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Cigna Reports Third Quarter 2016 Results Led by Strong Commercial Health Care Performance

November 3, 2016 6:01 AM

BLOOMFIELD, Conn.--(BUSINESS WIRE)-- Cigna Corporation (NYSE: CI) today reported third quarter 2016 results with solid revenue and earnings, led by strong performance in Commercial health care.

Total revenues in the quarter were $9.9 billion, an increase of 5% over third quarter 2015, driven by continued growth in Cigna's targeted customer segments.

For the third quarter of 2016, shareholders’ net income was $456 million, or $1.76 per share, compared with $547 million, or $2.10 per share, for the third quarter of 2015. Third quarter 2016 shareholders’ net income included special item1 charges of $71 million after-tax, or $0.28 per share, for transaction costs related to Cigna’s proposed combination with Anthem and a litigation matter, while third quarter 2015 shareholders’ net income included $29 million after-tax, or $0.11 per share, of transaction costs related to Cigna’s proposed combination with Anthem.

Cigna's adjusted income from operations1 for the third quarter of 2016 was $503 million, or $1.94 per share, compared with $593 million, or $2.28 per share, for the third quarter of 2015.

“Cigna’s third quarter financial results are driven by our focus on affordable solutions and quality health outcomes for our customers and clients,” said David M. Cordani, President and Chief Executive Officer. “As we look to 2017, our commitment to delivering sustained value through innovative programs provides us with attractive growth opportunities in each of our businesses.”

CONSOLIDATED HIGHLIGHTS

The following table includes highlights of results and reconciliations of consolidated operating revenues4 to total revenues and adjusted income from operations1 to shareholders’ net income:

Consolidated Financial Results (dollars in millions, customers in thousands):

Nine Months

Three Months Ended Ended

September 30,

June 30,

September 30,
2016 2015 2016 2016
Consolidated Operating Revenues4 $ 9,805 $ 9,379 $ 9,893 $ 29,614
Net realized investment gains (losses) 75 10 67 110
Total Revenues $ 9,880 $ 9,389 $ 9,960 $ 29,724
Consolidated Earnings, net of taxes
Adjusted income from operations1 $ 503 $ 593 $ 515 $ 1,619
Net realized investment gains 48 7 44 71
Amortization of other acquired intangible assets (24) (24) (23) (72)
Special items1 (71) (29) (26) (133)
Shareholders' net income $ 456 $ 547 $ 510 $ 1,485
Adjusted income from operations1, per share $ 1.94 $ 2.28 $ 1.98 $ 6.24
Shareholders' net income, per share $ 1.76 $ 2.10 $ 1.97 $ 5.72
As of the Periods Ended

September 30,

June 30,

December 31,

2016 2015 2016 2015
Global Medical Customers 15,177 14,849 15,141 14,999

HIGHLIGHTS OF SEGMENT RESULTS

See Exhibit 2 for a reconciliation of adjusted income (loss) from operations1 to shareholders’ net income.

Global Health Care

This segment includes Cigna’s Commercial and Government businesses that deliver medical and specialty health care products and services to domestic and multi-national clients and customers using guaranteed cost, retrospectively experience-rated and administrative services only (“ASO”) funding arrangements. Specialty health care includes behavioral, dental, disease and medical management, stop loss and pharmacy-related products and services.

Financial Results (dollars in millions, customers in thousands):
Nine Months
Three Months Ended Ended
September 30, June 30, September 30,
2016 2015 2016 2016
Premiums and Fees $ 6,807 $ 6,619 $ 6,943 $ 20,806
Adjusted Income from Operations1 $ 416 $ 482 $ 486 $ 1,446
Adjusted Margin, After-Tax5 5.4% 6.5% 6.2% 6.2%
As of the Periods Ended
September 30, June 30, December 31,

Customers:

2016 2015 2016 2015
Commercial 14,594 14,291 14,543 14,432
Government 583 558 598 567
Medical 15,177 14,849 15,141 14,999
Behavioral Care 26,102 24,591 25,776 24,674
Dental 14,960 13,872 14,880 13,869
Pharmacy 8,370 7,980 8,302 8,068
Medicare Part D 999 1,472 1,037 1,476

Global Supplemental Benefits

This segment includes Cigna’s global individual supplemental health, life and accident insurance business, primarily in Asia, and Medicare supplement coverage in the United States.

