also expects to disclose real estate joint ventures that it currently consolidates with assets of $15 million. In the unlikely event that all of the underlying assets of these entities had no value and all other parties to these entities failed to meet their obligations, CIGNA estimates that its maximum exposure to loss at September 30, 2003 would approximate $195 million, primarily representing CIGNA’s net investment in these entities.

CIGNA expects to recover the recorded amounts of its investments in variable interest entities.

Stock compensation. In December 2002, Statement of Financial Accounting Standards (SFAS) No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure,” was issued. SFAS No. 148 requires companies using the intrinsic value method of accounting for stock-based compensation to disclose, on a quarterly basis, the effect on reported net income and earnings per share if compensation expense was based on the fair value

method of accounting for all stock awards. The following table illustrates the effect to CIGNA’s reported net income (loss) and earnings per share (using the Black-Scholes option-pricing model for stock options).


	Three Months Ended September 30,				Nine Months Ended September 30,
(In millions, except per share amounts)	2003		2002		2003		2002


Net income (loss), as
reported	$195		$(877	)	$378		$(445	)
Compensation expense for
restricted stock grants at
fair value, net of taxes,
included in net income
(loss) as reported	4		3		8		11
Total compensation
expense for stock
options and restricted
stock grants under
fair value method for all
awards, net of taxes	(13	)	(17	)	(35	)	(49	)

Pro forma net income
(loss)	$186		$(891	)	$351		$(483	)

Net income (loss) per share:
Basic - as reported	$1.40		$(6.27	)	$2.71		$(3.16	)
Basic - pro forma	$1.33		$(6.37	)	$2.51		$(3.43	)
Diluted - as reported	$1.39		$(6.27	)	$2.69		$(3.16	)
Diluted - pro forma	$1.32		$(6.37	)	$2.50		$(3.43	)

Derivative Instruments. In April 2003, the FASB issued an amendment to Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities” (SFAS 133). Implementation of the SFAS 133 amendment in the third quarter of 2003 had no effect on CIGNA’s financial statements. In addition, the FASB finalized an implementation issue relating to SFAS 133.

The implementation issue and a recently issued Statement of Position (described below) address accounting for liabilities that provide contractholders with returns based on pools of investments, and each permits a one-time accounting reclassification of associated investment securities from available-for-sale to trading. In the fourth quarter of 2003, CIGNA expects to reclassify securities supporting experience-rated pension contracts to a separate balance sheet caption and to record their changes in fair value in other revenues each reporting period. Under the experience-rating process, gains and losses on assets related to experience-rated policyholder contracts generally accrue to contractholders and are not reflected in net income. Accordingly, CIGNA will recognize benefits expense in the amounts recorded in other revenues that accrue to contractholders, and the accounting reclassification will not affect CIGNA’s net income.

The implementation issue, effective in the fourth quarter of 2003, requires companies to recognize the fair value of an embedded derivative in contractholder liabilities. This embedded derivative reflects contractual features including the changes in credit risk of a pool of investments. The effect of implementing this requirement is not expected to be material to CIGNA’s financial statements.

Long-Duration Contracts. In July 2003, Statement of Position (SOP), “Accounting and Reporting by Insurance Enterprises for Certain Nontraditional Long-Duration Contracts and for Separate Accounts,” was issued for implementation in the first quarter of 2004.

The SOP addresses accounting for separate accounts and certain contractual features of investment-related and universal life contracts. The cumulative effect of implementing the SOP in the first quarter of 2004 may be material to net income as a result of recording liabilities to certain experience-rated pension contractholders based on the appreciated value of associated pools of mortgage loans. Based on historical changes in interest rates and credit spreads, ongoing volatility in benefits expense may also be material to CIGNA’s net income, and possibly to CIGNA’s shareholders’ equity. This volatility would result from adjusting liabilities for unrealized changes in the fair values of mortgage loans, while mortgage loans are carried at amortized cost. CIGNA considers these unrealized fair value changes to be temporary, as CIGNA generally holds mortgage loans to maturity. Generally, contractholders do not ultimately receive these changes in fair value given that mortgage loan values approximate amortized cost as maturity approaches. CIGNA is exploring various courses of action with respect to its mortgage loans which may mitigate the effect of this SOP.

CIGNA has determined that its accounting for reinsurance of guaranteed minimum death benefits and guaranteed minimum income benefits will not be affected by the provisions of the SOP. CIGNA continues to evaluate the potential effects of implementing various provisions of the SOP, and

cannot yet estimate the aggregate implementation effects on its financial statements.

NOTE 3 – SEGMENT REPORTING CHANGES

In the third quarter of 2003, CIGNA changed its segment presentation to report its health care operations and its separately managed group disability and life insurance operations as two discrete segments. In previous quarters, results from these operations were combined as a single segment.

In addition, CIGNA has renamed its segments to Health Care, Disability and Life, Retirement, International, Run-off Reinsurance and Other Operations.

Disability and life insurance products which were historically sold in connection with certain experience-rated medical accounts continue to be managed by CIGNA’s health care business and are reported in the Health Care segment.

NOTE 4 – SPECIALTY LIFE REINSURANCE CONTRACTS

CIGNA’s reinsurance operations, which were discontinued in 2000 and are now an inactive business in run-off mode, reinsured a guaranteed minimum death benefit under certain variable annuities issued by other insurance companies. These variable annuities are essentially investments in mutual funds combined with a death benefit. CIGNA has equity market risks as a result of this product.

In the second quarter of 2003, CIGNA recognized a charge related to an analysis of experience and reserve assumptions for the variable annuity death benefit product. The after-tax charge to increase reserves was $286 million ($441 million pre-tax). The reserve increase included a charge relating to both actual and projected future partial surrenders, as well as updates to other assumptions such as mortality.

The determination of reserves for variable annuity death benefits requires CIGNA to make critical accounting estimates, as discussed on page 21 and in CIGNA’s 2002 Annual Report to Shareholders. If actual experience differs from the assumptions and other considerations used in estimating these reserves (including lapse, partial surrender, mortality, interest rates and volatility), the resulting change could have a material adverse effect on CIGNA’s consolidated results of operations, and in certain situations, could have a material adverse effect on CIGNA’s financial condition.

CIGNA had future policy benefit reserves for these specialty life reinsurance contracts of approximately $1.4 billion as of September 30, 2003 and December 31, 2002.

In the third quarter of 2002, CIGNA implemented a program to substantially reduce the equity market risks associated with this business by selling exchange-traded futures contracts, which are expected to rise in value as the equity market declines and decline in value as the equity market rises.

CIGNA recognized an after-tax charge of $720 million ($1.1 billion pre-tax) in the third quarter of 2002 to increase reserves related to these specialty life reinsurance contracts and the adoption of this program. The charge consisted of:

•

$620 million after-tax, principally reflecting the reduction in assumed future equity market returns as a result of implementing the program and, to a lesser extent, changes to the policy surrender, mortality, market volatility and discount rate assumptions used in estimating the liabilities for these contracts; and

•	$100 million after-tax reflecting deterioration in equity markets that occurred in the third quarter of 2002 (prior to implementation of the program).

In the second quarter of 2003, CIGNA added foreign-denominated, exchange-traded futures contracts and foreign currency forward contracts to this program to reduce international equity market risks associated with this business. To support its program to reduce equity risks associated with this business, CIGNA expects to adjust the futures and forward contract positions and enter into other positions over time, to reflect changing equity market levels and changes in the investment mix of the underlying variable annuity investments. CIGNA recorded pre-tax losses of $70 million for the third quarter and $326 million for the nine months of 2003 and pre-tax gains of $300 million for the third quarter and nine months

of 2002 from these contracts. Expense offsets reflecting corresponding changes in liabilities for these contracts are included in benefits, losses and settlement expenses.

As of September 30, 2003, the aggregate fair value of the underlying mutual fund investments was approximately $49.8 billion. The death benefit coverage in force as of that date (representing the amount that CIGNA would have to pay if all 1.4 million annuitants had died on that date) was approximately $17.1 billion. The death benefit coverage in force represents the excess of the guaranteed benefit amount over the fair value of the underlying mutual fund investments. The notional amount of the futures and forward contract positions held by CIGNA at September 30, 2003, was $2.1 billion.

CIGNA has also written reinsurance contracts with issuers of variable annuity contracts that provide annuitants with certain guarantees related to minimum income benefits. See Note 12 for further information.

NOTE 5 –ACQUISITIONS AND DISPOSITIONS

CIGNA may from time to time acquire or dispose of assets, subsidiaries or lines of business. Significant transactions are described below.

Sale of Japanese pension operations. In September 2003, CIGNA sold its interest in a Japanese pension operation for cash proceeds of $18 million and recognized an after-tax gain of $5 million. The gain is reported in the International segment in continuing operations since this operation was accounted for under the equity method of accounting.

Sale of Lovelace Health Systems. In January 2003, CIGNA sold the operations of Lovelace Health Systems, Inc. (Lovelace), an integrated health care system located in New Mexico that includes a multi-specialty physician group practice, a hospital, family practice clinics and a health plan. The sale generated an after-tax gain of $32 million, which is reported in discontinued operations. In the fourth quarter of 2002, CIGNA began reporting this business as discontinued operations and prior period financial information was reclassified.

Sale of Brazilian health care operations. In January 2003, CIGNA sold its Brazilian health care operations. The sale generated an after-tax gain of $18 million, primarily as a result of the disposition of the net liabilities associated with these operations. The gain is reported in discontinued operations. Because the revenues, expenses and results of operations of the Brazilian health care operations are not material to CIGNA’s consolidated financial statements, prior period financial information has not been reclassified.

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 a gain of approximately $85 million after-tax, which was deferred because the sale was structured as an indemnity reinsurance arrangement. During the second and third quarters of 2002, the acquirer entered into agreements with the reinsured parties, relieving CIGNA of any remaining obligations to those parties. As a result, CIGNA accelerated the recognition of $1 million after-tax of the deferred gain for the third quarter and $3 million after-tax for the nine months of 2002.

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.

Discontinued operations. Summarized financial data for discontinued operations (which includes Lovelace and the gain on the sale of the Brazilian health care operations) are outlined below:


FINANCIAL SUMMARY	Three Months Ended September 30,			Nine Months Ended September 30,
(In millions)	2003	2002		2003		2002


Income Statement Data
Revenues	$--	$135		$--		$416

Loss before income tax
benefits	$--	$(5	)	$(3	)	$(6	)
Income tax benefits	--	(2	)	(1	)	(2	)

Loss from operations	--	(3	)	(2	)	(4	)
Gains on sales, net of
taxes of $25	--	--		50		--

Income (loss) from
discontinued operations	$--	$(3	)	$48		$(4	)



(In millions)		December 31, 2002

Balance Sheet Data
Cash		$23
Accounts receivable		34
Property and equipment		94
Goodwill and other assets		49

Total assets		$200

Insurance liabilities		$47
Accounts payable and other liabilities		28

Total liabilities		$75

NOTE 6 –RESTRUCTURING PROGRAMS

Corporate effectiveness initiative. In the second quarter of 2003, CIGNA adopted a restructuring program to attain operational efficiencies in its corporate staff functions and to achieve additional cost savings. As a result, CIGNA recognized in other operating expenses an after-tax charge in Corporate of $9 million ($13 million pre-tax) for severance costs. The severance charge reflected the expected reduction of approximately 280 employees. As of September 30, 2003, approximately 250 employees had been terminated under the program and $4 million ($7 million pre-tax) of the liability had been spent.

Fourth quarter 2002 program. In the fourth quarter of 2002, CIGNA adopted a restructuring program primarily to realign the organizational structure and operations of its health care business. As a result, CIGNA recognized in other operating expenses an after-tax charge of $97 million ($151 million pre-tax) in the Health Care segment. The after-tax charge consisted of $74 million of severance costs ($116 million pre-tax), $22 million in real estate costs ($34 million pre-tax) related to vacating certain leased facilities and $3 million ($4 million pre-tax) of asset impairment charges. These amounts were partially offset by a reduction in costs of $2 million after-tax ($3 million pre-tax) for other postretirement benefits for employees terminated in 2002. This benefit cost reduction continues in 2003 as employees are terminated, and is estimated not to exceed $10 million after-tax ($15 million pre-tax) for the full year of 2003. CIGNA recorded a gain of $1 million after-tax ($1 million pre-tax) for the third quarter and $7 million after-tax ($10 million pre-tax) for the nine months of 2003 for other postretirement benefits for employees terminated during 2003.

When recorded in the fourth quarter of 2002, the severance charge reflected the expected reduction of approximately 3,900 employees. In the second quarter of 2003, CIGNA reduced the remaining liability for this program by $15 million pre-tax ($10 million after-tax). This reduction was primarily due to higher attrition (which does not result in severance benefits or costs) and lower costs relating to outplacement and other services.

CIGNA expects this restructuring program to be substantially completed by year end 2003. The table below shows CIGNA’s restructuring activity (pre-tax) related to severance and real estate for this program:


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


Balance as of
December 31, 2002	3,177		$112		$34		$146
First quarter 2003 activity:
Employees	(1,495	)	(28	)			(28	)
Lease costs					(1	)	(1	)
Second quarter 2003 activity:
Employees	(501	)	(22	)			(22	)
Lease costs					(3	)	(3	)
Reduction of
remaining balance	(236	)*	(14	)	(1	)	(15	)
Third quarter 2003 activity:
Employees	(220	)	(15	)			(15	)
Lease costs					(3	)	(3	)

Balance as of
September 30, 2003	725		$33		$26		$59

*Due to higher attrition.

NOTE 7 – INVESTMENTS

Realized Investment Gains and Losses

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


	Three Months Ended September 30,				Nine Months Ended September 30,
(In millions)	2003		2002		2003		2002


Fixed maturities	$(37	)	$(45	)	$(20	)	$(166	)
Equity securities	37		(9	)	73		(35	)
Mortgage loans	--		(1	)	(1	)	(10	)
Real estate	45		(2	)	55		(39	)
Derivatives and other	4		(1	)	20		--

Realized investment gains
(losses), before income
taxes (benefits)	49		(58	)	127		(250	)
Less income taxes
(benefits)	17		(18	)	44		(86	)

Net realized investment
gains (losses)	$32		$(40	)	$83		$(164	)

Fixed Maturities and Equity Securities

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


	Three Months Ended September 30,				Nine Months Ended September 30,
(In millions)	2003		2002		2003		2002


Proceeds from sales	$1,864		$1,603		$6,097		$3,619
Gross gains on sales	$114		$32		$303		$91
Gross losses on sales	$(15	)	$(133	)	$(59	)	$(286	)

Securities on Loan

During the second quarter of 2003, CIGNA began lending certain fixed maturity securities to major brokerage firms through an agent. CIGNA retains the risks and rewards of ownership of these securities loaned and the agent indemnifies CIGNA for their return at CIGNA’s demand. Cash collateral is received and must be maintained daily at least equal to 100% of the fair value of securities loaned. Cash collateral is invested by CIGNA in high quality, shorter term instruments such as U.S. Treasury bills, high-grade commercial paper and fixed maturities. CIGNA provides a contractual rate of return on collateral held and bears the risk of any loss on the collateral.

At September 30, 2003, CIGNA had $132 million of securities on loan in fixed maturities. Cash collateral received is reported in cash and cash equivalents, fixed maturities and short-term investments at September 30, 2003. A liability for the return of collateral held of $133 million was reported in accounts payable, accrued expenses and other liabilities at September 30, 2003.

NOTE 8 –ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

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


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

Three Months Ended September 30,

2003

Net unrealized depreciation,
securities:
Unrealized depreciation on securities held	$(183	)	$64		$(119	)
Gains realized on securities	--		--		--

Net unrealized depreciation, securities	$(183	)	$64		$(119	)

Net unrealized depreciation,
derivatives	$(6	)	$2		$(4	)

Net translation of foreign
currencies:
Net translation on foreign currencies held	$(9	)	$3		$(6	)
Foreign currency translation losses
realized on sale of business	3		(1	)	2

Net translation of foreign currencies	$(6	)	$2		$(4	)

2002

Net unrealized appreciation,
securities:
Unrealized appreciation on securities held	$267		$(91	)	$176
Losses realized on securities	54		(17	)	37

Net unrealized appreciation, securities	$321		$(108	)	$213

Net unrealized appreciation,
derivatives	$5		$(2	)	$3

Net translation of foreign currencies	$(1	)	$--		$(1	)

Nine Months Ended September 30,

2003

Net unrealized appreciation,
securities:
Unrealized appreciation on securities held	$254		$(89	)	$165
Gains realized on securities	(53	)	19		(34	)

Net unrealized appreciation, securities	$201		$(70	)	$131

Net unrealized depreciation,
derivatives	$(13	)	$4		$(9	)

Net translation of foreign
currencies:
Net translation on foreign currencies held	$5		$(2	)	$3
Foreign currency translation losses
realized on sales of businesses	20		(7	)	13

Net translation of foreign currencies	$25		$(9	)	$16

Minimum pension liability
adjustment	$(21	)	$8		$(13	)

2002

Net unrealized appreciation,
securities:
Unrealized appreciation on securities held	$195		$(66	)	$129
Losses realized on securities	201		(70	)	131

Net unrealized appreciation, securities	$396		$(136	)	$260

Net unrealized depreciation,
derivatives	$(1	)	$--		$(1	)

Net translation of foreign
currencies	$(12	)	$3		$(9	)

Minimum Pension Liability

During the second quarter of 2003, CIGNA increased its minimum pension liabilities, resulting in an after-tax charge to equity of $13 million ($21 million pre-tax). This increase is a result of CIGNA’s annual update of plan participant data. Plan asset values and actuarial assumptions are consistent with those disclosed in CIGNA’s 2002 Annual Report to Shareholders.

