Edgar Filing: CIGNA CORP

cigna10q6-07.htm

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 June 30, 2007

[ ] 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 1-08323

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.)

Two Liberty Place, 1601 Chestnut 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 a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer x Accelerated Filer __ Non-Accelerated Filer __

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes _ No x

As of July 20, 2007, 282,862,072 shares of the issuer's common stock were outstanding.

CIGNA CORPORATION

INDEX

		Page No.
PART I.	FINANCIAL INFORMATION
	Item 1. Financial Statements
	Consolidated Statements of Income	1
	Consolidated Balance Sheets	2
	Consolidated Statements of Comprehensive Income and Changes in Shareholders' Equity	3
	Consolidated Statements of Cash Flows	5
	Notes to the Financial Statements	6
	Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	25
	Item 3. Quantitative and Qualitative Disclosures About Market Risk	51
	Item 4. Controls and Procedures	52

PART II.	OTHER INFORMATION
	Item 1. Legal Proceedings	53
	Item 1A. Risk Factors	54
	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	55
	Item 4. Submission of Matters to a Vote of Security Holders	56

	Item 6. Exhibits	57
SIGNATURE		58
EXHIBIT INDEX		E-1

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

CIGNA Corporation
Consolidated Statements of Income
	Three Months Ended					Six Months Ended
	June 30,					June 30,
(In millions, except per share amounts)	2007			2006		2007			2006
Revenues
Premiums and fees	$	3,757		$	3,369	$	7,465		$	6,637
Net investment income		279			299		559			628
Other revenues		356			424		721			790
Realized investment gains (losses)		(11	)		6		10			150
Total revenues		4,381			4,098		8,755			8,205
Benefits and Expenses
Health Care medical claims expense		1,729			1,493		3,448			2,941
Other benefit expenses		834			825		1,670			1,613
Other operating expenses		1,490			1,372		2,896			2,715
Total benefits and expenses		4,053			3,690		8,014			7,269
Income from Continuing Operations
before Income Taxes		328			408		741			936
Income taxes (benefits):
Current		163			65		295			319
Deferred		(52	)		70		(48	)		(8	)
Total taxes		111			135		247			311
Income from Continuing Operations		217			273		494			625
Loss from Discontinued Operations, Net of Taxes		(19	)		-		(7	)		-
Net Income	$	198		$	273	$	487		$	625
Earnings Per Share - Basic:
Income from continuing operations	$	0.76		$	0.79	$	1.72		$	1.77
Loss from discontinued operations		(0.06	)		-		(0.03	)		-
Net income	$	0.70		$	0.79	$	1.69		$	1.77
Earnings Per Share - Diluted:
Income from continuing operations	$	0.75		$	0.78	$	1.68		$	1.74
Loss from discontinued operations		(0.07	)		-		(0.02	)		-
Net income	$	0.68		$	0.78	$	1.66		$	1.74
Dividends Declared Per Share	$	0.010		$	0.008	$	0.018		$	0.017

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 June 30,					As of December 31,
				2007						2006
Assets
Investments:
Fixed maturities, at fair value (amortized cost, $11,547; $11,202)				$	12,017					$	11,955
Equity securities, at fair value (cost, $113; $112)					128						131
Mortgage loans					3,656						3,988
Policy loans					1,451						1,405
Real estate					48						117
Other long-term investments					502						418
Short-term investments					20						89
Total investments					17,822						18,103
Cash and cash equivalents					1,104						1,392
Accrued investment income					206						223
Premiums, accounts and notes receivable					1,552						1,459
Reinsurance recoverables					7,633						8,045
Deferred policy acquisition costs					761						707
Property and equipment					568						632
Deferred income taxes, net					1,001						926
Goodwill					1,741						1,736
Other assets, including other intangibles					744						611
Separate account assets					8,394						8,565
Total assets				$	41,526					$	42,399
Liabilities
Contractholder deposit funds				$	8,929					$	9,164
Future policy benefits					8,035						8,245
Unpaid claims and claim expenses					4,190						4,271
Health Care medical claims payable					1,028						960
Unearned premiums and fees					548						499
Total insurance and contractholder liabilities					22,730						23,139
Accounts payable, accrued expenses and other liabilities					4,586						4,602
Short-term debt					-						382
Long-term debt					1,792						1,294
Nonrecourse obligations					15						87
Separate account liabilities					8,394						8,565
Total liabilities					37,517						38,069
Contingencies — Note 15
Shareholders’ Equity
Common stock (par value per share, $0.25; shares issued, 351; 160)					88						40
Additional paid-in capital					2,460						2,451
Net unrealized appreciation, fixed maturities	$	63					$	187
Net unrealized appreciation, equity securities		10						22
Net unrealized depreciation, derivatives		(25	)					(15	)
Net translation of foreign currencies		38						33
Postretirement benefits liability adjustment		(343	)					(396	)
Accumulated other comprehensive loss					(257	)					(169	)
Retained earnings					6,513						6,177
Less treasury stock, at cost					(4,795	)					(4,169	)
Total shareholders’ equity					4,009						4,330
Total liabilities and shareholders’ equity				$	41,526					$	42,399
Shareholders’ Equity Per Share				$	14.14					$	14.63