Financial Results (dollars in millions, policies in thousands):

Nine Months
Three Months Ended Ended
September 30, June 30, September 30,
2016 2015 2016 2016
Premiums and Fees8 $ 833 $ 761 $ 800 $ 2,405
Adjusted Income from Operations1 $ 81 $ 62 $ 83 $ 231
Adjusted Margin, After-Tax5 9.4% 7.8% 9.9% 9.2%
As of the Periods Ended
September 30, June 30, December 31,
2016 2015 2016 2015
Policies8 12,069 12,808 11,965 12,888

Group Disability and Life

This segment includes Cigna’s group disability, life and accident insurance operations.

Financial Results (dollars in millions):

Nine Months
Three Months Ended Ended
September 30, June 30, September 30,
2016 2015 2016 2016
Premiums and Fees $ 1,024 $ 980 $ 1,012 $ 3,063
Adjusted Income (Loss) from Operations1 $ 53 $ 84 $ (12) $ 56
Adjusted Margin, After-Tax5 4.8% 7.9% (1.1%) 1.7%

Corporate & Other Operations

Adjusted loss from operations1 for Cigna's remaining operations is presented below:

Financial Results (dollars in millions):

Nine Months
Three Months Ended Ended
September 30, June 30, September 30,
2016 2015 2016 2016
Corporate & Other Operations $ (47) $ (35) $ (42) $ (114)

2016 OUTLOOK

Cigna's outlook for full year 2016 consolidated adjusted income from operations1,2 is in the range of $2.025 billion to $2.095 billion, or $7.80 to $8.05 per share. Cigna’s outlook excludes the impact of additional prior year reserve development and potential effects of any future capital deployment.3

(dollars in millions, except where noted and per share amounts)

Full-Year Ending
December 31, 2016
Projected Adjusted Income (Loss) from Operations1,2
Global Health Care $ 1,840 to 1,870
Global Supplemental Benefits $ 275 to 285
Group Disability and Life $

80 to 110

Ongoing Businesses $ 2,195 to 2,265
Corporate & Other Operations $ (170)
Consolidated Projected Adjusted Income from Operations1,2 $ 2,025 to 2,095
Consolidated Projected Adjusted Income from Operations, per share1,2,3 $ 7.80 to 8.05

2016 Projected Operating Metrics and Ratios Outlook

Total Revenue Growth

Mid single digit percentage range

Full Year Total Commercial Medical Care Ratio6 78.5% to 79.5%

Full Year Total Government Medical Care Ratio6

84.5% to 85.5%

Full Year Global Health Care Operating Expense Ratio6

21% to 22%

Global Medical Customer Growth9

Low single digit percentage range

The foregoing statements represent the Company’s current estimates of Cigna's 2016 consolidated and segment adjusted income from operations1,2 and other key metrics as of the date of this release. Actual results may differ materially depending on a number of factors. Investors are urged to read the Cautionary Note Regarding Forward-Looking Statements included in this release. Management does not assume any obligation to update these estimates.

This quarterly earnings release and the Quarterly Financial Supplement are available on Cigna’s website in the Investor Relations section (http://www.cigna.com/aboutcigna/investors). A link to the conference call, during which management will review third quarter 2016 results and discuss full year 2016 outlook, is available in the Investor Relations section of Cigna's website located at http://www.cigna.com/cignadotcom/aboutcigna/investors/events/index.page

Notes:

1.

Adjusted income (loss) from operations is defined as shareholders’ net income (loss) excluding the following after-tax adjustments: net realized investment results, net amortization of other acquired intangible assets and special items. Net amortization of other acquired intangible assets in 2015 included the one-time benefit of an acquisition in which the fair value of acquired net assets exceeded the purchase price. Special items are identified in Exhibit 2 of this earnings release.

Adjusted income (loss) from operations is a measure of profitability used by Cigna’s management because it presents the underlying results of operations of Cigna’s businesses and permits analysis of trends in underlying revenue, expenses and shareholders’ net income. This consolidated measure is not determined in accordance with accounting principles generally accepted in the United States (GAAP)and should not be viewed as a substitute for the most directly comparable GAAP measure, shareholders’ net income. See Exhibits 1 and 2 for a reconciliation of adjusted income from operations to shareholders’ net income.