NOTE 9 – 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 September 30,

2003

Income from continuing
operations	$195		$--		$195

Shares (in thousands):
Weighted average	139,740		--		139,740
Options and restricted stock grants			800		800

Total shares	139,740		800		140,540

EPS	$1.40		$(0.01	)	$1.39

2002

Loss from continuing
operations	$(874	)	$--		$(874	)

Shares (in thousands):
Weighted average	139,767		--		139,767
Options and restricted stock
grants*			--		--

Total shares	139,767		--		139,767

EPS	$(6.25	)	$--		$(6.25	)

Nine Months Ended September 30,

2003

Income from continuing operations	$330		$--		$330

Shares (in thousands):
Weighted average	139,725		$--		139,725
Options and restricted stock
grants			730		730

Total shares	139,725		730		140,455

EPS	$2.36		$(0.01	)	$2.35

2002

Loss from continuing
operations	$(441	)	$--		$(441	)

Shares (in thousands):
Weighted average	140,726		--		140,726
Options and restricted stock
grants*			--		--

Total shares	140,726		--		140,726

EPS	$(3.13	)	$--		$(3.13	)

Common shares held as Treasury shares were 133,913,353 as of September 30, 2003, and 133,317,419 as of December 31, 2002.

NOTE 10 – REINSURANCE

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.

Individual life and annuity reinsurance. CIGNA had a reinsurance recoverable of $5.4 billion at September 30, 2003, and $5.6 billion at December 31, 2002, 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 other run-off reinsurance. The Run-off Reinsurance segment participates in a workers’ compensation reinsurance pool, which ceased accepting new risks in early 1999. This pool was formerly managed by Unicover Managers, Inc. Although an arbitration over the most significant reinsurance (retrocessional) contracts for the pool was completed in the fourth quarter of 2002, disputes over collection of amounts due CIGNA from the retrocessionaires have arisen, which may require further arbitration actions to resolve. Also, disputes and arbitrations regarding other reinsurance (retrocessional) contracts for the pool remain and may not be resolved for some time.

The Run-off Reinsurance segment includes other workers’ compensation reinsurance contracts, as well as personal accident reinsurance contracts, including contracts assumed in the London market. CIGNA obtained retrocessional reinsurance coverage for a significant portion of its liabilities under these contracts. Some of these retrocessionaires have disputed the validity of their contracts with CIGNA and arbitration over some of these disputes has commenced.

In the third quarter of 2002, CIGNA recorded an after-tax charge of $317 million ($408 million pre-tax) related to the completed Unicover arbitration and the London market exposures noted above.

_________________

*Because of the loss from continuing operations for the third quarter and nine months of 2002, the number of shares used to compute loss per share does not reflect the dilution caused by stock options and restricted stock grants of approximately 1.1 million for third quarter and 1.7 million for the nine months ended September 30, 2002.

The retrocessional disputes are not expected to be resolved for some time. In addition, unfavorable claims experience related to workers’ compensation and personal accident exposures is possible and could result in future losses, including losses attributable to the inability to recover amounts from retrocessionaires (either due to disputes with the retrocessionaires or their financial condition).

CIGNA’s reserves for amounts recoverable from retrocessionaires, as well as for reserves for liabilities associated with underlying reinsurance exposures assumed by CIGNA, are considered appropriate as of September 30, 2003, based on current information. However, it is possible that future developments could have a material adverse effect on CIGNA’s consolidated results of operations, and, in certain situations, could have a material adverse effect on CIGNA’s 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 adverse 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 September 30,			Nine Months Ended September 30,
(In millions)	2003	2002		2003	2002


Premiums and fees
Individual life insurance and
annuity business sold	$71	$87		$230	$259
Other	50	11		135	144

Total	$121	$98		$365	$403

Reinsurance recoveries
Individual life insurance and
annuity business sold	$50	$66		$199	$226
Other	29	(135	)	114	67

Total	$79	$(69	)	$313	$293

NOTE 11 – SEGMENT INFORMATION

CIGNA’s operating segments generally reflect groups of related products, but the International segment is based on geography. As discussed in Note 3, CIGNA changed its segment presentation in the third quarter of 2003. CIGNA measures the financial results of its segments using “segment earnings” which is defined as income (loss) from continuing operations before realized investment gains (losses).

Refer to Note 2 for discussion of the potential effects of adopting an SOP on the experience-rated business in the Retirement segment.

Summarized segment financial information was as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
(In millions)	2003		2002		2003		2002


Premiums and fees and other revenues
Health Care	$3,359		$3,383		$10,150		$10,105
Disability and Life	439		396		1,294		1,230
Retirement	78		72		251		248
International	226		210		648		614
Run-off Reinsurance	(51	)	362		(269	)	427
Other Operations	68		70		210		220
Corporate	(18	)	(15	)	(53	)	(47	)

Total	$4,101		$4,478		$12,231		$12,797

Income (loss) from continuing
operations
Health Care	$75		$129		$285		$516
Disability and Life	32		28		101		86
Retirement	58		57		172		171
International	20		8		41		24
Run-off Reinsurance	(20	)	(1,052	)	(341	)	(1,055	)
Other Operations	19		18		58		55
Corporate	(21	)	(22	)	(69	)	(74	)

Segment earnings (loss)	163		(834	)	247		(277	)
Realized investment gains
(losses), net of taxes	32		(40	)	83		(164	)

Income (loss) from
continuing operations	$195		$(874	)	$330		$(441	)

NOTE 12 – 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 a certain percentage of benefit obligations. This percentage varies depending on the asset class within a sponsoring employer's portfolio (for example, a bond fund would require a lower percentage than a riskier equity fund) and thus will vary as the composition of the portfolio changes. If employers do not maintain the required levels of separate account assets, CIGNA has the right to redirect the management of the related assets to provide for benefit payments. As of September 30, 2003, employers were required to maintain assets that exceed 102% to 133% of benefit obligations. Benefit obligations under these arrangements were $3.1 billion as of September 30, 2003, and $3.3 billion as of December 31, 2002. There were no additional liabilities required for these guarantees as of September 30, 2003, or December 31, 2002.

•

For certain employer-sponsored savings and retirement plans, CIGNA guarantees that participants will receive the value of their accounts at the time of withdrawal. 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 separate account assets is less than plan participant account values at the time of withdrawal. Participant account values under these arrangements are invested primarily in fixed income investments and were $1.9 billion as of September 30, 2003, and $1.7 billion as of December 31, 2002. There were no additional liabilities required for these guarantees as of September 30, 2003, or December 31, 2002.

•

CIGNA guarantees a minimum level of earnings (based on investment, mortality and retirement experience) for a certain 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 $313 million as of September 30, 2003, and December 31, 2002. CIGNA had additional liabilities for this guarantee of $15 million as of September 30, 2003, and December 31, 2002.

CIGNA guaranteed $95 million of construction loans as of September 30, 2003, and $106 million as of December 31, 2002, related to investments in certain real estate joint ventures. These loans are secured by the joint ventures’ real estate properties, which have fair values in excess of the loan amounts. The loans mature at various dates from 2003 to 2005, including extension options. CIGNA would be required to repay the construction loans if permanent financing could not be obtained. CIGNA also guaranteed $14 million of interest and principal for industrial revenue bonds as of September 30, 2003, and $50 million as of December 31, 2002, that are payable in 2007. These bonds are secured by mortgages on properties and other assets held by real estate partnerships and CIGNA has recourse to partners for 50% of any amounts paid under these guarantees. There were no liabilities required for these guarantees as of September 30, 2003, or December 31, 2002.

to lenders for any actual damages resulting from certain acts such as unauthorized ownership transfers, misappropriation of rental payments by others or environmental damages. Based on initial and ongoing reviews of property management and operations, CIGNA does not expect that payments will be required under these indemnification obligations. Any payments that might be required could be recovered through a refinancing or sale of the assets. In some cases, CIGNA also has recourse to partners for their proportionate share of amounts paid. There were no liabilities required for these indemnification obligations as of September 30, 2003, or December 31, 2002.

As of September 30, 2003 and December 31, 2002, CIGNA guaranteed that it would compensate the lessor for a shortfall of up to $49 million in the market value of leased equipment at the end of the lease. Guarantees of $21 million expire in 2006 and $28 million expire in 2012.

CIGNA has indemnification obligations as of September 30, 2003, and December 31, 2002, in connection with acquisition and disposition transactions. These indemnification obligations are triggered by the breach of representations or covenants provided by CIGNA, such as representations for the presentation of financial statements, the filing of tax returns or the identification of outstanding litigation. These obligations are typically subject to various time limitations, defined by the contract or by operation of law, such as statutes of limitation. In some cases, the maximum potential amount due is subject to contractual limitations based on a percentage of the transaction purchase price, while in other cases limitations are not specified or applicable. CIGNA does not believe that it is possible to determine the maximum potential amount due under these guarantees, since not all amounts due under these indemnification obligations are subject to limitation. There were no liabilities required for these indemnification obligations as of September 30, 2003, or December 31, 2002.

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

Specialty life reinsurance contracts. CIGNA has written reinsurance contracts with issuers of variable annuity contracts that provide annuitants with certain guarantees related to minimum income benefits. When annuitants elect to receive these minimum income benefits, CIGNA may be required to make payments based on changes in underlying mutual fund values and interest rates.

CIGNA has purchased reinsurance from third parties, which covers 80% of the exposures of these contracts. CIGNA estimates the fair value of the assets and liabilities associated with these contracts using assumptions as to equity market returns, volatility of the underlying equity and bond mutual fund investments, interest rates, mortality, annuity election rates, policy surrenders and credit risk. During the first quarter of 2003, CIGNA recognized an after-tax charge of $6 million ($9 million pre-tax) related to revised credit risk assumptions for amounts recoverable from reinsurers.

CIGNA is required to disclose the maximum potential undiscounted future payments for guarantees related to minimum income benefits using worst-case assumptions, defined as follows:

•	No annuitants surrendered their accounts, and

•	All annuitants lived to elect their benefits, and

•	All annuitants elected to receive their benefit on the first available date (beginning in 2004 through 2014), and

•	All underlying mutual fund investment values remained at the September 30, 2003 value of $3.0 billion, with no future returns.

The maximum potential undiscounted payments that CIGNA would make under those assumptions would aggregate $2.3 billion before reinsurance recoveries. CIGNA believes the likelihood of such payment is remote. CIGNA has reinsurance for 80% of this amount. CIGNA expects the amount of actual payments to be significantly less than this hypothetical undiscounted aggregate amount.

and amounts recoverable from reinsurers of $76 million. CIGNA had an additional liability of $44 million associated with the cost of reinsurance as of December 31, 2002. Management believes the current assumptions used to estimate reserves for these liabilities are appropriate.

Regulatory and Industry Developments

CIGNA’s businesses are subject to a changing social, economic, legal, legislative and regulatory environment. Some 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 large corporations, 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 state and federal level over health care liability is expected to continue.

Privacy regulations under the Health Insurance Portability and Accountability Act (HIPAA) of 1996 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 was required by April 2003, and CIGNA has implemented appropriate compliance initiatives. In addition to the privacy regulations, HIPAA establishes national electronic transaction standards, which apply to health insurers, providers and other covered entities. They are intended to improve the efficiency and effectiveness of the nation’s health care system by encouraging the widespread use of electronic data interchange. Compliance with these regulations was required by October 2003, and CIGNA has implemented appropriate compliance initiatives.

Regulations issued in February 2003 set standards for the security of electronic health information, and must be implemented by CIGNA by April 2005. CIGNA has implemented certain security measures and planned others in anticipation of these rules. Other proposed HIPAA regulations include standards for the assignment of a unique national identifier for each health plan and provider and requirements for a unique national identifier for employer groups. CIGNA has commenced significant systems enhancements, training and administrative efforts to satisfy these requirements. Incremental technology and business-related expenses associated with CIGNA’s compliance efforts were approximately $14 million after-tax for the third quarter and $45 million after-tax for the nine months ended September 30, 2003.

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 could be subject to government efforts to bring criminal actions in circumstances that could previously have given rise only to civil or administrative proceedings.

Split-dollar life insurance. Recently issued regulations by the Internal Revenue Service and statutory changes may result in withdrawals of assets, policy terminations and fewer sales of new policies. Approximately $5 million in earnings for full year 2002 was associated with these policies.

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. Management expects revenues and earnings associated with these products to decline. For the third quarter and nine months of 2003, revenues of $31 million and $120 million, respectively, and earnings of $4 million and $16 million, respectively, were from products affected by this legislation.

Litigation and Other Legal Matters

CIGNA and several health care industry competitors were named as defendants in federal and state purported class action lawsuits. A Florida federal court handling this multi-district litigation matter certified a class of physicians who allege violations under the Racketeer Influenced and Corrupt Organizations Act and ERISA. The Florida federal court denied class certification to health plan subscribers. During the second quarter of 2003, CIGNA settled these subscriber cases for minimal amounts.

An Illinois state court certified a class action lawsuit against CIGNA by health care providers alleging breach of contract and seeking increased reimbursements. This state action was amended to include federal claims and was removed to federal court in Illinois where a settlement was filed and preliminarily approved. The case was then transferred to federal court in Florida as part of the multi-district litigation described above. In September of 2003, the federal court in Florida preliminarily approved a settlement agreement between the physician class and CIGNA, and scheduled a fairness hearing for December 2003. Upon final approval by the court, the settlement would resolve for CIGNA and the plaintiffs all physician claims reflected in the Florida multi-district litigation, including the Illinois case transferred to federal court in Florida.

CIGNA recorded an after-tax charge of $37 million ($57 million pre-tax) in the third quarter of 2003 to increase the reserve for this settlement and other non-physician health care litigation. CIGNA had previously recognized an after-tax charge in the fourth quarter of 2002 of $50 million ($77 million pre-tax) for expected costs associated with the health care provider class action litigation. The reserve reflects expected insurance recoveries. No significant amounts will be disbursed until the settlement becomes final, most likely in early 2004.

In the third quarter of 2002, CIGNA recognized a charge based on a review of CIGNA’s exposures for the run-off reinsurance operations, including an assessment of London market retrocessional disputes and exposures. The underlying London market retrocessional disputes are not expected to be resolved for some time. CIGNA’s reserve balance is based on a current assessment of these matters, the outcomes of which could result in adjustments to CIGNA’s reserve. See also Note 10 for further discussion.

The U. S. Attorney’s Office for the Eastern District of Pennsylvania is investigating compliance with federal 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.

In the fourth quarter of 2002, several purported class action lawsuits, as well as two shareholder derivative complaints nominally brought on behalf of CIGNA, were filed in federal court in the Eastern District of Pennsylvania against CIGNA and certain of its senior officers and directors. These suits, which allege securities law violations and breaches of fiduciary duty, have been consolidated. Two other purported class action lawsuits asserting violations of ERISA were filed against CIGNA and certain officers in the Eastern District of Pennsylvania by individuals who seek to represent a class of participants in the CIGNA 401(k) Plan who allegedly suffered losses on investments in CIGNA stock. These ERISA class action cases have been consolidated.

During 2002, a Connecticut federal court certified a class action lawsuit against CIGNA and the CIGNA Pension Plan. The plaintiffs are participants in the Plan who earned certain Plan benefits prior to 1998. The plaintiffs allege, among other things, that the Plan violated ERISA by impermissibly conditioning certain post-1997 benefit accruals on the amount of pre-1998 benefit accruals, that these conditions are not adequately disclosed to Plan participants, and that the Plan’s cash balance formula discriminates against older employees.

CIGNA is routinely involved in numerous lawsuits and other legal matters arising, for the most part, in the ordinary course of the business of administering and insuring employee benefit programs. An increasing number of claims are being made for substantial non-economic, extra-contractual or punitive damages. The outcome of litigation and other legal matters is always uncertain, and outcomes that are not justified by the evidence can occur. CIGNA believes that it has valid defenses to the legal matters pending against it and is defending itself vigorously. Nevertheless, it is possible that resolution of one or more of the legal matters currently pending or threatened could result in losses 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	19

Consolidated Results of Operations	24

Health Care	26

Disability and Life	29

Retirement	29

International	30

Run-off Reinsurance	31

Other Operations	34

Corporate	34

Discontinued Operations	35

Liquidity and Capital Resources	35

Investment Assets	39

Market Risk of Financial Instruments	41

Cautionary Statement	42

INTRODUCTION

In this filing and in other marketplace communications, CIGNA makes certain predictions relating to its operations. Generally, forward-looking statements can be identified through the use of predictive words (e.g., “Outlook for 2003”). Actual results may differ from CIGNA’s predictions. Some factors that could cause results to differ are discussed throughout Management’s Discussion and Analysis, including in the Cautionary Statement on page 42.

The following discussion addresses the financial condition of CIGNA as of September 30, 2003, compared with December 31, 2002, and its results of operations for the quarter and nine months ended September 30, 2003, compared with the same periods last year. This discussion should be read in conjunction with Management’s Discussion and Analysis included in CIGNA’s 2002 Annual Report to Shareholders, to which the reader is directed for additional information.

Segment Reporting Changes

In addition, CIGNA has renamed its segments to Health Care, Disability and Life, Retirement, International, Run-off Reinsurance and Other Operations.

Charges for Run-off Reinsurance

In the second quarter of 2003, CIGNA recognized an after-tax charge of $286 million ($441 million pre-tax) related to a review of reserves for certain specialty life reinsurance contracts.

In the third quarter of 2002, CIGNA recognized an after-tax charge of $720 million ($1.1 billion pre-tax) to strengthen reserves related to these contracts and the adoption of a program to substantially reduce equity market risks also related to these contracts. In addition, CIGNA recognized an after-tax charge of $317 million ($408 million pre-tax) in the third quarter of 2002 for Unicover and other run-off reinsurance exposures, including London reinsurance business.

See the Run-off Reinsurance segment beginning on page 31 for further information on these charges.

Acquisitions and Dispositions

CIGNA may from time to time acquire or dispose of assets, subsidiaries or lines of business. Significant transactions are described below.