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, except per share amounts)
Three Months Ended June 30,	2007						2006
	Compre-			Share-			Compre-			Share-
	hensive			holders’			hensive			holders’
	Income			Equity			Income			Equity
Common Stock, April 1				$	40					$	40
Effect of issuance of stock for stock split					48						-
Common Stock, June 30					88						40
Additional Paid-In Capital, April 1					2,485						2,419
Effect of issuance of stock for employee benefit plans					23						9
Effect of issuance of stock for stock split					(48	)					-
Additional Paid-In Capital, June 30					2,460						2,428
Accumulated Other Comprehensive Loss, April 1					(171	)					(602	)
Net unrealized depreciation, fixed maturities	$	(118	)		(118	)	$	(67	)		(67	)
Net unrealized depreciation, equity securities		-			-			(1	)		(1	)
Net unrealized depreciation on securities		(118	)					(68	)
Net unrealized depreciation, derivatives		(9	)		(9	)		(8	)		(8	)
Net translation of foreign currencies		5			5			5			5
Postretirement benefits liability adjustment		36			36			-			-
Minimum pension liability		-			-			(9	)		(9	)
Other comprehensive loss		(86	)					(80	)
Accumulated Other Comprehensive Loss, June 30					(257	)					(682	)
Retained Earnings, April 1					6,375						5,425
Net income		198			198			273			273
Effects of issuance of stock for employee benefit plans					(57	)					(9	)
Common dividends declared					(3	)					(3	)
Retained Earnings, June 30					6,513						5,686
Treasury Stock, April 1					(4,577	)					(1,930	)
Repurchase of common stock					(346	)					(876	)
Other, primarily issuance of treasury stock for employee
benefit plans					128						28
Treasury Stock, June 30					(4,795	)					(2,778	)
Total Comprehensive Income and Shareholders’ Equity	$	112		$	4,009		$	193		$	4,694


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
Six Months Ended June 30,	2007						2006
	Compre-			Share-			Compre-			Share-
	hensive			holders’			hensive			holders’
	Income			Equity			Income			Equity
Common Stock, January 1				$	40					$	40
Effect of issuance of stock for stock split					48						-
Common Stock, June 30					88						40
Additional Paid-In Capital, January 1					2,451						2,385
Effect of issuance of stock for employee benefit plans					57						43
Effect of issuance of stock for stock split					(48	)					-
Additional Paid-In Capital, June 30					2,460						2,428
Accumulated Other Comprehensive Loss, January 1
prior to implementation effect					(169	)					(509	)
Implementation effect of SFAS No.155 (see Note 2)					(12	)					-
Accumulated Other Comprehensive Loss,
January 1 as adjusted					(181	)					(509	)
Net unrealized depreciation, fixed maturities	$	(124	)		(124	)	$	(162	)		(162	)
Net unrealized depreciation, equity securities		-			-			(5	)		(5	)
Net unrealized depreciation on securities		(124	)					(167	)
Net unrealized depreciation, derivatives		(10	)		(10	)		(9	)		(9	)
Net translation of foreign currencies		5			5			12			12
Postretirement benefits liability adjustment		53			53			-			-
Minimum pension liability		-			-			(9	)		(9	)
Other comprehensive loss		(76	)					(173	)
Accumulated Other Comprehensive Loss, June 30					(257	)					(682	)
Retained Earnings, January 1 prior to
implementation effects					6,177						5,162
Implementation effect of SFAS No. 155 (see Note 2)					12						-
Implementation effect of FIN 48 (see Note 2)					(29	)					-
Retained Earnings, January 1 as adjusted					6,160						5,162
Net income		487			487			625			625
Effects of issuance of stock for employee benefit plans					(129	)					(95	)
Common dividends declared					(5	)					(6	)
Retained Earnings, June 30					6,513						5,686
Treasury Stock, January 1					(4,169	)					(1,718	)
Repurchase of common stock					(922	)					(1,295	)
Other, primarily issuance of treasury stock for employee
benefit plans					296						235
Treasury Stock, June 30					(4,795	)					(2,778	)
Total Comprehensive Income and Shareholders’ Equity	$	411		$	4,009		$	452		$	4,694