2.

Management is unable to provide a forward-looking reconciliation of adjusted income (loss) from operations to shareholders’ net income for full year 2016 because future net realized investment results, net amortization of other acquired intangible assets and additional special items cannot be identified or reasonably estimated at this time.

3.

The Company’s outlook excludes the potential effects of any share repurchases or business combinations that may occur after the date of this earnings release.

4.

The measure “consolidated operating revenues” is not determined in accordance with GAAP and should not be viewed as a substitute for the most directly comparable GAAP measure, “total revenues.” We define consolidated operating revenues as total revenues excluding realized investment results. We exclude realized investment results from this measure because our portfolio managers may sell investments based on factors largely unrelated to the underlying business purposes of each segment. As a result, gains or losses created in this process may not be indicative of past or future underlying performance of the business. See Exhibit 1 for a reconciliation of consolidated operating revenues to total revenues.

5.

Adjusted margin, after-tax, is calculated by dividing adjusted income (loss) from operations by operating revenues for each segment.

6.

Operating ratios are defined as follows:

•

Total Commercial medical care ratio represents medical costs as a percentage of premiums for all commercial risk products, including medical, pharmacy, dental, stop loss and behavioral products provided through guaranteed cost or experience-rated funding arrangements in both the United States and internationally.

•

Total Government medical care ratio represents medical costs as a percentage of premiums for Medicare Advantage, Medicare Part D, and Medicaid products.

•

Global Health Care Operating Expense Ratio represents operating expenses excluding acquisition related amortization expense as a percentage of operating revenue in the Global Health Care segment.

7.

Global Health Care medical costs payable are presented net of reinsurance and other recoverables. The gross Global Health Care medical costs payable balance was $2.55 billion as of September 30, 2016 and $2.36 billion as of December 31, 2015.

8.

Cigna owns a 50% noncontrolling interest in its China joint venture. Cigna's 50% share of the joint venture’s earnings is reported in Other Revenues using the equity method of accounting under GAAP. As such, the premiums and fees and policy counts for the Global Supplemental Benefits segment do not include the China joint venture.

9.

Global medical customers include individuals who meet any one of the following criteria: are covered under a medical insurance policy, managed care arrangement, or service agreement issued by Cigna; have access to Cigna's provider network for covered services under their medical plan; or have medical claims and services that are administered by Cigna.

NOTE REGARDING FORWARD-LOOKING STATEMENTS

This press release, and oral statements made with respect to information contained in this release, may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on Cigna's current expectations and projections about future trends, events and uncertainties. These statements are not historical facts. Forward-looking statements may include, among others, statements concerning our projected adjusted income (loss) from operations outlook for 2016, on both a consolidated and segment basis; projected total revenue growth and global medical customer growth, each over year end 2015; projected medical care and operating expense ratios and medical cost trends; future financial or operating performance, including our ability to deliver personalized and innovative solutions for our customers and clients and future growth, business strategy, strategic or operational initiatives; economic, regulatory or competitive environments, particularly with respect to the pace and extent of change in these areas; financing or capital deployment plans and amounts available for future deployment; our prospects for growth in the coming years; statements regarding the proposed merger between Cigna and Anthem, Inc. (Anthem); statements regarding the timing of resolution of the issues raised by CMS; and other statements regarding Cigna’s and Anthem’s future beliefs, expectations, plans intentions, financial condition or performance. You may identify forward-looking statements by the use of words such as “believe,” “expect,” “plan,” “intend,” “anticipate,” “estimate,” “predict,” “potential,” “may,” “should,” “will” or other words or expressions of similar meaning, although not all forward-looking statements contain such terms.