Restructuring Programs

CIGNA expects this restructuring program to be substantially completed by year end 2003 and does not expect cash outlays under this program to have a significant effect on liquidity. CIGNA expects the program to result in net annual after-tax savings of approximately $100 million in 2003 and approximately $150 million beginning in 2004, reflecting the elimination of salary costs for terminated employees and lower facility costs.

The table below shows CIGNA’s restructuring activity (pre-tax) related to severance and real estate for this program:


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


Balance as of
December 31, 2002	3,177		$112		$34		$146
First quarter 2003 activity:
Employees	(1,495	)	(28	)			(28	)
Lease costs					(1	)	(1	)
Second quarter 2003 activity:
Employees	(501	)	(22	)			(22	)
Lease costs					(3	)	(3	)
Reduction of
remaining balance	(236	)^*	(14	)	(1	)	(15	)
Third quarter 2003 activity:
Employees	(220	)	(15	)			(15	)
Lease costs					(3	)	(3	)

Balance as of
September 30, 2003	725		$33		$26		$59

^*Due to higher attrition.

As CIGNA continues its improvement efforts into 2004, additional expense reduction and productivity initiatives are likely.

Critical Accounting Estimates

The preparation of financial statements in accordance with generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect reported amounts and related disclosures in the financial statements. Management considers an accounting estimate to be critical if:

•	it requires assumptions to be made that were uncertain at the time the estimate was made; and

•	changes in the estimate or different estimates that could have been selected could have a material impact on CIGNA's consolidated results of operations or financial condition.

CIGNA's most critical accounting estimates, as well as the effects of hypothetical changes in material assumptions used to develop each estimate, are described in CIGNA's 2002 Annual Report to Shareholders beginning on page 22 and include the following, with the updated effects of hypothetical changes disclosed parenthetically:

•	future policy benefits - variable annuity death benefits (a 10% increase in future partial withdrawal assumptions would reduce net income by $10 million. See Specialty life reinsurance contracts on page 32 for further discussion);

•	unpaid claims and claim expenses for guaranteed cost, minimum premium programs and retrospectively experience-rated health care products (a 1% increase in assumed medical cost trend would reduce net income by approximately $45 million);

•	reinsurance recoverables for Run-off Reinsurance ; and

•	investments - recognition of losses from "other than temporary" impairments of public and private placement fixed maturities.

In addition, there are other accounting estimates used in the preparation of CIGNA’s consolidated financial statements, including liabilities for unpaid claims and claim expenses and future policy benefits other than those identified above, as well as pension, post employment and postretirement benefits, certain compensation accruals and income taxes.

Management believes the current assumptions and other considerations used to estimate amounts reflected in CIGNA’s consolidated financial statements are appropriate. However, if actual experience differs from the assumptions and other considerations used in estimating amounts reflected in CIGNA’s consolidated financial statements, the resulting changes could have a material adverse effect on CIGNA’s consolidated results of operations, and in certain situations, could have a material adverse effect on CIGNA’s financial condition.

Regulatory and Industry Developments

CIGNA’s businesses are subject to a changing social, economic, legal, legislative and regulatory environment. Some 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 large corporations, 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 were named as defendants in federal and state purported class action lawsuits. A Florida federal court handling this multi-district litigation matter certified a class of physicians who allege violations under the Racketeer Influenced and Corrupt Organizations Act and ERISA. The Florida federal court denied class certification to health plan subscribers. During the second quarter of 2003, CIGNA settled these subscriber cases for minimal amounts.

An Illinois state court certified a class action lawsuit against CIGNA by health care providers alleging breach of contract and seeking increased reimbursements. This state action was amended to include federal claims and was removed to federal court in Illinois where a settlement was filed and preliminarily approved. The case was then transferred to federal court in Florida as part of the multi-district litigation described above. In September 2003, the federal court in Florida preliminarily approved a settlement agreement between the physician class and CIGNA, and scheduled a fairness hearing for December 2003. Upon final approval by the court, the settlement would resolve for CIGNA and the plaintiffs all physician claims reflected in the Florida multi-district litigation, including the Illinois case transferred to federal court in Florida.

CIGNA is routinely involved in numerous lawsuits and other legal matters arising, for the most part, in the ordinary course of the business of

administering and insuring employee benefit programs. An increasing number of claims are being made for substantial non-economic, extra-contractual or punitive damages. The outcome of litigation and other legal matters is always uncertain, and outcomes that are not justified by the evidence can occur. CIGNA believes that it has valid defenses to the legal matters pending against it and is defending itself vigorously. Nevertheless, it is possible that resolution of one or more of the legal matters currently pending or threatened could result in losses 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 Note 12 to the Financial Statements.

Other Matters

CIGNA is exploring strategic alternatives to further maximize the value of its retirement and investment services business.

CIGNA is conducting account reviews related to contracts associated with its retirement and leveraged corporate life insurance businesses. The reviews, which are expected to be completed in the fourth quarter of 2003, may result in adjustments, which could have a neutral to material positive effect on CIGNA’s consolidated net income. The potential adjustments are expected to be reflected in the Retirement and Other Operations segments in the fourth quarter of 2003.

Accounting Pronouncements

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

CONSOLIDATED RESULTS OF OPERATIONS


FINANCIAL SUMMARY	Three Months Ended September 30,			Nine Months Ended September 30,
(In millions)	2003	2002		2003	2002


Premiums and fees	$3,841	$3,900		$11,615	$11,754
Net investment income	623	663		1,949	2,053
Other revenues	260	578		616	1,043
Realized investment gains
(losses)	49	(58	)	127	(250	)

Total revenues	4,773	5,083		14,307	14,600
Benefits and expenses	4,492	6,362		13,821	15,222

Income (loss) from
continuing operations
before taxes (benefits)	281	(1,279	)	486	(622	)
Income taxes (benefits)	86	(405	)	156	(181	)

Income (loss) from
continuing operations	195	(874	)	330	(441	)
Income (loss) from
discontinued operations	--	(3	)	48	(4	)

Net income (loss)	$195	$(877	)	$378	$(445	)

Realized investment gains
(losses), net of taxes	$32	$(40	)	$83	$(164	)

Net Income (Loss)

Net income (loss) is determined in accordance with GAAP, and includes both income (loss) from continuing operations (including realized investment gains (losses), net of taxes) and discontinued operations.

Income (loss) from continuing operations increased significantly for the third quarter and nine months of 2003, compared with the same periods last year, primarily due to reduced losses in the Run-off Reinsurance segment and improved results in the International segment as well as improved after-tax realized investment results. These improvements were partially offset by lower results in the Health Care segment. Segment results are discussed in more detail below.

Income (loss) from discontinued operations for the nine months of 2003 primarily reflects the after-tax gains on the sales of Lovelace and the Brazilian health care operations. Income (loss) from discontinued operations for the third quarter and nine months of 2002 reflects operating losses from Lovelace. See “Acquisitions and Dispositions” on page 20 for additional information.

In order to facilitate an understanding and comparison of results of operations, the following table presents special items, which management believes are not representative of the underlying results of continuing operations.


SPECIAL ITEMS (In millions)	Pre-Tax Benefit (Charge)		After-Tax Benefit (Charge)

Three Months Ended September 30,

2003

Health care provider litigation	$(57	)	$(37	)
Intangible asset write-off for provider
contracts	(16	)	(10	)
Gain on sale of Japanese pension
operations	8		5
Gain on other postretirement benefits	1		1

Total	$(64	)	$(41	)

2002

Reserve charge on certain specialty life
reinsurance contracts	$(1,108	)	$(720	)
Charge for Unicover and London
reinsurance matters	(408	)	(317	)
Accelerated recognition of deferred gain
on sale of life reinsurance business	1		1

Total	$(1,515	)	$(1,036	)

Nine Months Ended September 30,

2003

Health care provider litigation	$(57	)	$(37	)
Intangible asset write-off for provider
contracts	(16	)	(10	)
Reserve charge on certain specialty life
reinsurance contracts	(441	)	(286	)
Gain on sale of Japanese pension
operations	8		5
Restructuring items, net^*	2		1
Gain on other postretirement benefits	10		7

Total	$(494	)	$(320	)

2002

Reserve charge on certain specialty life
reinsurance contracts	$(1,108	)	$(720	)
Charge for Unicover and London
reinsurance matters	(408	)	(317	)
Accelerated recognition of deferred gain
on sale of life reinsurance business	4		3

Total	$(1,512	)	$(1,034	)

Revenues

Total revenues for the third quarter and nine months of 2003 compared with the same periods last year were impacted by:

•	losses recognized from futures and forward contracts, compared to gains in the prior year, in connection with the program to reduce equity market risks (see specialty life reinsurance contracts on page 32);

•	the absence of ceded premiums returned to CIGNA in 2002 as a result of the Unicover arbitration ruling (see page 33); and

•	lower membership in the Health Care segment.

These decreases were substantially offset by:

•	realized investment gains, compared with losses in the prior year (see further discussion below); and

•	increased revenues from certain specialty health care operations (reported in other revenues).

Realized Investment Gains (Losses)

The improvement in realized investment results for the third quarter and nine months of 2003, compared with the same periods last year primarily reflects:

•	gains on sales of fixed maturities and equity securities compared with losses in the prior year;

•	higher gains on sales of real estate investments;

•	lower impairments on real estate investments for the nine months of 2003; and

•	impairment losses associated with the settlement annuity business in the Other Operations segment.

The weakness in certain sectors of the economy may cause investment losses in the future. Refer to “Investment Assets” beginning on page 39 for further information.

_________________
^*Restructuring items for the nine months of 2003 include a reduction of costs of $10 million after-tax ($15 million pre-tax) associated with the 2002 program, and a charge of $9 million after-tax ($13 million pre-tax) associated with the Corporate Effectiveness Initiative (see page 20).

Stock Market Performance

The performance of equity markets can have a significant effect on CIGNA’s businesses including:

•	risks and exposures associated with certain specialty life reinsurance contracts (see page 32);

•	earnings for the retirement business because declines in assets under management reduce asset-based fees (see page 30); and

•	minimum pension liabilities since equity securities comprise a key portion of the assets of CIGNA's employee pension plans.

Minimum Pension Liability

Outlook for 2003 and 2004

Subject to the factors noted in the Cautionary Statement on page 42, management expects full year 2003 income from continuing operations excluding realized investment gains (losses) and special items to be lower than the comparable 2002 amount (see page 19 of CIGNA’s 2002 Annual Report to Shareholders). This lower outlook for 2003 primarily reflects expected lower earnings in the Health Care segment due to:

•	higher expected medical costs due to higher unit costs and increased utilization as well as the impact of reprocessing certain 2002 claims;

•	lower expected membership levels; and

•	higher expected expenses per member, including costs to comply with the requirements of HIPAA (see page 22).

Information is not available for management to reasonably estimate realized investment gains (losses) or special items for 2003 (with the exception of gains associated with other postretirement benefits discussed on page 27). Refer to page 25 for special items recognized through the nine months of 2003. Realized investment gains, net of taxes, were $83 million for the nine months of 2003, however realized investment results are not predictable and therefore this amount is not necessarily indicative of full year results.

CIGNA expects income from continuing operations excluding realized investment gains (losses) and special items in 2004 to be higher than the comparable 2003 amount. This expectation primarily reflects improved results in the Health Care segment. Special items in 2004 will include the effect of adopting a new accounting standard (see Note 2 for further discussion) and may include any charges incurred related to expense reduction initiatives.

Segment Analysis

CIGNA’s operating segments generally reflect groups of related products, but the International segment is based on geography. As discussed on page 19, CIGNA changed its segment presentation in the third quarter of 2003. CIGNA measures the financial results of its segments using “segment earnings,” which is defined as income (loss) from continuing operations before realized investment gains (losses).

HEALTH CARE


FINANCIAL SUMMARY	Three Months Ended September 30,				Nine Months Ended September 30,
(In millions)	2003		2002		2003		2002


Premiums and fees	$3,068		$3,135		$9,308		$9,451
Net investment income	66		70		208		227
Other revenues	291		248		842		654

Segment revenues	3,425		3,453		10,358		10,332
Benefits and expenses	3,310		3,258		9,908		9,534

Income before taxes	115		195		450		798
Income taxes	40		66		165		282

Segment earnings	$75		$129		$285		$516

Realized investment gains
(losses), net of taxes	$25		$(7	)	$36		$(43	)

Special items (after-tax) included
in segment earnings:
Health care provider litigation	$(37	)	$--		$(37	)	$--
Intangible asset write-off
for provider contracts	$(10	)	$--		$(10	)	$--
Restructuring	$--		$--		$10		$--
Gains on other
postretirement benefits	$1		$--		$7		$--

Results

Health Care segment earnings decreased 42% for the third quarter, and 45% for the nine months of 2003, compared with the same periods last year.

CIGNA reports the results of this segment in two parts, 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 and pharmaceutical fulfillment services. Indemnity includes medical and dental indemnity, and that portion of CIGNA’s group disability and life insurance business that continues to be managed by the health care business.

Segment earnings for the HMO and Indemnity operations were as follows:


	Three Months Ended September 30,			Nine Months Ended September 30,
(In millions)	2003		2002	2003	2002


HMO operations	$92		$124	$277	$374
Indemnity operations	(17	)	5	8	142

Total	$75		$129	$285	$516

Special items (after-tax) included in segment earnings for the HMO and Indemnity operations were as follows:

•	a third quarter 2003 charge for health care provider litigation of $37 million ($19 million for the HMO operations and $18 million for the Indemnity operations);

•	a third quarter 2003 write-off of $10 million in intangible assets for the HMO operations related to provider contracts that have been terminated or substantially amended;

•	gains on other postretirement benefits of $1 million for the third quarter and $7 million for the nine months of 2003 ($1 million for the third quarter and $4 million for the nine months of 2003 for the HMO operations and $3 million for the nine months of 2003 for the Indemnity operations); and

•	gains of $6 million for the HMO operations and $4 million for the Indemnity operations (see page 20) for the nine months of 2003 resulting from a reduction in the charge for the fourth quarter 2002 restructuring program.

HMO results, excluding the special items noted above, declined $4 million for the third quarter and $78 million for the nine months of 2003, compared with the same periods last year, primarily due to:

•	increased medical costs (primarily for inpatient services) in the guaranteed cost HMO business; and

•	lower membership and higher operating expenses per member in both the guaranteed cost HMO business and HMO Administrative Services Only (ASO) programs.

These factors were partially offset by improved results in pharmaceutical fulfillment services.

The nine months of 2003 also reflects higher prior year claim experience, including the impact of reprocessing certain 2002 claims.

Indemnity results, excluding the special items noted above, declined $4 million for the third quarter and $123 million for the nine months of 2003, compared with the same periods last year. These declines are primarily due to:

•	lower membership and higher operating expenses per member in indemnity ASO programs; and

•	increased medical cost trend in the guaranteed cost business.

These declines were partially offset by improved results in experience-rated business reflecting margin improvements on renewing business, increased margins on new business and higher gains from the cancellation of certain cases.

The nine months of 2003 also reflects higher prior year claim experience, including the impact of reprocessing certain 2002 claims.

Premiums and Fees

Premiums and fees decreased 2% for the third quarter and nine months of 2003 due to a decline in membership which was substantially offset by rate increases.

Premium Equivalents

A significant portion of CIGNA’s health care business consists of ASO programs where the

customer self-funds all of their claims and minimum premium programs where the customer self-funds a portion of their claims. Under ASO programs, the customer or plan sponsor, rather than CIGNA, assumes the risk for claim costs incurred. Under minimum premium programs, the policyholder assumes the risk and self-funds claims up to a predetermined aggregate, maximum amount, and CIGNA bears the risk for claim costs incurred in excess of that amount.

“Premium equivalents” generally equal paid claims under ASO and minimum premium 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. Premium equivalents do not represent premium and fee revenue recognized under GAAP. Management uses premium equivalents as an indicator of business volume associated with ASO and minimum premium programs. “Adjusted premiums and fees” consists of premiums and fees plus premium equivalents, which management believes is a useful measure of volume to evaluate CIGNA’s health care operations as a whole.

Premiums and fees associated with ASO programs were $413 million for the third quarter and $1.3 billion for the nine months of 2003, compared with $404 million for the third quarter and $1.3 billion for the nine months of 2002.

Premiums and fees associated with minimum premium programs were $74 million for the third quarter and $185 million for the nine months of 2003, compared with $78 million for the third quarter and $215 million for the nine months of 2002.

Adjusted premiums and fees for the Health Care segment were as follows:


	Three Months Ended September 30,		Nine Months Ended September 30,
(In millions)	2003	2002	2003	2002


Premiums and fees	$3,068	$3,135	$9,308	$9,451
Premium equivalents	5,890	5,713	18,101	16,632

Adjusted premiums and fees	$8,958	$8,848	$27,409	$26,083

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

Net Investment Income

Net investment income decreased 6% for the third quarter and 8% for the nine months of 2003 compared with the same periods last year primarily resulting from lower yields.

Other Revenues

Other revenues increased 17% for the third quarter and 29% for the nine months of 2003 compared with the same periods last year primarily due to growth in the specialty health care operations, predominantly in pharmaceutical fulfillment services and medical cost and utilization management services.

Medical Membership

As of September 30, medical membership was as follows for the HMO and Indemnity operations:


(In millions)	2003	2002

HMO	6.2	6.7
Indemnity (estimated)	5.6	6.4

The decline in HMO medical membership is primarily due to lower guaranteed cost HMO program membership, and, to a lesser extent, declines in HMO ASO programs.

The decline in Indemnity medical membership primarily reflects cancellations of, and lower enrollment in, Preferred Provider Organization (PPO) plans and, to a lesser extent, declines in traditional indemnity programs.