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

CIGNA Corporation
Consolidated Statements of Cash Flows
(In millions)	Six Months Ended June 30,
	2007			2006
Cash Flows from Operating Activities
Net income	$	487		$	625
Adjustments to reconcile net income to net cash provided by operating activities:
Loss from discontinued operations		7			-
Insurance liabilities		77			(160	)
Reinsurance recoverables		50			47
Deferred policy acquisition costs		(56	)		(38	)
Premiums, accounts and notes receivable		(73	)		159
Other assets		(154	)		(6	)
Accounts payable, accrued expenses and other liabilities		(31	)		(393	)
Current income taxes		80			134
Deferred income taxes		(48	)		(8	)
Realized investment gains		(10	)		(150	)
Depreciation and amortization		98			107
Gains on sales of businesses (excluding discontinued operations)		(22	)		(33	)
Mortgage loans originated and held for sale		(5	)		(312	)
Proceeds from sales of mortgage loans held for sale		-			99
Other, net		18			10
Net cash provided by operating activities		418			81
Cash Flows from Investing Activities
Proceeds from investments sold:
Fixed maturities		362			1,745
Equity securities		23			17
Mortgage loans		452			292
Other (primarily short-term investments)		107			893
Investment maturities and repayments:
Fixed maturities		432			505
Mortgage loans		91			147
Investments purchased:
Fixed maturities		(1,092	)		(1,592	)
Equity securities		(11	)		(40	)
Mortgage loans		(206	)		(545	)
Other (primarily short-term investments)		(258	)		(485	)
Property and equipment sales		70			-
Property and equipment purchases		(105	)		(67	)
Cash provided by investing activities of discontinued operations		42			-
Other acquisitions/dispositions, net cash used		(5	)		-
Conversion of single premium annuity business		-			(45	)
Other, net		(6	)		-
Net cash provided by (used in) investing activities		(104	)		825
Cash Flows from Financing Activities
Deposits and interest credited to contractholder deposit funds		274			293
Withdrawals and benefit payments from contractholder deposit funds		(277	)		(318	)
Change in cash overdraft position		7			(4	)
Net proceeds on issuance of long-term debt		498			-
Repayment of long-term debt		(378	)		(100	)
Repurchase of common stock		(940	)		(1,273	)
Issuance of common stock		218			180
Common dividends paid		(5	)		(6	)
Net cash used in financing activities		(603	)		(1,228	)
Effect of foreign currency rate changes on cash and cash equivalents		1			1
Net decrease in cash and cash equivalents		(288	)		(321	)
Cash and cash equivalents, beginning of period		1,392			1,709
Cash and cash equivalents, end of period	$	1,104		$	1,388
Supplemental Disclosure of Cash Information:
Income taxes paid, net of refunds	$	174		$	164
Interest paid	$	60		$	52

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, its significant subsidiaries, and variable interest entities of which CIGNA is the primary beneficiary, 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 of America.

The interim financial statements are unaudited but include all adjustments (including normal recurring adjustments) necessary, in the opinion of management, for a fair statement of financial position and results of operations for the periods reported. The interim consolidated financial statements and notes should be read in conjunction with the Consolidated Financial Statements and Notes in CIGNA’s Annual Report to Shareholders and Form 10-K for the year ended December 31, 2006.

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.

All weighted average shares, per share amounts and references to stock compensation for all periods presented have been adjusted to reflect the three-for-one stock split effective June 4, 2007 (see Note 4). Par value and treasury stock were not affected by the stock split and, as a result, CIGNA reclassified $48 million from additional paid-in capital to common stock to reflect the issuance of approximately 191 million in additional shares at par value.

Beginning in 2007, CIGNA reports the results of the run-off retirement business in Other Operations. Prior periods have been restated to conform to this presentation.

Discontinued operations. Summarized financial data for discontinued operations primarily represents:

·	an impairment loss recorded in the second quarter of 2007 associated with the probable sale of the Chilean insurance operations as disclosed in Note 3; and

·	realized gains on the disposition of certain directly-owned real estate investments during the second quarter and six months of 2007 as disclosed in Note 9.


