Acquisitions

3 Months Ended

Mar. 31, 2012

Acquisitions [Abstract]

Acquisitions

Note 3 —Acquisitions

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

• Acquisition of HealthSpring, Inc.

On January 31, 2012 the Company acquired the outstanding shares of HealthSpring, Inc. (“HealthSpring”) for $55 per share in cash and Cigna stock awards, representing a cost of approximately $3.8 billion. HealthSpring provides Medicare Advantage coverage in 11 states and the District of Columbia, as well as a large, national stand-alone Medicare prescription drug business.The acquisition of HealthSpring strengthens the Company's ability to serve individuals across their life stages as well as deepens its presence in a number of geographic markets. The addition of HealthSpring brings industry leading physician partnership capabilities and creates the opportunity to deepen the Company's existing client and customer relationships, as well as facilitates a broader deployment of its range of health and wellness capabilities and product offerings.The Company funded the acquisition with internal cash resources.

Merger consideration: The estimated merger consideration of $3.8 billion was calculated as follows:

(In millions, except per share amounts)
HealthSpring, Inc. common shares outstanding at January 30, 2011 (1)		67.8
Less: common shares outstanding not settled in cash		(0.1)
Common shares settled in cash		67.7
Price per share	$	55
Cash consideration for outstanding shares (1)	$	3,726
Fair value of share-based compensation awards		65
Additional cash and equity consideration		21
Total merger consideration	$	3,812
(1) Includes 922,000 shares subject to appraisal that the Company has accrued for at $55 per share.

Fair value of share-based compensation awards.On the date of the acquisition, HealthSpring employees' awards of options and restricted sharesof HealthSpring stock were rolled over to Cigna stock options and restricted stock. Each holder of a HealthSpring stock option or restricted stock award received 1.24 Cigna stock options or restricted stockawards. The conversion ratio of 1.24 at the date of acquisition wasdetermined by dividing the acquisition price of HealthSpring shares of $55 by the price of Cigna stock on January 31, 2012 of $44.43. The Cigna stock option exercise price was determined byusing this same conversion ratio. Vesting periods and the remaining life of the options rolled over with the original HealthSpring awards.

Using fair value as of the acquisition date, the Company valued the restricted stock at Cigna's stock price and stock options using a Black-Scholes pricing model. The assumptions used were generally consistent with those disclosed in Note 20 to the Company's 2011 Consolidated Financial Statements included in the Form 10-K, except the expected life assumption of these options ranged from 1.8 to 4.8 years and the exercise price did not equal the market value at the grant date. Because the exercise price at the acquisition date for substantially all of the options was significantly below Cigna's stock price, fair value of the new stock options approximated intrinsic value.

The fair value of theseoptions and restricted stock was included in the purchase price to the extent that services had been provided prior to the acquisition based on the grant date of the original HealthSpring award and vesting period. The remaining fair value not included in the purchase price will be recorded as compensation expense in future periods over the remaining vesting periods.Most of the expense is expected to be recognized in 2012 and 2013.

The following table summarizes the effect of theserollover awards for former HealthSpring employees.

			Average						Compensation
			exercise/				Included		expense
	Number of		award		Fair value		in purchase		post-
(awards in thousands, dollars in millions, except per share amounts)	awards		price		of awards		price		acquisition
Vested options	589	$	14.04	$	18	$	18	$	-
Unvested options	1,336	$	16.21		37		28		9
Restricted stock	786	$	44.43		35		19		16
Total	2,711			$	90	$	65	$	25

Purchase price allocation. In accordance with GAAP, the total purchase price has been allocated to the tangible and intangible net assets acquired based on management's preliminary estimates of their fair values and may change as additional information becomes available over the next several months. Goodwill, that is allocated to the Health Care segment,has not yet been allocated to a reporting unit as of March 31, 2012 and is not deductible for federal income tax purposes. During the three months ended March 31, 2012, the Company recorded $41 million pre-tax ($28 million after-tax) of acquisition-related costs in other operating expenses. The condensed balance sheet of HealthSpring at the acquisition date was as follows:

(In millions)
Investments	$	612
Cash and cash equivalents		492
Premiums, accounts and notes receivable		320
Goodwill		2,547
Intangible assets		795
Other		94
Total assets acquired		4,860
Insurance liabilities		514
Deferred income taxes		208
Debt		326
Total liabilities acquired		1,048
Net assets acquired	$	3,812

In accordance with debt covenants, HealthSpring's debt obligation was paid immediately following the acquisition. This repayment is reported as a financing activity in the statement of cash flows for the three months ended March 31, 2012.

The estimated fair values and useful lives for all intangible assets are as follows:

(Dollars in millions)		Estimated Fair Value	Estimated Useful Life (In Years)
Customer relationships	$	711	8
Other		84	3-10
Total other intangible assets	$	795

The fair value of the customer relationship and the amortization method were determined using an income approach that relies on projected future net cash flows including key assumptions for the customer attrition rate and discount rate. The estimated weighted average useful life reflects the time period and pattern of use that Cigna expects for over 90% of the projected benefits. Accordingly, amortization will be recorded on an accelerated basis in 2012 and decline in subsequent years.

The results of HealthSpring have been included in the Company's Consolidated Financial Statements from the date of the acquisition. Revenues of HealthSpring included in the Company's results for three months ended March 31, 2012 were approximately $1.0 billion. Net income for HealthSpring was determined to be immaterial.

Pro forma information.The following table presents selected unaudited pro forma information for the Company assuming the acquisition of HealthSpring had occurred as of January 1, 2011. This pro forma information does not purport to represent what the Company's actual results would have been if the acquisition had occurred as of the date indicated or what such results would be for any future periods.

		Unaudited
		Three Months Ended March 31,
(In millions, except per share amounts)		2012		2011
Total revenues	$	7,277	$	6,812
Shareholders' net income	$	381	$	427
Earnings per share:
Basic	$	1.33	$	1.49
Diluted	$	1.32	$	1.46

• Acquisition of FirstAssist

In November 2011, the Company acquired FirstAssist Group Holdings Limited (“FirstAssist”) for approximately $115 million,using available cash on hand. FirstAssist is based in the United Kingdom and provides travel and protection insurance services that the Company expects will enhance its individual business in the U.K. and around the world.

In accordance with GAAP, the total purchase price has been allocated to the tangible and intangible net assets acquired based on management's preliminary estimates of their fair values and may change as additional information becomes available over the next several months. During the first quarter of 2012, the Company updated its allocation of the purchase price based on additional information. Accordingly, the allocation to intangible assets was decreased by $18 million from $58 million reported at December 31, 2011 to $40 million. The allocation to goodwill was increased by $7 million from $56 million reported at December 31, 2011 to $63 million. Goodwill is reported in the International segment.

The results of FirstAssist are included in the Company's Consolidated Financial Statements from the date of acquisition. The pro forma effects assuming the acquisition had occurred as of January 1, 2010 were not material to the Company's total revenues, shareholders' net income and earnings per share for the three months ended March 31, 2011.