Other Matters

CIGNA continues to focus on improving operational effectiveness and financial results in its health care operations. Key areas of focus include: reducing medical cost trend; stabilizing and growing medical membership; continuing to deliver improved quality service; and driving operating efficiency. CIGNA expects successful execution of these initiatives to improve results.

DISABILITY AND LIFE


FINANCIAL SUMMARY	Three Months Ended September 30,			Nine Months Ended September 30,
(In millions)	2003	2002		2003	2002


Premiums and fees	$439	$396		$1,294	$1,230
Net investment income	60	62		181	195

Segment revenues	499	458		1,475	1,425
Benefits and expenses	456	422		1,341	1,313

Income before taxes	43	36		134	112
Income taxes	11	8		33	26

Segment earnings	$32	$28		$101	$86

Realized investment gains
(losses), net of taxes	$19	$(10	)	$41	$(37	)

The Disability and Life segment includes group accident and specialty association business in addition to its disability and life products.

Results

Disability and Life segment earnings increased by 14% for the third quarter and 17% for the nine months of 2003 compared to the same periods last year primarily due to higher earnings in the disability business due to improved claim experience and improved margins in the life business. These increases were partially offset by lower results in the specialty business.

Premiums and Fees

Premiums and fees increased 11% for the third quarter and 5% for the nine months of 2003 compared to the same periods last year reflecting higher new business and strong retention in both disability and life products.

RETIREMENT


FINANCIAL SUMMARY	Three Months Ended September 30,			Nine Months Ended September 30,
(In millions)	2003	2002		2003	2002


Premiums and fees	$78	$72		$251	$248
Net investment income	379	409		1,191	1,248

Segment revenues	457	481		1,442	1,496
Benefits and expenses	376	403		1,200	1,252

Income before taxes	81	78		242	244
Income taxes	23	21		70	73

Segment earnings	$58	$57		$172	$171

Realized investment gains
(losses), net of taxes	$11	$(23	)	$15	$(79	)

Results

Retirement segment earnings increased 2% for the third quarter and 1% for the nine months of 2003 compared with the same periods last year. Results for the third quarter of 2003 reflect higher fees due to asset appreciation, partially offset by lower interest earnings. In addition to the above factors, the nine months of 2003 also includes the impact of a shift to higher margin products.

Revenues

Premiums and fees are principally:

•	asset management fees on separate account assets (fees on general account assets are netted against benefits, losses and settlement expenses);

•	administrative charges on general and separate account assets;

•	amounts earned from non-leveraged corporate life insurance; and

•	premiums from single premium group annuity business.

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.

Premiums and fees increased 8% for the third quarter of 2003 compared with the same period last year mainly due to the impact of equity appreciation on asset-based fees. Premiums and fees increased 1% for the nine months of 2003 compared to the same period last year due to product shift into separate accounts, partially offset by the impact of equity depreciation on asset-based fees.

Assets Under Management

Assets under management consist of invested assets and separate account assets, as well as third-party investment advisory account assets in the Retirement segment. Assets under management are a determinant of earnings for this segment because a significant portion of this segment’s revenues is based on asset values.

The following table shows assets under management and the related activity for the nine months ended September 30.


(In millions)	2003		2002

Balance--January 1	$53,757		$55,306
Premiums and deposits	5,572		6,764
Investment income	1,795		1,858
Increase (decrease) in fair
value of assets	2,819		(5,337	)
Customer withdrawals	(2,548	)	(1,807	)
Other, including participant
withdrawals and benefit
payments	(4,987	)	(3,455	)

Balance--September 30	$56,408		$53,329

Changes in assets under management are discussed below.

Premiums and deposits. For the nine months of 2003, approximately 70% of premiums and deposits were from existing customers, and 30% were from sales to new customers and new plan sales to existing customers. For the nine months of 2002, approximately 68% of premiums and deposits were from existing customers, and 32% were from sales to new customers and new plan sales to existing customers.

Fair value of assets. The fair value of assets under management fluctuates because of changes in the market value of fixed maturities, related derivatives and equity securities. The increase in fair value of assets in 2003 was primarily attributable to market value appreciation of equity securities in separate accounts, compared with depreciation of these securities in 2002.

Customer withdrawals. Withdrawals were higher in 2003 primarily due to three large customer withdrawals in the defined contribution business.

Other. The increase is primarily due to the fluctuation of certain separate account assets supporting retiree benefits obligations.

Other Matters

INTERNATIONAL


FINANCIAL SUMMARY	Three Months Ended September 30,		Nine Months Ended September 30,
(In millions)	2003	2002	2003	2002


Premiums and fees	$215	$210	$636	$611
Net investment income	10	13	36	37
Other revenues	11	--	12	3

Segment revenues	236	223	684	651
Benefits and expenses	206	211	621	614

Income before taxes	30	12	63	37
Income taxes	10	4	22	13

Segment earnings	$20	$8	$41	$24

Realized investment gains,
net of taxes	$--	$1	$5	$2

Special item (after-tax) included in
segment earnings:
Gain on sale of Japanese
pension operations	$5	$--	$5	$--

Results

International segment earnings increased for the third quarter and nine months of 2003 compared with the same periods last year partially due to

the gain on sale of the Japanese pension operations. Excluding the gain on sale, segment earnings increased significantly for the third quarter and nine months of 2003, primarily due to the absence of losses from the sold Brazilian health care and pension operations as well as favorable adjustments on other exited business.

The nine months of 2003 also reflects growth in the expatriate employee benefit business.

Premiums and Fees

Premiums and fees increased 2% for the third quarter and 4% for the nine months of 2003 compared to the same periods last year reflecting:

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

•	higher premiums and fees for the expatriate employee benefit business.

These increases were partially offset by the absence of premiums and fees from the Brazilian health care and pension operations (see page 20), which CIGNA sold in January 2003. Excluding the impact of these divestitures, premiums and fees increased 12% for the third quarter and 13% for the nine months of 2003.

International Expansion

In September 2003, CIGNA formed a joint venture to begin marketing and selling insurance products in Shenzhen, China. CIGNA expects to incur start-up costs and additional investments may be required in order for this joint venture to achieve profitable operations. Certain risks are inherent in expanding in emerging markets and these investments are routinely monitored for potential impairment.

RUN-OFF REINSURANCE


FINANCIAL SUMMARY	Three Months Ended September 30,				Nine Months Ended September 30,
(In millions)	2003		2002		2003		2002


Premiums and fees	$21		$61		$58		$123
Net investment income	22		9		57		31
Other revenues	(72	)	301		(327	)	304

Segment revenues	(29	)	371		(212	)	458
Benefits and expenses	1		1,908		299		1,997

Loss before income tax
benefits	(30	)	(1,537	)	(511	)	(1,539	)
Income tax benefits	(10	)	(485	)	(170	)	(484	)

Segment loss	$(20)		$(1,052	)	$(341	)	$(1,055	)

Realized investment gains
(losses), net of taxes	$4		$(1	)	$13		$(5	)

Special items (after-tax)
included in segment loss:
Reserve charge on certain
specialty life reinsurance
contracts	$--		$(720	)	$(286	)	$(720	)
Charge for Unicover and
London reinsurance matters	$--		$(317	)	$--		$(317	)
Accelerated recognition of
deferred gain on sale of
life reinsurance business	$--		$1		$--		$3

Results

Segment loss for Run-off Reinsurance was lower for the third quarter and nine months of 2003 compared with the same periods last year, due to higher reserve charges in 2002 related to certain specialty life reinsurance contracts as well as Unicover and London reinsurance matters. See further discussion under Other Matters.

Excluding the special items noted above, segment loss for the third quarter of 2003 increased 25% primarily due to an increase in reserves for disputed contracts and higher losses in the workers’ compensation business. These losses were partially offset by gains on guaranteed minimum income benefit contracts (compared to losses in the prior year) due to equity market appreciation.

Excluding the special items noted above, segment loss increased for the nine months of 2003 due to:

•	increases in reserves for disputed contracts;

•	revised credit risk assumptions in the first quarter of 2003 relating to reinsurance recoverables on contracts that guarantee minimum income benefits;

•	higher losses in the personal accident business; and

•	higher losses in the workers' compensation business.

Premiums and Fees

Premiums and fees decreased 66% for the third quarter and 53% for the nine months of 2003 compared with the same periods last year primarily due to the absence of $47 million in ceded premiums returned in 2002 resulting from the Unicover arbitration ruling and the continuing runoff of the reinsurance business.

Net Investment Income

Net investment income increased significantly for the third quarter and nine months of 2003 primarily due to higher average assets, partially offset by lower yields.

Other Revenues

As discussed further below, CIGNA implemented a program to substantially reduce the equity market exposures for certain specialty life reinsurance contracts by selling exchange-traded futures contracts and foreign currency forward contracts. Other revenues include losses of $70 million for the third quarter and $326 million for the nine months of 2003 and gains of $300 million for the third quarter and nine months of 2002 from these contracts. Expense offsets reflecting corresponding changes in liabilities for these specialty life reinsurance contracts are included in benefits, losses and settlement expenses.

Other Matters

Specialty life reinsurance contracts. CIGNA’s reinsurance operations, which were discontinued in 2000 and are now an inactive business in run-off mode, reinsured a guaranteed minimum death benefit under certain variable annuities issued by other insurance companies. These variable annuities are essentially investments in mutual funds combined with a death benefit. CIGNA has equity market risks as a result of this product.

In the second quarter of 2003, CIGNA recognized a charge related to an analysis of recent experience and reserve assumptions for the variable annuity death benefit product. The after-tax charge to increase reserves was $286 million ($441 million pre-tax). The reserve increase included a charge relating to both actual and projected future partial surrenders, as well as updates to other assumptions such as mortality.

CIGNA had future policy benefit reserves for these specialty life reinsurance contracts of approximately $1.4 billion as of September 30, 2003 and December 31, 2002.

•	$620 million after-tax, principally reflecting the reduction in assumed future equity market returns as a result of implementing the program and, to a lesser extent, changes to the policy surrender, mortality, market volatility and

discount rate assumptions used in estimating the liabilities for these contracts; and

•	$100 million after-tax reflecting deterioration in equity markets that occurred in the third quarter of 2002 (prior to implementation of the program).

In the second quarter of 2003, CIGNA added foreign-denominated, exchange-traded futures contracts and foreign currency forward contracts to this program to reduce international equity market risks associated with this business. To support its program to reduce equity risks associated with this business, CIGNA expects to adjust the futures and forward contract positions and enter into other positions over time, to reflect changing equity market levels and changes in the investment mix of the underlying variable annuity investments. For further information and details on CIGNA’s exposures, the program adopted to reduce these exposures and reserve assumptions relating to these specialty life reinsurance contracts, refer to pages 32 and 33 of CIGNA’s 2002 Annual Report to Shareholders.

In the third quarter of 2002, CIGNA recorded an after-tax charge of $317 million ($408 million pre-tax) related to the completed Unicover arbitration and the London market exposures noted above. See Note 10 for more information.

Summary. CIGNA’s reserves for amounts recoverable from retrocessionaires, as well as for reserves for liabilities associated with underlying reinsurance exposures assumed by CIGNA, are considered appropriate as of September 30, 2003, based on current information. However, it is possible that future developments could have a material adverse effect on CIGNA’s consolidated results of operations and, in certain situations, could have a material adverse effect on CIGNA’s financial condition.

OTHER OPERATIONS


FINANCIAL SUMMARY	Three Months Ended September 30,			Nine Months Ended September 30,
(In millions)	2003		2002	2003		2002


Premiums and fees	$20		$26	$68		$91
Net investment income	86		100	276		310
Other revenues	48		44	142		129

Segment revenues	154		170	486		530
Benefits and expenses	125		143	395		447

Income before taxes	29		27	91		83
Income taxes	10		9	33		28

Segment earnings	$19		$18	$58		$55

Realized investment losses,
(net of taxes)	$(27	)	$--	$(27	)	$(2	)

Other Operations consists of:

•	deferred gains recognized from the 1998 sale of the individual life insurance and annuity business;

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

•	settlement annuity business; and

•	certain investment management services.

Results

Segment earnings for Other Operations increased 6% for the third quarter and 5% for the nine months of 2003 compared with the same periods last year. Improved results from investment management services were partially offset by:

•	a reduction in deferred gains recognized from the sale of the individual life insurance and annuity business; and

•	a decline in earnings in the leveraged corporate life insurance business due to the continuing runoff of this business.

Premiums and Fees

Premiums and fees decreased 23% for the third quarter and 25% for the nine months of 2003 compared with the same periods last year primarily due to lower premiums from leveraged corporate life insurance.

Other Revenues

Other revenues increased 9% for the third quarter and 10% for the nine months of 2003 compared with the same periods last year, driven by CIGNA’s investment management services.

Other Matters

CORPORATE


FINANCIAL SUMMARY	Three Months Ended September 30,				Nine Months Ended September 30,
(In millions)	2003		2002		2003		2002


Segment loss	$(21	)	$(22	)	$(69	)	$(74	)

Special items (after-tax)
included in segment loss:
Restructuring charge
(see page 20)	$--		$--		$(9	)	$--

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 loss decreased 5% for the third quarter and 7% for the nine months of 2003 compared with the same periods of the prior year primarily due to favorable tax adjustments. Results for the nine months of 2003 include higher expenses due to the charge related to CIGNA’s corporate effectiveness initiative (see page 20).

DISCONTINUED OPERATIONS


FINANCIAL SUMMARY	Three Months Ended September 30,			Nine Months Ended September 30,
(In millions)	2003	2002		2003		2002


Revenues	$--	$135		$--		$416

Loss before income tax
benefits	$--	$(5	)	$(3	)	$(6	)
Income tax benefits	--	(2	)	(1	)	(2	)

Loss from operations	--	(3	)	(2	)	(4	)
Gains on sales, net of
taxes of $25	--	--		50		--

Income (loss) from
discontinued operations	$--	$(3	)	$48		$(4	)

In January 2003, CIGNA sold the operations of Lovelace and recognized an after-tax gain of $32 million. Additionally, there was a $2 million after-tax loss from operations for the first quarter of 2003. In the fourth quarter of 2002, CIGNA began reporting this business as discontinued operations and prior period financial information has been reclassified.

In January 2003, CIGNA sold its Brazilian health care operations and recognized an after-tax gain of $18 million, primarily as a result of the disposition of the net liabilities associated with these operations. The gain is reported in discontinued operations. Because revenues, expenses and results of operations of the Brazilian health care operations are not material to CIGNA’s consolidated financial statements, prior period financial information has not been reclassified.

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.

Cash flows for the nine months ended September 30 were as follows:


(In millions)	2003		2002

Operating activities	$841		$694
Investing activities	$158		$39
Financing activities	$(613	)	$(184	)

Cash and cash equivalents increased $386 million in 2003 and increased $551 million in 2002.

Cash flows from operating activities consist of income (loss) from continuing operations adjusted for realized investment gains (losses) and the timing of cash receipts and disbursements for premiums and fees, investment income, taxes and benefits, losses and expenses.

Amounts shown for cash flows from operating, investing and financing activities are discussed below:

2003

•

The increase in cash flows from operating activities for the nine months of 2003 compared with the same period last year primarily reflects tax refunds of $326 million in 2003, primarily related to loss carrybacks, compared with tax and related payments of approximately $400 million in 2002. The favorable tax amounts were partially offset by:

Lower cash revenues of approximately $350 million resulting from losses of $326 million associated with futures and forward contracts entered into as part of a program to manage equity risks in the Run-off Reinsurance segment compared with gains of $300 million in 2002, partially offset by: 1) revenue growth in certain specialty health care operations; and 2) favorable timing of collections in the HMO and Indemnity health care operations; and

Higher cash expenses of approximately $225 million reflecting the payment of restructuring charges, growth in certain specialty health care operations and timing.

•	Cash provided by investing activities primarily consisted of proceeds on the sale of businesses ($226 million) and net sales and maturities of investments ($14 million), partially offset by net purchases of property and equipment ($67 million).

•	Cash used in financing activities consisted primarily of payments of dividends on common stock ($139 million), net withdrawals from contractholder deposit funds ($344 million) and repayment of debt ($130 million).

2002

•	Cash provided by investing activities primarily consisted of net proceeds from sales and maturities of investments ($262 million), partially offset by net acquisitions of property and equipment ($196 million).

•	Cash used in financing activities consisted primarily of payments of dividends on and repurchases of common stock ($493 million) and net deposits to contractholder deposit funds ($296 million).

Capital Resources

CIGNA’s capital resources (primarily retained earnings and proceeds from the issuance of long-term debt and equity securities) provide protection for policyholders, furnish the financial strength to underwrite insurance risks and facilitate continued business growth. Over the long term, CIGNA’s priorities for use of capital are internal growth, acquisitions and share repurchase. Given the capital needs of CIGNA’s principal subsidiary (Connecticut General Life Insurance Company, “CG Life”) primarily resulting from charges for the Run-off Reinsurance segment in 2002, CIGNA intends to retain capital and has suspended share repurchase.

Senior management and the Board of Directors, guided by regulatory requirements and rating agency capital guidelines, 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 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.

CIGNA had committed lines of credit available of $260 million as of September 30, 2003, and $215 million as of December 31, 2002. These lines are provided by U.S. banks and typically have terms ranging from one to three years. Approximately $160 million of CIGNA’s available lines of credit will expire within the next twelve months.

CIGNA has $43 million in nonrecourse obligations as of September 30, 2003. These obligations are secured by real estate properties with fair values in excess of the obligation and have no recourse to CIGNA’s other assets.

CIGNA had long-term debt outstanding of $1.5 billion as of September 30, 2003, and December 31, 2002. There was no short-term debt outstanding as of September 30, 2003, a decrease of $130 million from December 31, 2002.

In May 2003, CIGNA entered into a syndicated bank letter of credit agreement of $433 million in support of a potential internal reinsurance arrangement. No letters of credit are currently issued under the new agreement.