	Three Months					Six Months
	Ended					Ended
	June 30,					June 30,
(In millions)	2007			2006		2007			2006

Income before income taxes	$	7		$	-	$	25		$	-
Income taxes		(3	)		-		(9	)		-
Income from operations		4			-		16			-
Impairment loss, net of tax		(23	)		-		(23	)		-
Loss from discontinued
operations, net of tax	$	(19	)	$	-	$	(7	)	$	-

Unless otherwise indicated, amounts in these Notes exclude the effects of discontinued operations.

Variable interest entities. During the six months of 2007, certain real estate joint ventures and the remaining entity that issues investment products liquidated their primary assets and liabilities. As a result, at June 30, 2007, CIGNA consolidates $6 million in assets and $5 million in liabilities as the primary beneficiary of one real estate joint venture and no longer consolidates any assets or liabilities related to collateralized loan obligations (CLO). As of December 31, 2006, CIGNA consolidated $57 million in assets and $47 million in liabilities related to real estate joint ventures, and $55 million in assets and $26 million in liabilities related to CLO’s.

NOTE 2– RECENT ACCOUNTING PRONOUNCEMENTS

Uncertain tax positions. Effective January 1, 2007, CIGNA implemented Financial Accounting Standards Board (FASB) Interpretation No. (FIN) 48, "Accounting for Uncertainty in Income Taxes." This interpretation provides guidance for recognizing and measuring uncertain tax positions that are "more likely than not" to result in a benefit if challenged by the Internal Revenue Service (IRS). The guidance clarifies that the amount of tax benefit recognized should be measured using management's best estimate based on the most favorable expected benefit with greater than fifty percent likelihood of being realized. The interpretation also requires that interest expense and penalties be recognized for any reserved portion of an uncertain tax position beginning when the effect of that position is reported to tax authorities. The cumulative effect of implementing the interpretation for unrecognized tax benefits decreased opening retained earnings by $29 million. See Note 12 for additional information.

Certain financial instruments. Effective January 1, 2007, CIGNA implemented Statement of Financial Accounting Standards (SFAS) No. 155, "Accounting for Certain Hybrid Financial Instruments”, an amendment of FASB Statements No. 133 and 140. This standard clarifies when certain financial instruments and features of financial instruments must be treated as derivatives and reported on the balance sheet at fair value with changes in fair value reported in net income. At adoption, CIGNA elected to fair value certain existing investments in preferred stock and debt securities with call or conversion features (hybrid securities) and future changes in the fair value of these investments will be reported in net income. As a result, CIGNA reclassified $12 million after-tax of unrealized appreciation from the opening balance of accumulated other comprehensive loss to retained earnings with no net change to total shareholders' equity. In addition, this standard may affect future income recognition for certain future financial instruments if the fair value election is used or if additional derivatives are identified because any changes in their fair values will be recognized in net income each period. See Note 9 for a review of instruments that CIGNA has elected to fair value.

Deferred acquisition costs. Effective January 1, 2007, CIGNA implemented the American Institute of Certified Public Accountants’ (AICPA) Statement of Position (SOP) 05-1, "Accounting by Insurance Enterprises for Deferred Acquisition Costs in Connection With Modifications or Exchanges of Insurance Contracts." The SOP requires that deferred acquisition costs be expensed in full when the original contract is substantially changed by election or amendment of an existing contract feature or by replacement with a new contract. There were no material effects to the financial statements at implementation. Although substantial contract changes are not expected to occur, the effect of this SOP in future periods may vary based on the nature and volume of any such contract changes.

Pension and other postretirement benefit plans. In 2006, the FASB issued SFAS No. 158, "Employers' Accounting for Defined Benefit Pension and Other Postretirement Benefits Plans," requiring that the overfunded or underfunded status of all defined benefit postretirement plans be measured as the difference between the fair value of plan assets and the benefit obligation and recognized in the balance sheet. Changes in actuarial gains and losses and prior service costs are required to be recognized in accumulated other comprehensive income (loss), net of tax, each period. CIGNA implemented this standard effective December 31, 2006. Liabilities for pension benefits and other postretirement benefits are recorded in accounts payable, accrued expenses and other liabilities on CIGNA’s balance sheet. The implementation of SFAS No. 158 did not impact CIGNA's pension expense, funding requirements or financial covenants. See Note 8 for further information on pension and other postretirement benefit plans.

Fair value measurements. In 2006, the FASB issued SFAS No. 157, "Fair Value Measurements," to expand disclosures about fair value measurements and to clarify how to measure fair value by focusing on the price that would be received when selling an asset or paid to transfer a liability. Implementation is required in the first quarter of 2008 with any changes to the fair values of assets or liabilities to be reported generally in net income or, for fixed maturities and equity securities held for sale and derivatives that hedge future cash flows, in accumulated other comprehensive income (loss) for the period. CIGNA's estimates of the fair values of the assets and liabilities for reinsurance contracts that guarantee minimum income benefits will be impacted by these new requirements. CIGNA is presently evaluating these new requirements to

determine whether their implementation will result in material changes to the fair value measurements of its assets and liabilities.