Forward-looking statements are subject to risks and uncertainties, both known and unknown, that could cause actual results to differ materially from those expressed or implied in forward-looking statements. Such risks and uncertainties include, but are not limited to: our ability to achieve our financial, strategic and operational plans or initiatives; our ability to predict and manage medical costs and price effectively and develop and maintain good relationships with physicians, hospitals and other health care providers; the impact of modifications to our operations and processes, including those in our disability business; our ability to identify potential strategic acquisitions or transactions and realize the expected benefits of such transactions; the substantial level of government regulation over our business and the potential effects of new laws or regulations, or changes in existing laws or regulations; the outcome of litigation, regulatory audits, including the CMS review and sanctions, investigations and actions and/or guaranty fund assessments; uncertainties surrounding participation in government-sponsored programs such as Medicare; the effectiveness and security of our information technology and other business systems; and unfavorable industry, economic or political conditions, including foreign currency movements; the timing and likelihood of completion of the proposed merger, including the timing, receipt and terms and conditions of any required governmental and regulatory approvals for the proposed merger that could reduce anticipated benefits or cause the parties to abandon the transaction; the possibility that the expected synergies and value creation from the proposed merger will not be realized or will not be realized within the expected time period; the risk that the businesses of Cigna and Anthem will not be integrated successfully; disruption from the proposed merger making it more difficult to maintain business and operational relationships; the risk that unexpected costs will be incurred; the possibility that the proposed merger does not close, including due to the failure to satisfy the closing conditions; the risk that financing for the proposed merger may not be available on favorable terms, as well as more specific risks and uncertainties discussed in our most recent report on Form 10-K and subsequent reports on Forms 10-Q and 8-K available on the Investor Relations section of www.cigna.com as well as on Anthem’s most recent report on Form 10-K and subsequent reports on Forms 10-Q and 8-K available on the Investor Relations section of www.antheminc.com. You should not place undue reliance on forward-looking statements, which speak only as of the date they are made, are not guarantees of future performance or results, and are subject to risks, uncertainties and assumptions that are difficult to predict or quantify. Cigna undertakes no obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise, except as may be required by law.

CIGNA CORPORATION
COMPARATIVE SUMMARY OF FINANCIAL RESULTS (unaudited) Exhibit 1
(Dollars in millions, except per share amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
2016 2015 2016 2015
REVENUES
Premiums $ 7,605 $ 7,347 $ 23,005 $ 22,181
Fees 1,086 1,038 3,346 3,161
Net investment income 282 285 848 858
Mail order pharmacy revenues 762 643 2,207 1,846
Other revenues 70 66 208 198
Consolidated operating revenues 9,805 9,379 29,614 28,244
Net realized investment gains 75 10 110 104
Total $ 9,880 $ 9,389 $ 29,724 $ 28,348
ADJUSTED INCOME (LOSS) FROM OPERATIONS (1)
Global Health Care $ 416 $ 482 $ 1,446 $ 1,454
Global Supplemental Benefits 81 62 231 208
Group Disability and Life 53 84 56 241

Ongoing Operations

550 628 1,733 1,903
Corporate and Other (47) (35) (114) (133)
Total $ 503 $ 593 $ 1,619 $ 1,770
After-tax adjustments to reconcile to shareholders' net income:
Realized investment gains 48 7 71 68
Amortization of other acquired intangible assets, net (24) (24) (72) (76)
Special items (71) (29) (133) (94)
Shareholders' net income (loss) $ 456 $ 547 $ 1,485 $ 1,668
DILUTED EARNINGS PER SHARE
Adjusted income (loss) from operations (1) $ 1.94 $ 2.28 $ 6.24 $ 6.79
After-tax adjustments to reconcile to shareholders' net income:
Realized investment gains 0.19 0.02 0.27 0.26
Amortization of other acquired intangible assets, net (0.09) (0.09) (0.28) (0.29)
Special items (0.28) (0.11) (0.51) (0.36)
Shareholders' net income $ 1.76 $ 2.10 $ 5.72 $ 6.40
Weighted average shares (in thousands) 259,754 260,519 259,568 260,617
Common shares outstanding (in thousands) 256,720 257,592
SHAREHOLDERS' EQUITY at September 30 $ 13,974 $ 11,774
SHAREHOLDERS' EQUITY PER SHARE at September 30 $ 54.43 $ 45.71
(1) Adjusted income (loss) from operations is defined as shareholders' net income (loss) excluding the following after-tax adjustments: realized investment results; net amortization of other acquired intangible assets; and special items (identified and quantified on Exhibit 2).
CIGNA CORPORATION
RECONCILIATION OF ADJUSTED INCOME (LOSS) FROM OPERATIONS TO SHAREHOLDERS' NET INCOME Exhibit 2
(Dollars in millions, except per share amounts)