Liquidity and Capital Resources Outlook

The availability of resources at the parent/holding company level is dependent on dividends from CIGNA’s subsidiaries, most of which are subject to regulatory restrictions and rating agency capital guidelines. CIGNA expects, based on current projections for cash activity (including projections for dividends from subsidiaries), to have sufficient resources to:

•	provide for the capital requirements of its subsidiaries;

•	meet debt service requirements and pay dividends to CIGNA shareholders at the current dividend rate; and

•	satisfy pension plan funding requirements.

However, the demand for funds could exceed available cash if:

•	management uses cash for investment opportunities;

•	a substantial insurance or contractholder liability becomes due before related investment assets mature; or

•	regulatory restrictions prevent the insurance and HMO subsidiaries from distributing cash.

In those cases, CIGNA has the flexibility to satisfy liquidity needs through short-term borrowings. As stated above, CIGNA had available $260 million in committed bank lines of credit as of September 30, 2003.

Ratings

CIGNA and certain of its insurance subsidiaries are rated by nationally recognized rating agencies. The significance of individual ratings varies from agency to agency. However, companies assigned ratings at the top end of the range have, in the opinion of the rating agency, the strongest capacity for repayment of debt or payment of claims, while companies at the bottom end of the range have the weakest capacity. Ratings are always subject to change and there can be no assurance that CIGNA’s current ratings will continue for any given period of time.

As of October 30, 2003, the current ratings of CIGNA and CG Life were as follows:


	CG Life Insurance Ratings	CIGNA Corporation Debt Ratings

		Senior Debt	Commercial Paper

A.M. Best	A	--	--
Moody's	A2	Baa2	P2
S&P	A	BBB	A2
Fitch	A+	BBB+	F2

CIGNA believes the downgrades in 2003 in the financial strength rating of CG Life and CIGNA’s corporate debt could have an adverse effect on the retirement business and would increase the cost to borrow funds. Further changes in ratings could have an additional impact on CIGNA’s results.

Financial Guarantees

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

•

account values under these arrangements are invested primarily in fixed income investments and were $1.9 billion as of September 30, 2003, and $1.7 billion as of December 31, 2002. There were no additional liabilities required for these guarantees as of September 30, 2003, or December 31, 2002.

•

CIGNA has indemnification obligations to lenders up to $376 million as of September 30, 2003, and $280 million as of December 31, 2002, related to borrowings by certain real estate joint ventures in which CIGNA holds investments. These borrowings, which are nonrecourse to CIGNA, are secured by the joint ventures’ real estate properties, which have fair values in excess of the loan amounts, and mature at various dates from 2004 to 2015. CIGNA’s indemnification obligations would require payment to lenders for any actual damages resulting from certain acts such as unauthorized ownership transfers, misappropriation of rental payments by others or environmental damages. Based on initial and ongoing reviews of property management and operations, CIGNA does not expect that payments will be required under these indemnification obligations. Any payments that might be required could be recovered through a refinancing or sale of the assets. In some cases, CIGNA also has recourse to partners for their proportionate share of amounts paid. There were no liabilities required for these indemnification obligations as of September 30, 2003, or December 31, 2002.

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 is required to disclose the maximum potential undiscounted future payments for guarantees related to minimum income benefits using worst-case assumptions, defined as follows:

•	No annuitants surrendered their accounts, and

•	All annuitants lived to elect their benefits, and

•	All annuitants elected to receive their benefit on the first available date (beginning in 2004 through 2014), and

•	All underlying mutual fund investment values remained at the September 30, 2003 value of $3.0 billion, with no future returns.

As of September 30, 2003, CIGNA had liabilities of $98 million related to these contracts and amounts recoverable from reinsurers of $70 million. CIGNA had an additional liability of $41 million associated with the cost of reinsurance as of September 30, 2003. As of December 31, 2002, CIGNA had liabilities of $95 million related to these contracts and amounts recoverable from reinsurers of $76 million. CIGNA had an additional liability of $44 million associated with the cost of reinsurance as of December 31, 2002. Management believes the current assumptions used to estimate reserves for these liabilities are appropriate.

Share Repurchase

As a result of the increased capital requirements resulting primarily from reserve increases for the run-off reinsurance operations (see Specialty life reinsurance contracts beginning on page 32), CIGNA has suspended share repurchase and has not repurchased any shares of its common stock since July 18, 2002. The total remaining share repurchase authorization as of October 30, 2003, was $572 million. Share repurchase for the nine months ended September 30, 2002 was 3.5 million shares at a cost of $343 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, 7, 8 and 9 to the Financial Statements in CIGNA’s 2002 Annual Report to Shareholders and Form 10-K.


(In millions)	September 30, 2003	December 31, 2002

Fixed maturities	$29,027	$27,803
Equity securities	83	295
Mortgage loans	8,656	8,729
Policy loans	1,641	2,405
Real estate	295	253
Other long-term investments	718	791
Short-term investments	130	86

Total investment assets	$40,550	$40,362

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


	September 30, 2003	December 31, 2002

Fixed maturities	45%	48%
Mortgage loans	54%	56%
Real estate	52%	54%
Other long-term investments	31%	46%

Fixed Maturities and Mortgage Loans

Investments in fixed maturities (bonds) include publicly traded and privately placed debt securities, mortgage-backed and other asset-backed securities and redeemable preferred stocks.

CIGNA’s investment in collateralized debt obligations, which is classified as fixed maturities and is secured by pools of corporate debt obligations, as of September 30, 2003, was $215 million compared with $228 million as of December 31, 2002, excluding policyholder share. CIGNA recorded after-tax losses of $4 million ($6 million pre-tax) for the third quarter and nine months of 2003 for these investments. CIGNA recorded after-tax losses of $1 million ($2 million pre-tax) for the third quarter and $16 million ($25 million pre-tax) for the nine months of 2002.

CIGNA’s mortgage loans are diversified by property type, location and borrower to reduce exposure to potential losses.

Securities on Loan

To earn additional portfolio returns for CIGNA and its customers, CIGNA began lending certain securities to major brokerage firms through an agent during the second quarter of 2003. CIGNA retains the risks and rewards of ownership of these securities loaned and the agent indemnifies CIGNA for their return at CIGNA’s demand. Cash collateral is received and must be maintained daily at least equal to 100% of the fair value of securities loaned. Cash collateral is invested by CIGNA in high quality, shorter term instruments such as U.S. Treasury bills, high-grade commercial paper and fixed maturities. CIGNA provides a contractual rate of return on collateral held and bears any risk of loss on the collateral.

Review of Declines in Fair Value

Management estimates the amount of “other than temporary” impairment when a decline in the value of fixed maturities or equity securities is expected to persist. Management reviews fixed maturities and equity securities for impairment based on criteria that include:

•	length of time of decline;

•	financial health and specific near term prospects of the issuer; and

•	changes in the regulatory, economic or general market environment of the issuer's industry or geographic region.

As of September 30, 2003, fixed maturities with fair values lower than cost on which no impairment has been recognized (excluding amounts attributable to policyholder contracts) were as follows:


(In millions)	Fair Value		Amortized Cost		Unrealized Loss

One year or less:
Investment grade	$	1,289	$	1,325	$	36
Below investment grade	$	107	$	113	$	6
More than one year:
Investment grade	$	114	$	124	$	10
Below investment grade	$	145	$	152	$	7

Equity securities with fair values lower than cost on which no impairment has been recognized were not significant as of September 30, 2003.

Problem and Potential Problem Investments

“Problem” bonds and mortgage loans are either 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. This resulted in lower net income of $3 million for the third quarter and $6 million for the nine months of 2003, compared to $3 million for the third quarter and $10 million for nine months of 2002. These amounts would have been recorded if interest on problem investments had been recognized in accordance with the original terms of these investments.

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 (including amounts attributable to policyholder contracts):


(In millions)	September 30, 2003	December 31, 2002

Problem bonds	$162	$182
Potential problem bonds	$193	$243
Problem mortgage loans	$24	$48
Potential problem mortgage loans	$363	$191
Foreclosed real estate held and used	$76	$76
Foreclosed real estate held for sale	$--	$18

The increase in potential problem mortgage loans reflects an increase in loans that CIGNA is closely monitoring. These loans do not require an increase in reserves at this time.

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 September 30,		Nine Months Ended September 30,
(In millions)	2003	2002	2003	2002


CIGNA	$39	$18	$65	$115
Policyholder contracts	$5	$40	$34	$165

CIGNA’s portion of these losses is a component of realized investment results, which are discussed on page 25.

The weakness in certain sectors of the economy is likely to cause additional investment losses. These investment losses could materially affect future results of operations, although CIGNA does not currently expect them to have a material effect on its 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.

CIGNA began using futures contracts in the third quarter of 2002 as part of a program to substantially reduce the effect of equity market changes on certain specialty life reinsurance contracts that guarantee minimum death benefits based on unfavorable changes in variable annuity account values. During the second quarter of 2003, CIGNA began using foreign-denominated, exchange-traded futures contracts and foreign currency forward contracts to reduce international equity market risks associated with these specialty life reinsurance contracts. The hypothetical effect of a 10% increase in the S&P 500, Russell 2000, NASDAQ, TOPIX (Japanese) and PAN-EURO equity indices and a 10% weakening in the U.S. dollar to the Japanese yen and Euro would have been a decrease of approximately $210 million in the fair value of the futures and forward contracts outstanding under this program as of September 30, 2003. A corresponding decrease in liabilities for certain specialty life reinsurance contracts would result from the hypothetical 10% increase in these equity indices and 10% weakening in the U.S. dollar. See Note 4 to the Financial Statements for further discussion of this program and the related specialty life reinsurance contracts.

See also page 26 for a discussion of the effects of recent stock market declines on CIGNA.

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. Forward-looking statements may contain information about financial prospects, economic conditions, trends and other uncertainties. For example, this Management’s Discussion and Analysis includes forward-looking information regarding, among other things, CIGNA’s restructuring programs and activities, estimated incremental expenses associated with HIPAA compliance efforts, litigation and other legal matters, and the outlook for CIGNA’s full year 2003 and 2004 results. You should not place undue reliance on these forward-looking statements. 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:

1.	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;

2.	increased medical, administrative, technology or other costs resulting from legislative and regulatory challenges to, and new regulatory requirements imposed on, CIGNA's health care business (see Health care regulation on page 22 for more information);

3.	challenges and risks associated with implementing the planned improvement initiatives in the health care operations, including that operational efficiencies and medical cost benefits do not emerge as expected;

4.	risks associated with the strategic alternatives CIGNA is considering for the retirement and investment services business;

5.	risks associated with pending and potential state and federal health care class action lawsuits, purported securities class action lawsuits, disputes regarding reinsurance arrangements, other litigation challenging CIGNA's businesses and the outcome of pending government proceedings;

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

7.	significantly greater than expected reductions in medical membership;

8.	significant changes in interest rates;

9.	downgrades in the financial strength ratings of CIGNA's insurance subsidiaries, which could, among other things, adversely affect new sales and retention of current business, particularly in the retirement business;

10.	limitations on the ability of CIGNA's insurance subsidiaries to dividend capital to the parent company as a result of downgrades in the subsidiaries' financial strength ratings, changes in statutory reserve requirements or other financial constraints;

11.

inability of the program adopted by CIGNA to substantially reduce equity market risks for reinsurance contracts that guarantee minimum death benefits under certain variable annuities (including possible market difficulties in entering into appropriate futures and forward contracts and in matching such contracts to the underlying equity risk);

12.	adjustments to the reserve assumptions and other considerations (including lapse, partial surrender, mortality, interest rates and volatility) used in estimating CIGNA's liabilities for reinsurance contracts that guarantee minimum death benefits under certain variable annuities;

13.	adjustments to the reserve assumptions used in estimating CIGNA's liabilities for reinsurance contracts that guarantee minimum income benefits under certain variable annuities;

14.	significant stock market declines, which could, among other things, reduce results in CIGNA's retirement business and result in increased pension expenses from CIGNA's pension plan in future periods and the recognition of additional pension obligations;

15.	unfavorable claims experience related to workers' compensation and personal accident exposures of the run-off reinsurance business, including losses attributable to the inability to recover claims from retrocessionaires;

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

17.	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 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.

Item 4. Controls and Procedures

Based on an evaluation of the effectiveness of CIGNA’s disclosure controls and procedures, CIGNA’s Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, CIGNA’s disclosure controls and procedures are effective to ensure that information required to be disclosed by CIGNA in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms.

There have been no changes in CIGNA’s internal control over financial reporting identified in connection with the evaluation described in the above paragraph that have materially affected, or are reasonably likely to materially affect, CIGNA’s internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

CIGNA described Shane v. Humana, Inc., et al. and Mangieri v. CIGNA Corporation as well as Kaiser and Corrigan v. CIGNA Corporation, et al. in its Form 10-K for the year ended December 31, 2002. Kaiser was transferred to the federal district court for the Southern District of Florida as part of the multi-district litigation involving Shane and Mangieri. In September 2003, this Florida federal court preliminarily approved a settlement agreement between the physician class and CIGNA. The federal court scheduled a fairness hearing for December 2003. Upon final approval by the court, the settlement would resolve for CIGNA and the plaintiffs all physician claims reflected in the Florida multi-district litigation, including the Kaiser case.

In its Form 10-K for the year ended December 31, 2002, CIGNA described several purported class action lawsuits, as well as two shareholder derivative complaints nominally brought on behalf of CIGNA, filed in federal court in the Eastern District of Pennsylvania against CIGNA and certain of its officers and directors. These suits have been consolidated as In re CIGNA Corp. Securities Litigation. CIGNA filed a motion to dismiss this case during the third quarter of 2003.

CIGNA described In re CIGNA Corp. ERISA Litigation in its Form 10-Q for the quarter ended March 31, 2003. CIGNA filed a motion to dismiss this case during the third quarter of 2003.

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

(a)

See Exhibit Index.

(b)

During the quarterly period ended September 30, 2003, and between such date and the filing of this Form 10-Q, CIGNA filed or furnished the following reports on Form 8-K:

•

dated October 31, 2003, Item 12 - containing a news release regarding its third quarter 2003 results.

•

dated September 9, 2003, Item 9 - containing a Regulation FD Disclosure.

•

dated September 3, 2003, Items 5 and 7 - containing a news release announcing the settlement of the physician class action lawsuits.

SIGNATURE

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


	CIGNA CORPORATION



	By:	/s/ Michael W. Bell
		Michael W. Bell Executive Vice President and Chief Financial Officer

Date: October 31, 2003

Exhibit Index

Number	Description	Method of Filing

10.1	Schedule regarding Deferred Stock Unit Agreements dated August 6, 2003 with Messrs. Hanway and Kendall and Form of Deferred Stock Unit Agreement	Filed herewith

10.2	Retention Agreement dated July 23, 2003 with Mr. Kim	Filed herewith

10.3	Restricted Stock Unit Agreement dated July 23, 2003 with Mr. Kim	Filed herewith

10.4	Agreement and Release dated August 22, 2003 with Mr. Welch	Filed herewith

10.5	Description of Arrangement regarding Unit-based Long-Term Incentive Compensation	Filed herewith

12	Computation of Ratio of Earnings to Fixed Charges	Filed herewith

31.1	Certification of Chief Executive Officer of CIGNA Corporation pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934	Filed herewith.

31.2	Certification of Chief Financial Officer of CIGNA Corporation pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934	Filed herewith.

32.1	Certification of Chief Executive Officer of CIGNA Corporation pursuant to Rule 13a-14(b) or Rule 15d-14(b) and 18 U.S.C. Section 1350	Furnished herewith.

32.2	Certification of Chief Financial Officer of CIGNA Corporation pursuant to Rule 13a-14(b) or Rule 15d-14(b) and 18 U.S.C. Section 1350	Furnished herewith.

E-1

EX-10 3 ex101.htm EXHIBIT 10.1 EXHIBIT 10.1

Exhibit 10.1

Schedule regarding Deferred Stock Unit Agreements
dated August 6, 2003 with Messrs. Hanway and Kendall

On August 6, 2003, CIGNA Corporation entered into Deferred Stock Unit Agreements with Messrs. Hanway and Kendall. Under these agreements, Mr. Hanway received 100,000 deferred stock units and Mr. Kendall received 8,560 deferred stock units. Other than the name of the executive officer and the number of units granted, the Deferred Stock Unit Agreements for Messrs. Hanway and Kendall are identical in form, as attached in the appendix to this Exhibit 10.1.

Appendix to Exhibit 10.1

FORM OF DEFERRED STOCK UNIT AGREEMENT

This Deferred Stock Unit Agreement is dated as of August 6, 2003, and is between (NAME, ADDRESS), and CIGNA Corporation, 1650 Market Street, Philadelphia, Pennsylvania, 19192, a Delaware corporation.

You and CIGNA, intending to be legally bound and in consideration of the promises in this Agreement, mutually agree as follows:

1. Definitions. Under this Agreement, these terms shall have the following meanings:

(a)	“Agreement” – this Deferred Stock Unit Agreement.

(b)	“CIGNA” – CIGNA Corporation, or a successor.

(c)	“CIGNA Company” – CIGNA Corporation and/or any CIGNA Corporation subsidiary.

(d)	“Deferred Plan” – the CIGNA Deferred Compensation Plan.

(e)	“Grant Date” – August 6, 2003.

(f)	“Payment Date” – the January following your Termination of Employment.

(g)	“Stock Plan” – the CIGNA Corporation Stock Plan, or a successor plan.

(h)	“Units” – the deferred stock units described in paragraph 2.

(i)	“Vesting Date” – the date your right to Units vests under paragraphs 3, 4 or 5.

(j)	“Change of Control,” “Committee,” “Disability,” “Retirement,” “Termination of Employment” and “Termination upon a Change of Control” – all as defined in Section 2.1 of the Stock Plan.

2. Deferred Stock Units.

(a)	CIGNA grants you xxxx Units effective as of the Grant Date.