Fair value option. In 2007, FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities," to permit entities to choose to measure many financial instruments at fair value with subsequent changes in fair value to be reported in net income for the period. This choice is made for each individual financial instrument, is irrevocable and, after implementation, must be determined when the entity first commits to or recognizes the financial instrument. Implementation is required in the first quarter of 2008 with any changes in the measurement of existing financial instruments to be reported as an adjustment to the opening balance of retained earnings. CIGNA is presently evaluating these new requirements to determine whether the fair value election will be used for various financial assets and liabilities at implementation or for financial assets and liabilities acquired subsequently.

Investment company audit guide. In 2007, the AICPA issued SOP 07-1, "Clarification of the Scope of the Audit and Accounting Guide 'Investment Companies' and Accounting by Parent Companies and Equity Method Investors for Investments in Investment Companies" to explain when an entity should account for assets and liabilities at fair value with changes in fair value included in net income each period. The SOP also addresses when companies should retain this fair value accounting in their consolidated financial statements. Implementation is required as of January 1, 2008. Changes in measurement for entities that are newly subject to fair value accounting will be reflected as an adjustment to the opening balance of retained earnings. Entities that should discontinue fair value accounting will be required to account for their investments under other applicable GAAP on a prospective basis. CIGNA is presently evaluating these new requirements to determine whether any changes to current accounting will result at implementation.

NOTE 3– 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 the Chilean Insurance Operations. During the second quarter of 2007, CIGNA initiated actions to sell its Chilean insurance operations. Since a sale is probable within one year, CIGNA has classified this business as a discontinued operation. CIGNA recognized an impairment loss for this business of $23 million after-tax primarily relating to the write-off of unrecoverable tax assets and foreign currency translation losses. The assets and liabilities of the Chilean insurance operations, which are held for sale, are reported in other assets and accounts payable, accrued expenses and other liabilities. Amounts as of December 31, 2006 have been reclassified to conform to this presentation.

Sale of the Brazilian Life Insurance Operations. During 2006, CIGNA entered into negotiations to sell its Brazilian life insurance business. The sale is expected to close within one year and as a result, CIGNA has classified this business as a discontinued operation.

Star-HRG Acquisition. On July 11, 2006, CIGNA acquired the operating assets of Star-HRG, a leading provider of low cost health plans and other employee benefits coverage for hourly and part-time workers and their families, for $156 million, including assumed liabilities. The acquisition was accounted for as a purchase, and was financed through the issuance of a note payable to the seller for $151 million, of which $73 million was paid in 2006. The results of Star-HRG are included in the accompanying consolidated financial statements from the date of the acquisition.

NOTE 4– EARNINGS PER SHARE

On April 25, 2007, CIGNA's Board of Directors approved a three-for-one stock split (in the form of a stock dividend) of CIGNA's common shares. The stock split was paid on June 4, 2007 to shareholders of record as of the close of business on May 21, 2007. All weighted average shares, per share amounts and references to stock compensation data for all periods presented have been adjusted to reflect the effect of the stock split.

Basic and diluted earnings per share were computed as follows:


(Dollars in millions, except			Effect of
per share amounts)	Basic		Dilution			Diluted
Three Months Ended June 30,
2007
Income from continuing
operations	$	217		-		$	217
Shares (in thousands):
Weighted average		284,614		-			284,614
Options and restricted stock grants				5,387			5,387
Total shares		284,614		5,387			290,001
EPS	$	0.76	$	(0.01	)	$	0.75
2006
Income from continuing
operations	$	273		-		$	273
Shares (in thousands):
Weighted average		346,234		-			346,234
Options and restricted stock grants				4,701			4,701
Total shares		346,234		4,701			350,935
EPS	$	0.79	$	(0.01	)	$	0.78
Six Months Ended June 30,
2007
Income from continuing
operations	$	494		-		$	494
Shares (in thousands):
Weighted average		287,476		-			287,476
Options and restricted stock grants				5,685			5,685
Total shares		287,476		5,685			293,161
EPS	$	1.72	$	(0.04	)	$	1.68
2006
Income from continuing
operations	$	625		-		$	625
Shares (in thousands):
Weighted average		352,998		-			352,998
Options and restricted stock grants				6,201			6,201
Total shares		352,998		6,201			359,199
EPS	$	1.77	$	(0.03	)	$	1.74

The following outstanding employee stock options were not included in the computation of diluted earnings per share because their effect would have increased diluted earnings per share (antidilutive) as their exercise price was greater than the average share price of CIGNA's common stock for the period.