DilutedEarningsPer Share

Consolidated GlobalHealth Care GlobalSupplementalBenefits GroupDisabilityand Life CorporateandOther
Three Months Ended September 30, 3Q16 3Q15 2Q16 3Q16 3Q15 2Q16 3Q16 3Q15 2Q16 3Q16 3Q15 2Q16 3Q16 3Q15 2Q16 3Q16 3Q15 2Q16
Adjusted income (loss) from operations $ 1.94 $ 2.28 $ 1.98 $ 503 $ 593 $ 515 $ 416 $ 482 $ 486 $ 81 $ 62 $ 83 $ 53 $ 84 $ (12) $ (47) $ (35) $ (42)
After-tax adjustments to reconcile to shareholders' net income:
Realized investment gains (losses) 0.19 0.02 0.18 48 7 44 42 14 19 - (1) - 12 (6) 15 (6) - 10
Amortization of other acquired intangible assets, net (0.09) (0.09) (0.09) (24) (24) (23) (20) (21) (18) (4) (3) (5) - - - - - -
Special Items:
Charges associated with litigation matters (0.10) - - (25) - - (25) - - - - - - - - - - -
Merger-related transaction costs (0.18) (0.11) (0.10) (46) (29) (26) - - - - - - - - - (46) (29) (26)
Shareholders' net income (loss) $ 1.76 $ 2.10 $ 1.97 $ 456 $ 547 $ 510 $ 413 $ 475 $ 487 $ 77 $ 58 $ 78 $ 65 $ 78 $ 3 $ (99) $ (64) $ (58)
Weighted average shares (in thousands) 259,754 260,519 259,500
Special Items, pre-tax:
Charges associated with litigation matters $ (40) $ - $ - $ (40) $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ -
Merger-related transaction costs (49) 35 (34) - - - - - - - - - (49) (35) (34)
Total $ (89) $ 35 $ (34) $ (40) $ - $ - $ - $ - $ - $ - $ - $ - $ (49) $ (35) $ (34)

DilutedEarningsPer Share

Consolidated GlobalHealth Care GlobalSupplementalBenefits GroupDisabilityand Life CorporateandOther
Nine Months Ended September 30, 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015
Adjusted income (loss) from operations $ 6.24 $ 6.79 $ 1,619 $ 1,770 $ 1,446 $ 1,454 $ 231 $ 208 $ 56 $ 241 $ (114) $ (133)
After-tax adjustments to reconcile to shareholders' net income:
Realized investment gains (losses) 0.27 0.26 71 68 49 50 (1) (1) 25 13 (2) 6
Amortization of other acquired intangible assets, net (0.28) (0.29) (72) (76) (56) (64) (16) (12) - - - -
Special Items:
Charges associated with litigation matters (0.10) - (25) - (25) - - - - - - -
Debt extinguishment costs - (0.25) - (65) - - - - - - - (65)
Merger-related transaction costs (0.41) (0.11) (108) (29) - - - - - - (108) (29)
Shareholders' net income $ 5.72 $ 6.40 $ 1,485 $ 1,668 $ 1,414 $ 1,440 $ 214 $ 195 $ 81 $ 254 $ (224) $ (221)
Weighted average shares (in thousands) 259,568 260,617
Common shares outstanding as of September 30, (in thousands) 256,720 257,592
Special Items, pre-tax:
Charges associated with litigation matters $ (40) $ - $ (40) $ - $ - $ - $ - $ - $ - $ -
Debt extinguishment costs - (100) - - - - - - - (100)
Merger-related transaction costs (123) (35) - - - - - - (123) (35)
Total $ (163) $ (135) $ (40) $ - $ - $ - $ - $ - $ (123) $ (135)

Cigna Corporation

Will McDowell

Investor Relations

215-761-4198

or

Matt Asensio

Media Relations

860-226-2599

Source: Cigna Corporation

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