(b)	Each Unit represents your right to receive, under the terms and conditions described in this Agreement, payment of:

(1)

One share of CIGNA common stock; and

(2)

Dividend equivalents (described in paragraph 7) on one share of CIGNA common stock from the Grant Date until the Payment Date.

(c)	Your right to Unit payments is subject to the conditions described in this Agreement, including the forfeiture provisions described in paragraphs 3 and 9.

3. Regular Unit Vesting. The regular Vesting Date is August 6, 2009. You shall forfeit any Unit, and shall have no right to receive any payments related to that Unit, if your Termination of Employment occurs before the Vesting Date. The Units will vest on the regular Vesting Date unless:

(a)	The Units vest on an accelerated Vesting Date as described in paragraph 4;

(b)	The Units vest early as described in paragraph 5; or

(c)	You forfeit the Units.

4. Accelerated Unit Vesting. If CIGNA achieves certain performance goals approved by the Committee on August 6, 2003, the Units will vest on the earliest of the following accelerated Vesting Dates, as applicable: August 6, 2006; August 6, 2007 or August 6, 2008. The Committee will have sole authority to determine whether CIGNA has met those performance goals.

5. Early Unit Vesting. If your Termination of Employment occurs before the Vesting Date and is due to your death or Disability or is a Termination upon a Change of Control, the forfeiture described in paragraph 3 shall not apply and the Units shall immediately become vested upon your Termination of Employment. If your Termination of Employment occurs before the Vesting Date and is due to your Retirement, the forfeiture described in paragraph 3 shall apply unless the Committee, in its sole discretion, decides that the Units shall immediately vest upon your Termination of Employment.

6. Deferred Share Issuance. Issuance of the shares described in paragraph 2(b)(1) will generally be deferred under the terms of the Deferred Plan until the Payment Date; however, CIGNA may issue and then withhold some shares when Units vest to meet tax withholding requirements under paragraph 16. CIGNA will issue the shares under Article 9 of the Stock Plan (or a successor plan) as a grant in lieu of an award under a Qualifying Incentive Plan. This Agreement is a Qualifying Incentive Plan. Issuance of the Shares shall be subject to the deferral, vesting, forfeiture and other provisions of this Agreement and the Stock Plan.

7. Dividend Equivalents.

(a)

From the Grant Date until the Vesting Date, on or about each date that CIGNA makes dividend payments with respect to shares of common stock, CIGNA shall pay you an amount equal to the per share dividend for each Unit granted to you under paragraph 2 that has not yet become vested. CIGNA reserves the right, however, to defer these payments under paragraph 7(b) so the payments may be fully tax deductible under Internal Revenue Code section 162(m).

(b)

From the Vesting Date until the Payment Date, CIGNA will credit an amount equal to the dividends CIGNA pays on each share of common stock to your Deferred Plan account for each vested Unit. CIGNA will pay you these deferred dividend equivalents on the Payment Date under the terms of the Deferred Plan. During this deferral period CIGNA will also credit (or debit) your Deferred Plan account with hypothetical earnings (or losses) on the deferred dividend equivalents, as if you had voluntarily elected to defer the Unit shares under the Deferred Plan. CIGNA will base the hypothetical earnings credits (or loss debits) on the provisions of the Deferred Plan. CIGNA will pay you any accumulated hypothetical earnings on the Payment Date.

(c)	Your right to further payment of any dividend equivalents under paragraph 7 shall end immediately if you forfeit the Units.

8. Payments after Your Death. If you die before CIGNA has issued all Unit shares to you and made all related dividend equivalent payments to you under this Agreement, CIGNA shall issue the Unit shares and make the dividend equivalent payments within 90 days after your death to your surviving spouse or, if you have no surviving spouse, to your estate.

9. Forfeiture.

(a)	If you have a Forfeiture Event, you shall forfeit any Unit, have no right to receive any shares or dividend equivalent payments related to that Unit, and shall be obligated to

return to CIGNA (as described in paragraph 9(c)) any Unit shares that are issued to you. You will have a Forfeiture Event if you do any of the following at any time up to and including the first anniversary of the Vesting Date:

(1)

Have a Termination of Employment initiated by a CIGNA Company because of your misconduct;

(2)

Own or operate a business, or accept a job as an employee or independent contractor with a business, that competes with any CIGNA Company, unless your Termination of Employment is initiated by a CIGNA Company for reasons other than your misconduct;

(3)

Try to persuade any employee or customer of any CIGNA Company to end an existing relationship, contractual or otherwise, with that company; or

(4)

Do anything after your Termination of Employment that would, if you were still a CIGNA Company employee, be reason for your Termination of Employment for misconduct.

(b)	The Committee shall determine whether you have a Forfeiture Event. Determinations of the Committee shall be final and binding on all parties.

(c)	If you have a Forfeiture Event, you must return any Unit shares issued to you by any or all of the following methods that CIGNA management determines are needed for CIGNA to recover all the Unit shares issued to you.

(1)

When a Forfeiture Event occurs, if you have any shares in your Stock Account or in any other account in book-entry form, you will forfeit up to the number of Unit shares issued to you.

(2)

You will deliver to CIGNA any shares you hold in certificate form (up to the number of Unit shares issued to you) within 30 days after the Forfeiture Event.

(3)

If you do not then own enough shares, you will purchase shares (up to the number of Unit shares issued to you) and deliver them to CIGNA within 30 days after the Forfeiture Event.

10. Share Adjustments.

(a)

In the event of a stock dividend, stock split, or other subdivision or combination of CIGNA common stock, the Committee shall make a proportionate adjustment in the number of shares under paragraph 2(b)(1) and in the number of shares that form the basis of the dividend equivalents under paragraph 2(b)(2).

(b)

If the outstanding shares of CIGNA common 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 (an Event), the Committee shall make an appropriate adjustment in the number and/or kind of shares under paragraph 2(b)(1) and in the number and/or kind of shares that form the basis of the dividend equivalents under paragraph 2(b)(2), so that your proportionate interest under this Agreement shall be maintained as before the Event. However, in case of any contemplated Event that may constitute a Change of Control, the Committee, with the approval of a majority of the members of the Board who are not then CIGNA Company employees, may modify any and all outstanding Units and Unit payment rights, so as to accelerate, as a consequence of or in connection with the Event, the vesting of your Units and/or your rights to any Unit payment.

11. Effect of Agreement. This Agreement is not a contract of employment for any specified term, and nothing in it is intended to change, and it shall not be construed as changing, the nature of your employment from an at-will relationship. This Agreement is limited to the terms and conditions that it includes and does not otherwise address your compensation or benefits, your duties and responsibilities, or any of CIGNA’s rights as employer. This Agreement contains the entire agreement between you and CIGNA with respect to the matters addressed herein and fully replaces and supersedes all prior agreements or understandings between them related to such matters.

12. Applicable Law. The Agreement is entered into in the Commonwealth of Pennsylvania, and at all times and for all purposes shall be interpreted, enforced and governed under its laws without regard to principles of conflict of laws.

13. Arbitration of Disputes. CIGNA and you agree that any controversy or claim arising out of or relating to this Agreement shall be settled exclusively by arbitration in Philadelphia, Pennsylvania, in accordance with the Employment Dispute Resolution Rules of the American Arbitration Association, as modified by Company. Copies of the Arbitration Policy and Rules and Procedures can be obtained from your Human Resources representative. A legal judgment

based upon the Arbitrator’s award may be entered in any court having jurisdiction over the matter.

14. Successors. CIGNA’s rights and obligations under this Agreement will inure to the benefit of, and be binding upon, CIGNA’s successors and assigns. Your rights under this Agreement, including the right to receive Common Stock or any other payment, shall not be assignable or transferable by you 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.

15. Funding of Payments. CIGNA’s obligations under this Agreement to issue shares and make cash payments are unfunded and unsecured promises, and shall be considered as such for tax purposes and for purposes of the Employee Retirement Income and Security Act of 1974. Cash shall be paid when due out of CIGNA’s general assets.

16. Withholding. You must satisfy any required tax withholding obligation when the Units vest and when the Units are paid, and CIGNA reserves the right to withhold enough shares to cover all or part of any applicable tax withholding.

17. Changes to Agreement. Any amendment to this Agreement must be in writing and signed by both you and CIGNA.

EX-10 4 ex102.htm EXHIBIT 10.2 EXHIBIT 10.2

Exhibit 10.2

Donald M. Levinson
Executive Vice President – Human Resources & Services

July 23, 2003	1650 Market Street Philadelphia, PA 19192 Telephone 215.761.6190 Facsimile 215.761.5519

John Y. Kim
[Address]

Dear John:

We have already discussed the plans of CIGNA to explore a sale of the division and your importance in carrying out those plans. I recognize that this process will be challenging and that, if a sale is completed, your employment situation may change. CIGNA wants you to have an additional incentive to remain with the Retirement and Investment Division (CR&IS) through this exploration and potential sale process. Therefore, Ed and I have asked the Board and they have approved the following special arrangement, consisting of a retention bonus, guaranteed annual bonus and severance benefits:

Retention Bonus

CR&IS will pay you a retention bonus equal to 100% of your annual bonus target (less applicable withholding) paid half in cash and half in restricted stock units (similar to RSGs; details are included in the attached Restricted Stock Unit Agreement) if all of the following conditions are met:

You must remain continuously employed by CR&IS or the buyer through the earlier of:

•

Three months following the date of the closing of the sale (the Closing) of all or substantially all of CR&IS' assets (the Transaction); or

•

July 23, 2006.

Or, you are not employed by CIGNA or the buyer immediately after the Closing because CIGNA and the buyer fail to offer you a Suitable Position.

You must not be formally affiliated in any way with the buyer before a definitive agreement to enter into the Transaction is executed.

Your performance in your regular job and your contribution to the overall sale process must meet the expectations of CIGNA management. Whether your performance and contribution meet expectations will be determined in good faith by CIGNA management, including your efforts in the following areas:

•

Promoting confidence among CR&IS' customers in the positive outcome of the sale process;

•

Discouraging the dissemination of rumors about CIGNA's plans and the sale process;

•

Discouraging any disparaging statements about CIGNA's plans and the sale process; and

•

Honoring the provisions of the confidentiality letter that you signed that relates to this project.

You must maintain in complete confidence the existence and the terms of this incentive offer and not disclose this offer or any of its terms to anyone inside or outside the company.

Page 2

CIGNA will pay you the cash portion of the retention bonus and vest the shares of CIGNA stock within 30 days after the earlier of (a) 3 months following the Closing or (b) July 23, 2006. If neither CIGNA nor the buyer offer you a Suitable Position (see below) upon the Closing, the payment of cash and vesting of shares will occur within 30 days after the Closing.

Annual Bonus for 2003 Performance

Your bonus for 2003 will be guaranteed at no less than target. It will be paid in March, 2004. To earn the bonus, you must be continuously employed by CIGNA or the buyer through March, 2004. If the Transaction occurs before the bonus is paid, and you are not offered a Suitable Position, you must be employed by CIGNA only through the Closing to receive the bonus.

Severance Benefits

To help ease your concerns about a possible need to seek new employment after the Closing, the Board has agreed that you will be eligible for standard severance available to other CIGNA senior managers at your level, including consideration for sign-on Strategic Performance Units described in your offer letter, if you are not employed by CIGNA or the buyer after the Closing and you have not been offered a Suitable Position upon the Closing by CIGNA or the buyer.

A Suitable Position is one that, in the opinion of CIGNA management:

•

is a reasonable match with your qualifications, skills and experience;

•

offers a base salary and bonus opportunity that is no less than your current base salary and target bonus amount; and

•

is located in Hartford, CT or within a reasonable commuting distance from your current permanent residence (any distance that is the same as or shorter than your current commute will automatically be treated as reasonable).

John, we are offering you this special retention incentive and severance benefits package to encourage you to remain as a key member of the CR&IS senior team. After you have read this letter, please sign and date it below and return the signed copy of the letter along with the signed Restricted Stock Unit Agreement to Ken Bottoms [routing code]. Ken is also available on [telephone extension] to answer any of your questions.

Sincerely,

/s/ Don[ald M. Levinson]

I acknowledge that I have read this offer letter and that I understand and agree to its terms and conditions.

/s/ John Y. Kim Signature	7/29/03 Date

EX-10 5 ex103.htm EXHIBIT 10.3 EXHIBIT 10.3

Exhibit 10.3

RESTRICTED STOCK UNIT AGREEMENT

This Restricted Stock Unit Agreement is dated as of July 23, 2003, and is between John Y. Kim, who resides at ___________________________ and CIGNA Corporation, 1650 Market Street, Philadelphia, Pennsylvania, 19192, a Delaware corporation.

You and CIGNA Corporation, intending to be legally bound and in consideration of the promises in this Agreement, mutually agree as follows:

1.	Definitions. Under this Agreement, these terms shall have the following meanings:

(a)

“Agreement” – this Restricted Stock Unit Agreement.

(b)

“Business” – the assets and operations that as of the Grant Date constitute the CIGNA Retirement & Investment Services Division.

(c)

“Change of Control” – defined in Section 2.1 of the Stock Plan and refers to a change of control of CIGNA Corporation. The term does not include a sale by CIGNA Corporation of the Business, any change in the ownership of a CIGNA Corporation subsidiary, or a sale of less than all or substantially all of CIGNA Corporation’s assets.

(d)

“CIGNA” – CIGNA Corporation and/or any CIGNA Corporation subsidiary.

(e)

“Closing” – the effective date of a sale by CIGNA of the Business to an entity unaffiliated with CIGNA Corporation.

(f)

“Committee” – the People Resources Committee of CIGNA Corporation’s Board of Directors or any successor committee with responsibility for compensation.

(g)

“Disability” – permanent and total disability as defined in Section 22(e)(3) of the Internal Revenue Code.

(h)

“Grant Date” – July 23, 2003.

(i)

“Stock Plan” – the CIGNA Corporation Stock Plan, or a successor plan.

(j)

“Suitable Employment” – a position that:

(1)

in the opinion of CIGNA Corporation management, is a reasonable match with your qualifications, skills and experience;

(2)

offers a base salary and bonus opportunity that is no less than your current base salary and bonus opportunity; and

(3)

is located in Hartford, Connecticut, or within what CIGNA Corporation management, at its sole discretion, considers to be a reasonable commuting distance from your current permanent residence (any distance that is no longer than your current commute will be deemed to be reasonable).

(k)

“Termination of Employment” –

(1)

On or before the date of a Closing: the end of your employment relationship with CIGNA or the occurrence of a transaction by which any CIGNA Corporation subsidiary that employs you ceases to be a CIGNA Corporation subsidiary. The end of your employment relationship with CIGNA upon the Closing, however, shall not be a Termination of Employment under this Agreement if immediately after the Closing you are employed by the Business (or the purchaser of the Business).

(2)

After a Closing: the end of your employment relationship with the Business (or the purchaser of the Business).

(l)

“Termination upon a Change of Control” – a Termination of Employment upon or within two years after a Change of Control initiated by:

(1)

CIGNA or a successor corporation (other than a Termination of Employment initiated by CIGNA on account of your conviction for a felony involving fraud or dishonesty directed against CIGNA); or

(2)

you and is pursuant to your written certification that the Change of Control has rendered you unable to perform the duties and responsibilities of the position you held immediately prior to the Change of Control because of adverse changes in your authority, compensation, office location, duties, responsibilities, or title.

(m)

“Units” – the restricted stock units described in paragraph 2.

(n)

“Vesting Date” – the date your right to Units vests under paragraph 3.

2.	Restricted Stock Units.

(a)	CIGNA Corporation grants you 15,000 Units, effective as of the Grant Date.

(b)	Each Unit represents your right to receive, under the terms and conditions described in this Agreement, payment of:

(1)

One share of CIGNA Corporation common stock; and

(2)

Dividend equivalents (described in paragraph 5) on one share of CIGNA Corporation common stock from the Grant Date until the Vesting Date.

(c)	Your right to Unit payments is subject to the conditions described in this Agreement, including the forfeiture provisions described in paragraph 3.

3.	Unit Vesting.

(a)	Except as provided in paragraph 3(e), you shall forfeit the Units, and shall have no right to receive any Unit payments, if your Termination of Employment occurs before the Vesting Date.

(b)	Except as provided in paragraph 3(c), the Vesting Date for all Units shall be July 1, 2006.

(c)	If a Closing occurs before July 1, 2006, the Vesting Date for all the Units shall be the earlier of:

(1)

Three months after the date of the Closing, if (except as provided in paragraph 3(d)) you remain continuously employed by the Business (or the purchaser of the Business) for the entire three-month post-Closing period; or

(2)

The date of the Closing, if (A) immediately after the Closing you are not an employee of the Business (or the purchaser of the Business) because the purchaser fails to offer you Suitable Employment upon the Closing and (B) CIGNA fails to offer you Suitable Employment effective upon the Closing.

(d)

If you are employed by the Business (or the purchaser of the Business) immediately after a Closing but do not remain employed for the entire three-month post-Closing period as described in paragraph 3(c)(1), the Units shall nevertheless become vested three months after the Closing if your Termination of Employment is initiated by the Business (or the purchaser of the Business) other than on account of your misconduct.

(e)	The forfeiture described in paragraph 3(a) shall not apply and the Units shall immediately become vested upon your Termination of Employment if:

(1)

Your Termination of Employment occurs before the Vesting Date and is due to your death or Disability; or

(2)

Your Termination of Employment occurs before both the Vesting Date and a Closing Dateand is a Termination upon a Change of Control.

4. Shares. If the Units vest under paragraph 3, CIGNA Corporation will issue the shares of CIGNA Corporation stock described in paragraph 2(b)(1) effective as of the Vesting Date. The shares will be issued under Article 9 of the Stock Plan as a grant in lieu of an award under a Qualifying Incentive Plan (as that term is defined in the Stock Plan). This Agreement is deemed to be a Qualifying Incentive Plan. Issuance of the shares shall be subject to the vesting and other provisions of this Agreement and the Stock Plan.