	Three Months		Six Months
	Ended		Ended
	June 30,		June 30,
(In millions)	2007	2006	2007	2006
Antidilutive options	1.6	5.9	1.6	4.0

CIGNA held 67,502,238 shares of common stock in Treasury as of June 30, 2007, and 49,134,111 shares as of June 30, 2006. Treasury shares were not affected by the stock split.

NOTE 5– HEALTH CARE MEDICAL CLAIMS PAYABLE

Medical claims payable for the Health Care segment reflects estimates of the ultimate cost of claims that have been incurred but not yet reported, those which have been reported but not yet paid (reported claims in process) and other medical expense payable, which primarily comprises accruals for provider incentives and other amounts payable to providers. Incurred but not yet reported comprises the majority of the reserve balance as follows:


	June 30,		December 31,
(In millions)	2007		2006
Incurred but not yet reported	$	854	$	820
Reported claims in process		118		95
Other medical expense payable		56		45
Medical claims payable	$	1,028	$	960

Activity in medical claims payable was as follows:


	For the period ended
(In millions)	June 30, 2007			December 31, 2006
Balance at January 1,	$	960		$	1,165
Less: Reinsurance and other
amounts recoverable		250			342
Balance at January 1, net		710			823
Incurred claims related to:
Current year		3,527			6,284
Prior years		(79	)		(173	)
Total incurred		3,448			6,111
Paid claims related to:
Current year		2,807			5,615
Prior years		563			609
Total paid		3,370			6,224
Ending Balance, net		788			710
Add: Reinsurance and other
amounts recoverable		240			250
Ending Balance	$	1,028		$	960

Reinsurance and other amounts recoverable reflect amounts due from policyholders to cover incurred but not reported and pending claims for minimum premium products and certain administrative services only business where the right of offset does not exist.

For the six months ended June 30, 2007, actual experience differed from CIGNA's key assumptions, resulting in favorable incurred claims related to prior years’ medical claims payable of $79 million, or 1.3% of the current year incurred claims as reported for the year ended December 31, 2006. Actual completion factors resulted in a reduction in medical claims payable of $47 million, or 0.8% of the current year incurred claims as reported for the year ended December 31, 2006 for the insured book of business. Actual medical cost trend resulted in a reduction in medical claims payable of $32 million, or 0.5% of the current year incurred claims as reported for the year ended December 31, 2006 for the insured book of business. The favorable impact in 2007 relating to completion factor and medical cost trend variances is primarily due to the release of the provision for moderately adverse conditions, which is a component of the assumptions for both completion factors and medical cost trend, established for claims incurred related to 2006. This release was substantially offset by the establishment of the provision for moderately adverse conditions established for claims incurred related to 2007.

For the year ended December 31, 2006, actual experience differed from CIGNA's key assumptions, resulting in favorable incurred claims related to prior years’ medical claims payable of $173 million, or 2.6% of the current year incurred claims as reported for the year ended December 31, 2005. The favorable impact in 2006 is due to faster than expected completion factors and lower than expected medical cost trends, both of which included an assumption for moderately adverse experience.

For the year ended December 31, 2006, actual completion factors resulted in a reduction of the medical claims payable of $99 million or 1.5% of the current year incurred claims as reported for the year ended December 31, 2005 for the insured book of business. Completion factors in 2006 reflected better than expected time to process claims, driven by higher auto-adjudication rates, the impact of claim recoveries and more timely submissions of provider claims. For the year ended December 31, 2006, actual medical cost trend resulted in a reduction of the medical claims payable of $74 million or 1.1% of the current year incurred claims as reported for the year ended December 31, 2005 for the insured book of business. The better than expected medical cost trend in 2006 was driven by lower inpatient, outpatient and pharmacy service utilization and lower than expected unit cost trends. The lower than expected unit cost trends reflected provider contracting initiatives and the mix of services provided.

The corresponding impact of favorable prior year development on net income was $5 million for the six months ended June 30, 2007 and $54 million for the year ended December 31, 2006, or 0.1% in 2007 and 0.8% in 2006 of the current year incurred claims as reported for the years ended December 31, 2006 and 2005, respectively. The change in the amount of the incurred claims related to prior years in the medical claims payable liability does not directly correspond to an increase or decrease in CIGNA's net income recognized for the following reasons:

First, due to the nature of CIGNA's retrospectively experience-rated business, only adjustments to medical claims payable on accounts in deficit affect net income. An increase or decrease to medical claims payable on accounts in deficit, in effect, accrue to CIGNA and directly impact net income. An account is in deficit when the accumulated medical costs and administrative charges, including profit charges, exceed the accumulated premium received. Adjustments to medical claims payable on accounts in surplus accrue directly to the policyholder with no impact on CIGNA's net income. An account is in surplus when the accumulated premium received exceeds the accumulated medical costs and administrative charges, including profit charges.

Second, CIGNA consistently recognizes the actuarial best estimate of the ultimate liability within a level of confidence, as required by actuarial standards of practice, which require that the liabilities be adequate under moderately adverse conditions. As CIGNA establishes the liability for each incurral year, CIGNA ensures that its assumptions appropriately consider moderately adverse conditions. When a portion of the development related to the prior year incurred claims is offset by an increase deemed appropriate to address moderately adverse conditions for the current year incurred claims, CIGNA does not consider that offset amount as having any impact on net income.

The determination of liabilities for Health Care medical claims payable requires CIGNA to make critical accounting estimates. See Note 2(O) in CIGNA's 2006 Annual Report to Shareholders for additional information.

NOTE 6– GUARANTEED MINIMUM DEATH BENEFIT 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 and other market exposures as a result of this product.

The determination of liabilities for guaranteed minimum death benefits requires CIGNA to make critical accounting estimates. CIGNA regularly evaluates the assumptions used in establishing reserves and changes its estimates if actual experience or other evidence suggests that earlier assumptions should be revised. If actual experience differs from the assumptions (including lapse, partial surrender, mortality, interest rates and volatility) used in estimating these reserves, 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 guaranteed minimum death benefit contracts of $835 million as of June 30, 2007, and $862 million as of December 31, 2006.

The following provides information about CIGNA’s reserving methodology and assumptions for guaranteed minimum death benefits as of June 30, 2007:

The reserves represent estimates of the present value of net amounts expected to be paid, less the present value of net future premiums. Included in net amounts expected to be paid is the excess of the guaranteed death benefits over the values of the contractholders’ accounts (based on underlying equity and bond mutual fund investments).

·	The reserves include an estimate for partial surrenders that essentially lock in the death benefit for a particular policy based on annual election rates that vary from 0-17% depending on the net amount at risk for each policy and whether surrender charges apply.

·	The mean investment performance assumption is 5% considering CIGNA's program to reduce equity market exposures using futures contracts.

In addition, the results of futures contracts are reflected in the liability calculation as a component of investment returns.

·	The volatility assumption is 15-30%, varying by equity fund type; 3-8%, varying by bond fund type; and 1% for money market funds.

·	The discount rate is 5.75%.

·	The mortality assumption is 70-75% of the 1994 Group Annuity Mortality table, with 1% annual improvement beginning January 1, 2000.

·	The lapse rate assumption is 0-15%, depending on contract type, policy duration and the ratio of the net amount at risk to account value.

As of June 30, 2007, the aggregate fair value of the underlying mutual fund investments was $34.3 billion. The death benefit coverage in force as of that date (representing the amount that CIGNA would have to pay if all of the approximately 825,000 contractholders had died on that date) was $4.1 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 futures contract positions held by CIGNA at June 30, 2007, was $591 million. CIGNA recorded in other revenues pre-tax losses of $28 million for the second quarter and $35 million for the six months of 2007, compared with a pre-tax gain of $16 million for the second quarter and a pre-tax loss of $24 million for the six months of 2006 from futures contracts. Expense offsets reflecting corresponding changes in liabilities for these guaranteed minimum death benefit contracts were included in benefits and expenses.

For further information and details on these contracts and the program adopted to reduce related equity market risk, refer to Note 7 of CIGNA's 2006 Annual Report to Shareholders.

NOTE 7– 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.

Retirement benefits business. CIGNA had a reinsurance recoverable of $2.3 billion as of June 30, 2007, and $2.5 billion as of December 31, 2006 from Prudential Retirement Insurance and Annuity Company resulting from the sale of the retirement benefits business, which was primarily in the form of a reinsurance arrangement. The reinsurance recoverable is secured primarily by fixed maturities and mortgage loans held in a business trust established by the reinsurer. This recoverable is reduced as CIGNA's reinsured liabilities are paid or directly assumed by the reinsurer.