5.	Dividend Equivalents.

(a)	From the Grant Date until the Vesting Date, on or about each date that CIGNA Corporation makes dividend payments with respect to shares of common stock, CIGNA shall pay you an amount equal to the per share dividend for each Unit granted to you under paragraph 2 that has not yet become vested.

(b)	Your right to further payment of any dividend equivalents under paragraph 5(a) shall end immediately if you forfeit the Units.

6. Death. If you die before all Units payments have been made to you under this Agreement, any remaining Unit payments will be made within 90 days of your death to your surviving spouse or, if you have no surviving spouse, to your estate.

7.	Share Adjustments.

(a)	The Committee shall make a proportionate adjustment in the number of shares described in paragraphs 2(b)(1) and (2) in the event of a stock dividend, stock split, or other subdivision or combination of CIGNA Corporation Common Stock.

(b)

The Committee shall make an appropriate adjustment in the number and/or kind of shares described in paragraphs 2(b)(1) and (2) if the outstanding shares of CIGNA Corporation common stock are changed or converted into, exchanged or exchangeable for, a different number or kind of shares or other securities of CIGNA Corporation or of another corporation, by reason of a reorganization, merger, consolidation, reclassification or combination (an Event), so that your proportionate interest shall be maintained as before the Event. However, in case of any contemplated Event that may constitute a Change of

Control, the Committee, with the approval of a majority of the members of CIGNA Corporation’s Board of Directors who are not then CIGNA employees, may modify any and all outstanding Units and Unit payment rights, so as to accelerate, as a consequence of or in connection with the Event, the vesting of your Units and/or your rights to any Unit payment.

8. Confidentiality. You agree to keep confidential (a) the existence and terms of this Agreement and (b) all other confidential business information about CIGNA or the Business, unless and until such time as (x) any such information becomes generally available and known to the public (other than as a result of a disclosure by you in violation of this Agreement or by any other person in violation of any obligation of confidentiality) or (y) may be required by applicable law or regulation.

9. Effect of Agreement. This Agreement is not a contract of employment for any specified term, and nothing in it is intended to change, and it shall not be construed as changing, the nature of your employment from an at-will relationship. This Agreement is limited to the terms and conditions that it includes and does not otherwise address your compensation or benefits, your duties and responsibilities, or any of CIGNA’s rights as employer. This Agreement contains the entire agreement between you and CIGNA Corporation with respect to the matters addressed herein and fully replaces and supersedes any and all prior agreements or understandings between them related to such matters.

10. Applicable Law. The Agreement is made and entered into in the State of Connecticut, and at all times and for all purposes shall be interpreted, enforced and governed under its laws without regard to principles of conflict of laws.

11. Arbitration of Disputes. It is agreed that any controversy or claim arising out of or relating to this Agreement shall be settled exclusively by arbitration in Hartford, Connecticut, in accordance with the Commercial Arbitration Rules of the American Arbitration Association, and judgment upon the award rendered by the Arbitrator(s) may be entered in any court having jurisdiction thereof.

12. Successors. CIGNA Corporation’s rights and obligations under this Agreement will inure to the benefit of, and be binding upon, CIGNA Corporation’s successors and assigns. Your rights under this Agreement, including the right to receive CIGNA Corporation common stock or any other payment, shall not be assignable or transferable by you 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.

13. Funding of Payments. CIGNA Corporation’s obligations under this Agreement to issue shares and make cash payments are unfunded and unsecured promises, and shall be considered as such for tax purposes and for purposes of the Employee Retirement Income and Security Act of 1974. Cash shall be paid when due out of CIGNA Corporation’s general assets.

14. Withholding. Unit payments shall be subject to applicable tax withholding, and CIGNA Corporation reserves the right to withhold enough shares to cover all or part of any applicable tax withholding.

15. Changes to Agreement. Any amendment to this Agreement must be in writing and signed by both you and CIGNA Corporation.

IN WITNESS WHEREOF, the persons named below have signed this Agreement on the dates shown below.

7/24/03 Date	/s/ Donald M. Levinson By: Donald M. Levinson On behalf of CIGNA Corporation


7/29/03	/s/ John Y. Kim

EX-10 6 ex104.htm EXHIBIT 10.4 EXHIBIT 10.4

Exhibit 10.4

AGREEMENT AND RELEASE

This Agreement and Release (Agreement) is dated as of August 22, 2003 (Today), and is between Patrick E. Welch, __________________________________, (you), and Connecticut General Life Insurance Company, a Connecticut corporation (the Company).

You and the Company intend to be legally bound by the Agreement, and are entering into it in reliance on the promises made to each other in the Agreement. Under the Agreement, your employment will end, and you and the Company agree to settle all issues concerning your employment and termination of employment. The Company will pay you certain benefits described in this agreement and release certain claims against you. In turn, you are releasing certain legal claims against the Company.

1. Your Termination Date. Your employment with the Company will end by mutual consent on September 26, 2003 (the Termination Date).

2. Your Promises to the Company.

a.	Terms used in paragraph 2 are defined as follows:

(1)

"CIGNA" means the Company, its parents (including CIGNA Corporation), subsidiaries and/or affiliates.

(2)

"Confidential Information" means any knowledge, information or materials relating to the Company or the Division about their products, services, know-how, customers, business plans, or financial, marketing, pricing, compensation and other proprietary matters, whether or not subject to trademark, copyright, trade secret or other protection, that you obtained during the course of your employment with the Company.

(3)

"Division" means the CIGNA Healthcare Division.

You agree that, other than in the good faith performance of your services to CIGNA before the Termination Date, you will not disclose any Confidential Information to anyone other than CIGNA employees or use any Confidential Information for your benefit or the benefit of any other person, firm, operation or entity unrelated to CIGNA except to the extent disclosure is or may be required (1) by a statute, by a court of law, by any governmental agency having supervisory authority over the business of the Company or by any administrative or legislative body (including a committee thereof) with actual or apparent jurisdiction to order you to divulge, disclose or make accessible such information; (2) in connection with any litigation, mediation or arbitration involving this Agreement, including

enforcement of this Agreement; or (3) with respect to any cooperation provided by you pursuant to paragraph 2.g. After an item of Confidential Information has become public knowledge or known generally in the industry, you shall have no further obligation under this paragraph 2.b regarding that information so long as you were in no manner responsible, directly or indirectly, for permitting the information to become public knowledge or known within the industry without CIGNA's consent.

c.	Until September 26, 2004, you will not, within any part of the United States or any other country where the Division currently conducts business solicit in any manner:

(1)

Any CIGNA employees, either to terminate employment with CIGNA or to become employed, as an employee or independent contractor, by you or by any business that you may become employed by, or affiliated in any way with, after leaving CIGNA; or

(2)

Any Division customers (that you know or have reason to know are Division customers as of the Termination Date) to (a) terminate or reduce any business arrangements in effect with the Division on your Termination Date or (b) to enter into any new business arrangements with you or any business that employs or becomes affiliated with you after you leave CIGNA, if such new business arrangements would adversely affect in any way any business arrangements with any CIGNA customer that the Division either has Today or has been planning during the three-month period ending Today.

The Company agrees that it shall not be a violation of paragraph 2.c(1) if: (a) you provide a personal reference for any CIGNA employee setting forth your personal views about the employee, provided you make it clear in any such reference that you are not speaking for CIGNA; or (b) an entity that employs or becomes affiliated with you hires a CIGNA employee, provided you are not involved in hiring the employee or identifying the employee as a potential recruit and you do not assist in recruiting the employee for the entity.

The Company agrees that it shall not be a violation of paragraph 2.c(2) merely because an entity that employs or becomes affiliated with you (x) has a pre-existing relationship with a Division customer or (y) responds to a solicitation for a proposal from a Division customer, so long as you are not significantly involved in the development or delivery of the proposal.

d.	You agree that the duration, area and scope of activities restricted under paragraphs 2.b and 2.c are reasonable and necessary to protect the Company's legitimate business interests and that, if any court or arbitrator determines that

paragraphs 2.b or 2.c or any part of them is unenforceable because of the duration, area or scope of activities restricted, then the court or arbitrator shall have the power to reduce the duration, area or scope to the maximum allowed by applicable law and, in its reduced form, the provision shall then be enforced and you will abide by the provision as altered.

e.	From your Termination Date until December 31, 2004, you agree that:

You will be subject to the same CIGNA stock trading window periods that apply to senior CIGNA officers;

You will continue to clear all trades involving CIGNA Corporation stock with the Corporate Secretary; and

During any one window period, you will not sell more than 25% of the combined number of shares of CIGNA Corporation common stock that you own on your Termination Date.

From and after your Termination Date, you agree not to sell more than 15,000 shares of CIGNA Corporation common stock during any one day.

(1)

You shall be entitled to indemnification by the Company (and, if applicable, any other Company affiliate) to the fullest extent permitted or authorized by its (or their) by-laws against all expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred or sustained by you, in connection with any action, suit or proceeding, whether civil, criminal, administrative or investigative, to which you may be made a party (or are threatened to be made a party) (each a Proceeding), by reason of your having been an officer, employee or director of the Company or an officer, employee or director of any other Company affiliate (including service at the request of or on behalf of CIGNA as a director, officer, member, employee, consultant or agent of another corporation, limited liability corporation, partnership, joint venture, trust or other entity, including service with respect to employee benefit plans), whether or not the basis of such Proceeding is your alleged action in an official capacity while serving in such capacities, and such indemnification shall continue as to you even though you have ceased to be an officer, member, employee, consultant or agent of CIGNA or any other entity and shall inure to the benefit of your heirs, executors and administrators.

(2)

The Company or applicable affiliate shall advance to you all reasonable costs and expenses that you incur in connection with any Proceeding as provided under the by-laws of the Company or applicable affiliate after

receipt by the Company of a written request for such advance that includes an undertaking by you to repay the amount of such advance if it shall ultimately be determined that you are not entitled to be indemnified against such costs and expenses. The amount of such obligation to repay shall be limited to the after-tax amount of any such advance except to the extent you are able to offset such taxes incurred on the advance by the tax benefit, if any, attributable to a deduction for repayment.

(3)

Neither the failure of the Company or any Company affiliate (including their respective boards of directors, independent legal counsel or stockholders) to have made a determination prior to the commencement of any Proceeding concerning payment of amounts claimed by you under paragraph 2.f(1) above that indemnification of you is proper because you have met the applicable standard of conduct, nor a determination by the Company or any Company affiliate (including their respective boards of directors, independent legal counsel or stockholders) that you have not met such applicable standard of conduct, shall create a presumption or inference that you have not met the applicable standard of conduct.

(4)

Nothing in this paragraph 2.f shall be construed as reducing or waiving any right to indemnification, or advancement of expenses, you would otherwise have under the by-laws of the Company or any affiliate or any rights you may have under any directors' and officers' liability policies maintained by the Company or any affiliates.

You agree to make yourself reasonably available to the Company in connection with any legal proceedings relating to CIGNA in which you may have knowledge of potentially relevant facts because of your employment with the Company, and the Company agrees to accommodate reasonably your other personal and business commitments. The Company shall reimburse you for all reasonable expenses that you incur (including the costs of travel and meals) in connection with your making yourself available to it or its counsel to provide information or to testify. For the first ten days (not necessarily consecutive, and including partial days) that you spend in so providing information or testifying, you shall not be compensated for such time. Thereafter, the Company shall pay you $750.00 for each day (or part of a day) as compensation for your time in providing information or testifying.

Prior to your Termination Date, you will return to CIGNA any CIGNA property that you now have (for example: identification card, access card, office keys, company manuals, office equipment, records and files); provided, however, you will not be required to return rolodexes, personal cell phone, personal diaries, or correspondence and other items of a personal nature. If those personal items are responsive to instructions you have received to retain documents in connection

with legal proceedings and an SEC inquiry, you must continue to retain them after your termination. If CIGNA property that you have includes information that you reasonably believe you may need for tax purposes and copies of plans, programs and agreements relating to your employment and termination of employment, you may make and retain copies before returning the information to CIGNA.

3. Your Severance Arrangements.

From Today until your Termination Date, the Company will continue to pay you a salary at your current regular salary rate and you and your eligible dependents may continue to participate in the Company's employee benefits programs in accordance with the terms of those programs. During this period, you agree to remain available for internal consulting and advice to the CEO and other division heads.

b.	You agree that you will not be covered by the CIGNA Short-Term Disability Plan or CIGNA Long-Term Disability Plan after Today.

c.	You will receive no further time off benefits for 2003.

If you die before the Company pays you all amounts due under paragraph 3 of the Agreement, the remaining amounts (except for those described in paragraphs 3.i) will be paid to your surviving spouse in a lump sum within 90 calendar days after the date of your death. The amounts described in paragraph 3.i will be paid to your surviving spouse at the same times the payments would have been made to you, as described in paragraph 3.i. If you have no surviving spouse, the payment will be made to your estate. If you die before September 26, 2003, the date you die will automatically be your new Termination Date (but the above lump sum payment shall be calculated as if you had remained employed until September 26, 2003).

e.	The Company will make 26 bi-weekly payments (less applicable taxes and withholding) to you, and each payment will equal 1/26 of your current annual salary rate. These payments will be made during the period from September 27, 2003 to September 24, 2004.

If you become employed elsewhere and so notify the Company in writing, the bi-weekly installment payments shall stop (or shall not begin), and the Company shall pay you any remaining part in a lump sum as soon as practicable (but not before September 26, 2003).

During the period you receive any bi-weekly installment payments under sub-paragraph 3.e (the Payment Period), you will be eligible to continue the Signature Benefits group health care and life insurance coverages you may have on the same basis as active employees. During the Payment Period, your Signature Benefits Basic Life Insurance coverage will continue at the Company's expense. Under the provision of federal law (COBRA), you may elect to continue your Company group health care coverage after your Termination Date. If you elect COBRA coverage, the Company will subsidize the COBRA rates (that is, you will pay the same rates as if you continued to be employed) you pay during the Payment Period and will not subsidize the rates after the Payment Period. You will be billed monthly. You may convert certain group benefits coverages to individual coverages under the terms of the Signature Benefits program.

g.	In satisfaction of the terms of your offer letter, the Company will pay you each month a non-qualified pension of $2,590 (less applicable tax withholding) starting January 2004 and ending in the month in which you die.

h.	In March 2004 (or if earlier, when bonuses for 2003 are paid to CIGNA senior executives), the Company will pay you a cash bonus for service performed in 2003 in an amount equal to 75% (that is, 9/12) of your annual bonus target as set forth in the offer letter you signed on May 15, 2002.

i.	In May 2004, May 2005 and May 2006 (or such earlier time as provided below), the Company will pay you for previously-awarded Strategic Performance Units. Payments for the units will be in full or prorated as follows:

	Number of Units	Payment Date
	100% of units granted for 2001-2003	May 2004
	100% of units granted for 2002-2004	May 2005
	25% (9 of 36 months) of units granted for 2003-2005	May 2006

Notwithstanding anything to the contrary in paragraphs 10.5(d) or 10.7 of the CIGNA Long-Term Incentive Plan (Incentive Plan) as in effect Today, the payments will be in cash, in amounts that are in accordance with the formula under the Strategic Performance Unit provisions of the Incentive Plan and that are based on the same Unit values that apply to other senior executives. However, the units to be paid in May 2004 will, pursuant to your hiring arrangement, have a value of no less than 75% of the maximum allowable value. If a Change of Control (as defined in the Incentive Plan) occurs prior to the payment of all of these awards, all unpaid units will be paid within 30 days following the Change of Control in accordance with the provisions of paragraph 10.6(d)(1)-(3) of the CIGNA Long-Term Incentive Plan as approved by shareholders in April, 2000 (provided that the payment for units granted for 2001-2003 will be no less than the amount described in the preceding sentence).

You have not vested, and will receive no benefits, under the CIGNA Pension Plan and CIGNA Supplemental Pension Plan. Any amounts payable to you under the CIGNA Deferred Compensation Plan and any vested benefits you may have earned under the CIGNA 401(k) Plan will be paid to you under the provisions of those plans.

Until your Termination Date any options on CIGNA Corporation stock that you hold will continue to vest under the terms of your applicable grant letter. You may exercise vested options only in accordance with the terms of the grants. Any unexercised and unvested options will expire on your Termination Date in accordance with the terms of the applicable plans and grant letters.

l.	The Company will provide you with:

(1)

Executive Financial Services through year-end 2004;

(2)

Reimbursement for reasonable tax preparation fees incurred for income tax returns for income through year-end 2004;

(3)

Office space and secretarial staff in the Burlington, Vermont area for up to 6 months after the Termination Date.

With respect to any shares of restricted CIGNA Corporation stock that you hold on your Termination Date (RSGs), the Company will, within 30 days after your Termination Date, make a lump sum cash payment to you equal to (a) one hundred percent of the number of RSGs that you forfeit on your Termination Date multiplied by (b) the average closing price of a share of CIGNA Corporation stock on the 10 trading days ending on your Termination Date.

n.	The Company shall assume, or to cause a third party to assume, any responsibilities you have undertaken to purchase a home in West Hartford, Connecticut under a purchase agreement dated June 9, 2003 (Purchase Agreement).

Within 30 days after you sign this Agreement, the Company will pay you $50,000 as a refund of the deposit you paid in connection with the Purchase Agreement (the Refund) plus an additional amount such that you will receive a net amount equal to the Refund after meeting any federal, state or local income tax and employment tax withholding obligations relating to any payments under this paragraph 3.o.

p.	You will receive no other money from the Company except as provided in this Agreement.

4. Release of Claims.

You and the Company each agree not to file (or ask or allow anyone else to file) any charge, complaint, claim or lawsuit of any kind in connection with any claim released by this Agreement against any Released Person. However, the preceding sentence does not apply to any claim you might file alleging that your waiver of claims under the Age Discrimination in Employment Act of 1967 (ADEA) was not knowing and voluntary.

b.	You acknowledge full and complete satisfaction of, and release and discharge all Released Persons from, any Claims.

c.	The Company acknowledges full and complete satisfaction of, and releases and discharges all Released Persons from, any Claims.

d.	You are giving this release for yourself as well as for your executors, administrators, heirs and assigns.

The Company is giving this release for the Company, together with its successors, parents (including CIGNA Corporation), subsidiaries and affiliates (Company Affiliated Parties) and all of their directors, officers, agents and employees (but as to any such director, officer, agent or employee only in connection with, or in relationship to, his or its capacity as a director, officer, agent or employee of any Company Affiliated Party and not in connection with, or in relationship to, his or its personal capacity unrelated to any Company Affiliated Party).

"Released Persons" for your release of Claims are the Company Affiliated Parties and all of their directors, officers, agents and employees (as limited by paragraph 4.e). "Released Persons" for the release of Claims against you by the Company (and other persons described in paragraph 4.e) are you, your dependents, heirs, agents, assigns and estate.

With respect to Claims you are releasing, "Claims" are any and all claims, demands and causes of action of whatever kind, including any claims for attorneys fees, that you now have, or at any time had, against any Released Persons, but only to the extent they arise out of or relate in any way to your employment or termination of employment with the Company and its affiliates. With respect to Claims the Company and Company Affiliated Parties are releasing, "Claims" are any and all claims, demands and causes of action of whatever kind, including any claims for attorneys fees, that the Company or any other Company Affiliated Party now has, or at any time had, against you, but only to the extent they arise out of or

relate in any way to your employment or termination of employment with the Company and its affiliates. "Claims" includes things you or the Company may not even know about or suspect as well as any claims you may have under ADEA.

h.	"Claims" does not include (and you and the Company are not releasing):

(1)

any claims for promises you and the Company are making to each other under this Agreement and any claims that arise after Today,

(2)

any claims for benefits under any retirement savings or other employee benefit programs under which you will receive benefits after your Termination Date (however, the Release does include any claims for benefits under any severance pay plan or arrangement, any pension plan and any other plans or programs referenced in this Agreement, to the extent such claims are inconsistent with this Agreement),

(3)

any claims covered by workers compensation laws,

(4)

any rights you have to indemnification under the Company's (and, if applicable, any Company affiliate's) by-laws, directors and officers liability insurance or this Agreement or any rights you may have to obtain contribution as permitted by law in the event of entry of judgment against you as a result of any act or failure to act for which you and any Company Affiliated Party are jointly liable, and

(5)

any claims that you did not knowingly and voluntarily waive your rights under ADEA.

5. No Mitigation, No Offset. You shall have no duty to seek other employment and there shall be no offset against amounts due under this Agreement on account of any remuneration you may receive attributable to any subsequent employment or self-employment.

6. Anti-disparagement. You agree not to knowingly make any statement to a customer of CIGNA or any public statement, whether oral or written, that would disparage CIGNA or any of its senior officers or directors. The Company agrees that it (and its affiliates) shall not, and it shall cause each CIGNA senior officer or director not to, knowingly make any public statement, whether oral or written, that disparages you. It shall not, however, be a violation of this paragraph 6 for any person: (a) to make truthful statements (i) when required to do so by a court of law, by any governmental agency having supervisory authority over CIGNA's business or by any administrative or

legislative body (including a committee thereof) with actual or apparent jurisdiction to order such person to divulge, disclose or make accessible such information or (ii) to the extent necessary with respect to any litigation, arbitration or mediation involving this Agreement, including but not limited to, enforcement of this Agreement; or (b) from responding publicly to incorrect or disparaging public statements to the extent reasonably necessary to correct or refute such public statement.

7. No Admission of Wrongdoing. Just because the Company is entering into this Agreement and paying you money, the Company is not admitting that it (or any Released Person) has done anything wrong or violated any law, rule, order, policy, procedure, or contract, express or implied, or otherwise incurred any liability. Similarly, by entering into this Agreement, you are not admitting that you have done anything wrong or violated any law, rule, order, policy, procedure, or contract, express or implied, or otherwise incurred any liability.

8. Applicable Law. This Agreement is being made in Connecticut. It will be interpreted, enforced and governed under the laws of Connecticut (without reference to the principles of conflicts of law), but your eligibility for, or the amount of any, employee benefits shall be subject to the terms of the benefit plans and the provisions of the Employee Retirement Income Security Act of 1974, as amended (ERISA).

9. Arbitration. Without in any way affecting the releases in paragraph 4, any and all disagreements, disputes or claims listed below will be resolved exclusively by arbitration in the Hartford, Connecticut area. Arbitration will be conducted in accordance with the Employment Dispute Resolution Rules of the American Arbitration Association, as modified by Company. Copies of the Arbitration Policy and Rules and Procedures have been provided to you. A legal judgment based upon the Arbitrator's award may be entered in any court having jurisdiction over the matter. Each party shall be liable for its own costs and expenses (including attorneys' fees). You and the Company agree to arbitrate anything:

a.	related in any way to this Agreement, including its validity, and how it is interpreted or implemented, and the validity of your ADEA waiver; or

b.	that involves your employment with Company or the termination of that employment, including any disputes arising under local, state or federal statutes or common law (if for any reason your release and waiver under paragraph 4 is found to be unenforceable or inapplicable).

10. Final and Entire Agreement. This Agreement is intended to be the complete, entire and final agreement between you and the Company. It fully replaces all earlier agreements or understandings; however, it does not replace the terms of any employee benefit plan or terms included in any stock option or restricted stock grant; provided that the covenants and provisions in paragraphs 2, 6 and 9 above supercede in their entirety any similar provisions in any employee benefit plan. Neither you nor the Company has relied upon any other statement, agreement or contract, written or oral, in deciding to enter into this Agreement. Any amendment to this Agreement must be in writing and signed by both you and the Company. Any waiver by any person of any provision of this Agreement shall be effective only if in writing, specifically referring to the provision being waived and signed by the person against whom enforcement of the waiver is being sought. No waiver of any provision of this Agreement shall be effective as to any other provision of this Agreement except to the extent specifically provided in an effective written waiver. If any provision or portion this Agreement is determined to be invalid or unenforceable in a legal forum with competent jurisdiction to so determine, the remaining provisions or portions of this Agreement shall remain in full force and effect to the fullest extent permitted by law and the invalid or unenforceable provisions or portions shall be deemed to be reformed so as to give maximum legal effect to the agreements of the parties contained herein.

11. Your Understanding. By signing this Agreement, you admit and agree that:

a.	You have read this Agreement.

b.	You understand it is legally binding, and you were advised to review it with a lawyer of your choice.

c.	You have had (or had the opportunity to take) at least 21 calendar days to discuss it with a lawyer of your choice before signing it and, if you sign it before the end of that period, you do so of your own free will and with the full knowledge that you could have taken the full period.

You realize and understand that the release covers certain claims, demands, and causes of action against the Company and any Released Persons relating to your employment or termination of employment, including those under ADEA, whether or not you know or suspect them to exist at the present time (but the release does not apply to claims described in paragraph 4.h).

e.	You understand the terms of this Agreement and that it is not part of an exit incentive or other employment termination program being offered to a group or class of employees.

f.	You are signing this Agreement voluntarily and with the full understanding of its consequences, and you have not been forced or coerced in any way.

12. Revoking the Agreement. You have seven calendar days from the date you sign this Agreement to revoke and cancel it. To do that, a clear, written cancellation letter, signed by you, must be received by Kenneth Bottoms, CIGNA Corporation, 1650 Market Street OL54H, Philadelphia, PA, 19192 before 5:00 p.m. Eastern Time on the seventh calendar day following the date you sign this Agreement. The Agreement will have no force and effect until the end of that seventh day; provided that, during such seven-day period, the Company shall not be able to revoke this Agreement or cancel it.

13. If Legal Action Is Started by You. You understand and agree that Company's main reason for entering into this Agreement is to avoid lawsuits and other litigation. Therefore, if any legal action covered by paragraph 4 or 9 (other than arbitration of a dispute described in paragraph 9.a or b or claims related to whether your release of ADEA claims was knowing and voluntary) is started by you (or by someone else on your behalf) against any Company Released Person with respect to any Claim released by you under paragraph 4, you agree to withdraw such proceeding or claim with prejudice (or, in the case of any legal action filed on your behalf, you agree to withdraw from such proceeding or claim).

If you fail to withdraw such proceeding or claim (or, in the case of any legal action filed on your behalf, you fail to withdraw from such proceeding or claim) within 30 days of receipt of written notice from the Company requesting that you withdraw such proceeding or claim, then in addition to any other equitable or legal relief that the Company may be entitled to:

a.	The Company may withhold or retain all or any portion of the amounts due hereunder until such proceeding or claim is withdrawn by you;

b.	You agree to pay back to the Company within 60 days after receipt of written notice from the Company all the money you receive under paragraph 3 (except sub-paragraphs 3.a, g, j, n and o); and

c.	You agree to pay the Company the reasonable costs and attorneys' fees it incurs in defending such action.

You represent that as of Today you have not assigned to any other party, and agree not to assign, any claim released by you under this Agreement. (If you claim that your release of ADEA claims was not knowing and voluntary, the Company reserves its right to recover from you its attorneys' fees and/or costs in defending that claim, at the conclusion of that action.)

Upon a finding by a court of competent jurisdiction or arbitrator that a release or waiver of claims provided for by paragraph 4 above is illegal, void or unenforceable, the Company or you, as the case may be, may require the other party to execute promptly a release that is legal and enforceable and does not extend to Claims not released under paragraph 4. If you fail to execute such a release within a reasonable period of time, then this Agreement shall be null and void from Today on, and any money paid to you by the Company after Today under paragraph 3 (except sub-paragraphs 3.a, g, j, n and o) and not previously returned to the Company, will be treated as an overpayment. You will have to repay that overpayment to the Company with interest, compounded annually at the rate of 6%. However, the repayment provision in this paragraph does not apply to legal actions in which you claim that your release of ADEA claims was not knowing and voluntary.

This paragraph 13 does not apply to any thing of value given to you for which you actually performed services and by law you are entitled to receive.

14. Legal Action by the Company. The Company represents that as of Today neither it nor any of its affiliates has assigned to any other party, and agrees not to assign, any claim released by it under this Agreement. In addition, the Company promises that neither it nor any of its affiliates (including CIGNA Corporation) will file a lawsuit or an arbitration claim against you or any other Released Persons asserting any claim released by the Company or any of the Company Released Parties under this Agreement and, to the extent that the Company or any affiliate does commence such a proceeding, the Company agrees that it or its affiliate will withdraw such proceeding with prejudice. If the Company or any affiliate fails to withdraw any proceeding or claim with respect to any claim released under this Agreement within 30 days of receipt of written notice from you requesting that such withdrawal, the Company agrees to pay you the reasonable costs and attorneys' fees you incur in defending such action.

15. Representations. The Company represents and warrants that (a) the execution, delivery and performance of this Agreement has been fully and validly authorized by all necessary corporate action (including, without limitation, by any action required to be taken by the board of directors of the Company or any affiliate (including CIGNA Corporation), any committee of such board or any committee or designee administering the applicable CIGNA plans, including the Incentive Plan); (b) the officer signing this Agreement on behalf of the Company is duly authorized to do so; (c) the

execution, delivery and performance of this Agreement does not violate any applicable law, regulation, order, judgment or decree or any agreement, plan or corporate governance document to which the Company or any affiliate is a party or by which it is bound; and (d) upon execution and delivery of this Agreement by the parties, it shall be a valid and binding obligation of the Company enforceable against it in accordance with its terms, except to the extent that enforceability may be limited by applicable bankruptcy, insolvency or similar laws affecting the enforcement of creditors' rights generally.

16. Notices. Except as provided below, any notice, request or other communication given in connection with this Agreement shall be in writing and shall be deemed to have been given (a) when personally delivered to the recipient or (b) provided that a written acknowledgement of receipt is obtained, three days after being sent by prepaid certified or registered mail, or two days after being sent by a nationally recognized overnight courier, to the address specified in this paragraph 16 (or such other address as the recipient shall have specified by ten days' advance written notice given in accordance with this paragraph 16). Such communication shall be addressed to you as follows (unless such address is changed in accordance with this paragraph 16):

        Patrick E. Welch
        ____[Address]_______
        ___________________

and to the Company or CIGNA as follows:

        Kenneth Bottoms
        CIGNA Corporation
        1650 Market Street OL54H
        Philadelphia, PA, 19192

However, CIGNA and you may deliver any notices or other communications related to any employee benefit or compensation plans, programs or arrangements in the same manner that similar communications are delivered to or from other current or former employees, including by electronic transmission and first class mail.

17. Successors and Assigns. This Agreement will be binding on and inure to the benefit of the parties and their respective successors, heirs (in your case) and assigns. No rights or obligations of the Company under this Agreement may be assigned or transferred without your prior written consent, except that such rights or obligations may be assigned or transferred pursuant to a merger or consolidation in which the Company is not the continuing entity, or a sale, liquidation or other disposition of the assets of the Company, provided that the assignee or transferee is the successor to the Company (or in

connection with a purchase of Company assets, assumes the liabilities, obligations and duties of the Company under this Agreement), either contractually or as a matter of law. Your rights or obligations under this Agreement may not be assigned or transferred by you, without the Company's prior written consent, other than your rights to compensation and benefits, which may be transferred only by will or operation of law or pursuant to the terms of the applicable plan, program, grant or agreement of CIGNA or the Company. In the event of your death or a judicial determination of your incompetence, references in this Agreement to you shall be deemed to refer, where appropriate, to your legal representative, or, where appropriate, to your beneficiary or beneficiaries.

18. This Agreement is not effective or binding on either party until fully signed by both parties.

The perons named below have signed this Agreement on the dates shown below:

August 29, 2003 Date	/s/ Carol M. Olsen Carol M. Olsen Senior Vice President On behalf of Connecticut General Life Insurance Company


August 29, 2003 Date	/s/ Patrick E. Welch Patrick E. Welch

EX-10 7 ex105.htm EXHIBIT 10.5 EXHIBIT 10.5

Exhibit 10.5

Description of Arrangement regarding
Unit-based Long-Term Incentive Compensation

To help achieve the Corporation’s retention objectives, in August 2003, the People Resources Committee determined that post-2002 special items attributable to run-off reinsurance operations will not affect unit-based long-term incentive compensation payments starting in 2004.

EX-12 8 cigsep03ex12.htm EXHIBIT 12 EXHIBIT 12

Exhibit 12

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

	Nine Months Ended September 30,
	2003		2002



Income (loss) from continuing operations before income taxes (benefits)	$	486	$	(622	)

Adjustments:
Loss from equity investee		4		3


Income (loss) from continuing operations before income taxes (benefits), as adjusted	$	490	$	(619	)


Fixed charges included in income (loss):

Interest expense	$	83	$	90
Interest portion of rental expense		41		44


		124		134

Interest credited to contractholders		729		781


	$	853	$	915


Income available for fixed charges (including interest
credited to contractholders)	$	1,343	$	296


Income available for fixed charges (excluding interest
credited to contractholders) (1)	$	614	$	-


RATIO OF EARNINGS TO FIXED CHARGES:

Including interest credited to contractholders (1)		1.6		-


SUPPLEMENTAL RATIO:

Excluding interest credited to contractholders (1)		5.0		-

(1) Due to the loss in 2002, the ratio coverage was less than 1:1. CIGNA must generate additional earnings of $619 million to achieve a coverage of 1:1.

EX-31 9 ex311.htm EXHIBIT 31.1 Exhibit 31.1

Exhibit 31.1

CERTIFICATION

I, H. EDWARD HANWAY, certify that:

I have reviewed this quarterly report on Form 10-Q of CIGNA Corporation;

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) [Paragraph omitted pursuant to SEC Release Nos. 33-8238 and 34-47986];

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weakness in the design or operation of internal control over financial reporting which are reasonably likely to adversely

affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.



October 31, 2003
		/s/ H. Edward Hanway
		Chief Executive Officer

EX-31 10 ex312.htm EXHIBIT 31.2 Exhibit 31.2

Exhibit 31.2

CERTIFICATION

I, MICHAEL W. BELL, certify that:

I have reviewed this quarterly report on Form 10-Q of CIGNA Corporation;

b) [Paragraph omitted pursuant to SEC Release Nos. 33-8238 and 34-47986];

a) all significant deficiencies and material weakness in the design or operation of internal control over financial reporting which are reasonably likely to adversely

affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.



October 31, 2003
		/s/ Michael W. Bell
		Chief Financial Officer

EX-32 11 ex321.htm EXHIBIT 32.1 Exhibit 32.1

Exhibit 32.1

Certification of Chief Executive Officer of
CIGNA Corporation pursuant to 18 U.S.C. Section 1350

I certify that, to the best of my knowledge and belief, the Quarterly Report on Form 10-Q of CIGNA Corporation for the period ending September 30, 2003 (the “Report”):

(1)

complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)

the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of CIGNA Corporation.



		/s/ H. Edward Hanway
		H. Edward Hanway Chief Executive Officer
		October 31, 2003

EX-32 12 ex322.htm EXHIBIT 32.2 Exhibit 32.2

Exhibit 32.2

Certification of Chief Financial Officer of
CIGNA Corporation pursuant to 18 U.S.C. Section 1350

I certify that, to the best of my knowledge and belief, the Quarterly Report on Form 10-Q of CIGNA Corporation for the period ending September 30, 2003 (the “Report”):

(1)

complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)

the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of CIGNA Corporation.



		/s/ Michael W. Bell
		Michael W. Bell Chief Financial Officer
		October 31, 2003

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