Individual life and annuity reinsurance. CIGNA had a reinsurance recoverable of $4.7 billion at June 30, 2007 and $4.8 billion at December 31, 2006, from The Lincoln National Life Insurance Company that arose from the 1998 sale of CIGNA’s individual life insurance and annuity business through an indemnity reinsurance arrangement.

Unicover and other run-off reinsurance. CIGNA's Run-off Reinsurance operations reinsured workers’ compensation and personal accident business in the United States and London markets. This included participation in a workers’ compensation reinsurance pool formerly managed by Unicover Managers, Inc.

CIGNA purchased extensive retrocessional reinsurance for the Unicover contracts (through the pool) and also purchased retrocessional coverage for its other workers compensation and personal accident assumed risks. Although CIGNA is involved in certain retrocessional enforcement arbitrations, most of the disputes concerning the retrocessional contracts have been resolved. See Note 15 “Litigation and other legal matters” for more information regarding these disputes.

CIGNA's payment obligations under these contracts are based on ceding companies’ claim payments

relating to accidents and injuries. These claim payments can in some cases extend many years into the future, and the amount of the ceding companies’ ultimate claims, and therefore the amount of CIGNA's ultimate payment obligations and ultimate collection from retrocessionaires may not be known with certainty for some time.

CIGNA’s reserves for underlying reinsurance exposures assumed by CIGNA, as well as for amounts recoverable from retrocessionaires, are considered appropriate as of June 30, 2007, 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. CIGNA bears the risk of loss if its payment obligations to cedents increase or if its retrocessionaires are unable to meet, or successfully challenge, their reinsurance obligations to CIGNA.

Other reinsurance. CIGNA could have losses if reinsurers fail to indemnify CIGNA on other reinsurance arrangements, either 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 and expenses were net of reinsurance recoveries, in the following amounts:


	Three Months				Six Months
	Ended				Ended
	June 30,				June 30,
(In millions)	2007		2006		2007		2006
Premiums and fees
Individual life insurance
and annuity business sold	$	57	$	64	$	114	$	128
Other		61		53		115		98
Total	$	118	$	117	$	229	$	226
Reinsurance recoveries
Individual life insurance
and annuity business sold	$	66	$	78	$	158	$	153
Other		22		10		56		45
Total	$	88	$	88	$	214	$	198

NOTE 8– PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS

Pension and other postretirement benefits liability.

For the six months ended June 30, 2007, CIGNA's postretirement benefits liability adjustment decreased by $82 million pre-tax ($53 million after-tax) resulting in an increase to shareholders’ equity. The decrease in the liability was primarily due to net amortization of actuarial losses, the annual update of census data, favorable medical claim experience, and lower than expected election rates in CIGNA's postretirement medical plan.

During the second quarter of 2006, CIGNA's minimum pension liability increased primarily due to an update of plan census data. This resulted in a decrease to shareholders’ equity of $9 million after-tax.

Pension benefits. Components of net pension cost were as follows:


	Three Months						Six Months
	Ended						Ended
	June 30,						June 30,
(In millions)	2007			2006			2007			2006
Service cost	$	18		$	16		$	37		$	35
Interest cost		57			56			115			111
Expected return on plan assets		(52	)		(52	)		(104	)		(104	)
Amortization of:
Net loss from past experience		28			35			59			76
Prior service cost		(1	)		-			(1	)		-
Net pension cost	$	50		$	55		$	106		$	118

CIGNA funds its qualified pension plans by at least the minimum amount required by the Employee Retirement Income Security Act of 1974, as amended (ERISA).

CIGNA does not expect to make, nor is required to make domestic pension plan contributions in 2007.

Other postretirement benefits. Components of net other postretirement benefit cost were as follows:


	Three Months						Six Months
	Ended						Ended
	June 30,						June 30,
(In millions)	2007			2006			2007			2006
Service cost	$	-		$	-		$	1		$	1
Interest cost		6			6			12			12
Expected return on plan assets		(1	)		(1	)		(1	)		(1	)
Amortization of:
Net gain from past experience		(2	)		-			(3	)		(1	)
Prior service cost		(4	)		(4	)		(8	)		(8	)
Net other postretirement
benefit cost (benefit)	$	(1	)	$	1		$	1		$	3

NOTE 9– INVESTMENTS

Realized Investment Gains and Losses

The following realized gains and losses on investments exclude amounts required to adjust future policy benefits for certain annuities:


	Three Months						Six Months
	Ended						Ended
	June 30,						June 30,
(In millions)	2007			2006			2007			2006
Fixed maturities	$	(12	)	$	(18	)	$	(8	)	$	(14	)
Equity securities		1			(8	)		11			(5	)
Mortgage loans		(1	)		-			(1	)