NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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BUSINESS AND CAPITAL STRUCTURE | |
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INSURANCE INFORMATION | |
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INVESTMENTS | |
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PROPERTY, LEASES AND OTHER ASSET BALANCES | |
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COMPLIANCE, REGULATION AND CONTINGENCIES | |
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RESULTS DETAILS | |
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Note 1 – Description of Business
Cigna Corporation, together with its subsidiaries (either individually or collectively referred to as "Cigna," the "Company," "we," "our" or "us") is a global health services organization with a mission of helping those we serve improve their health, well-being and peace of mind by making health care affordable, predictable and simple. Our subsidiaries offer a differentiated set of pharmacy, medical, behavioral, dental and supplemental products and services.
The majority of these products are offered through employers and other groups such as governmental and non-governmental organizations, unions and associations. Cigna also offers commercial health and dental insurance and Medicare products to individuals in the United States and selected international markets. In addition to these ongoing operations, Cigna also has certain run-off operations.
Details of the Company's reporting segments and recent changes are provided below:
We entered into a definitive agreement in October 2021 to sell our life, accident and supplemental benefits businesses in several countries to Chubb INA Holdings, Inc. ("Chubb"). As of March 31, 2022, we now expect to sell our life, accident and supplemental benefits businesses in six countries (Hong Kong, Indonesia, New Zealand, South Korea, Taiwan and Thailand) to Chubb for $5.72 billion in cash (the "Chubb Transaction"); we no longer expect to sell our interest in a joint venture in Turkey as part of the Chubb Transaction. See Note 5 for further information on the classification of these businesses as held for sale. In connection with the pending Chubb Transaction, we revised our business reporting structure. As such, we adjusted our segment reporting effective in the fourth quarter of 2021 and segment results for the three months ended March 31, 2021 have been restated to conform to the new segment presentation (see Note 19).
A full description of our segments follows:
Evernorth includes a broad range of coordinated and point solution health services and capabilities, as well as those from partners across the health care system, in pharmacy solutions, benefits management solutions, care delivery and care management solutions and intelligence solutions, which are provided to health plans, employers, government organizations and health care providers.
Cigna Healthcare includes U.S. Commercial, U.S. Government and International Health operating segments that provide comprehensive medical and coordinated solutions to clients and customers. U.S. Commercial products and services include medical, pharmacy, behavioral health, dental, vision, health advocacy programs and other products and services for insured and self-insured customers. U.S. Government solutions include Medicare Advantage, Medicare Supplement and Medicare Part D plans for seniors and individual health insurance plans both on and off the public exchanges. International Health solutions include health care coverage in our international markets, as well as health care benefits for globally mobile individuals and employees of multinational organizations.
Other Operations contains the remainder of our business operations, consisting of the following:
•Ongoing business:
•Corporate-Owned Life Insurance ("COLI") offers permanent insurance contracts sold to corporations to provide coverage on the lives of certain employees for the purpose of financing employer-paid future benefit obligations.
•Our interest in a joint venture in Turkey.
•Exiting businesses:
•International Life, Accident and Supplemental Benefits Businesses in six countries to be sold pursuant to the Chubb Transaction.
•Run-off businesses:
•Reinsurance: predominantly comprised of guaranteed minimum death benefit ("GMDB") and guaranteed minimum income benefit ("GMIB") business effectively exited through reinsurance with Berkshire Hathaway Life Insurance Company of Nebraska ("Berkshire") in 2013.
•Settlement Annuity and other businesses in run-off.
•Individual Life Insurance and Annuity and Retirement Benefits businesses: deferred gains from the sales of these businesses.
Corporate reflects amounts not allocated to operating segments, including net interest expense (defined as interest on corporate debt less net investment income on investments not supporting segment and other operations), certain litigation matters, expense associated with our frozen pension plans, charitable contributions, severance, certain overhead and enterprise-wide project costs and intersegment eliminations for products and services sold between segments.
Note 2 – Summary of Significant Accounting Policies
Basis of Presentation
The Consolidated Financial Statements include the accounts of Cigna Corporation and its consolidated subsidiaries. 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 ("GAAP").
Amounts recorded in the Consolidated Financial Statements necessarily reflect management's estimates and assumptions about medical costs, investment and receivable valuations, interest rates and other factors. Significant estimates are discussed throughout these Notes; however, actual results could differ from those estimates. The impact of a change in estimate is generally included in earnings in the period of adjustment.
These interim Consolidated 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 included in the 2021 Annual Report on Form 10-K ("2021 Form 10-K"). The preparation of interim Consolidated Financial Statements necessarily relies heavily on estimates. This and other factors, including the seasonal nature of portions of the health care and related benefits business, competitive and other market conditions, as well as COVID-19 related impacts, call for caution in estimating full-year results based on interim results of operations.
Recent Accounting Pronouncements
There were no new accounting standards adopted as of March 31, 2022 that had a material impact on our financial statements. There are no accounting pronouncements not yet adopted, with the exception of Accounting Standards Update 2018-12, Targeted Improvements to the Accounting for Long-Duration Insurance Contracts ("LDTI") that are expected to impact Cigna's operations or our financial statements. Refer to the Company's 2021 Form 10-K for discussion of the LDTI standard and related expected effects to Cigna. We continue to make progress on our LDTI implementation plan and are on track for the January 1, 2023 adoption date.
Note 3 – Accounts Receivable, Net
The following amounts were included within Accounts receivable, net:
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| (In millions) | March 31, 2022 | | December 31, 2021 |
| Noninsurance customer receivables | $ | 7,200 | | | $ | 6,274 | |
| Pharmaceutical manufacturers receivables | 5,805 | | | 5,463 | |
| Insurance customer receivables | 2,647 | | | 2,932 | |
| Other receivables | 399 | | | 456 | |
| Total | 16,051 | | | 15,125 | |
| Accounts receivable, net classified as Assets of businesses held for sale | (48) | | | (54) | |
| Accounts receivable, net per Consolidated Balance Sheets | $ | 16,003 | | | $ | 15,071 | |
These receivables are reported net of our allowances of $1.5 billion as of March 31, 2022 and $1.4 billion as of December 31, 2021. These allowances include contractual allowances for certain rebates receivable with pharmaceutical manufacturers and certain receivables from third-party payors, discounts and claims adjustments issued to customers in the form of client credits, an allowance for current expected credit losses and other non-credit adjustments.
The Company's allowance for current expected credit losses was $65 million as of March 31, 2022 and $60 million as of December 31, 2021.
Note 4 – Mergers, Acquisitions and Divestitures
A.Acquisition of MDLIVE
On April 19, 2021, Cigna acquired 97% of MDLIVE, Inc. ("MDLIVE"), a 24/7 virtual care platform. Combined with Cigna's previously held equity investment, Cigna now owns 100% of MDLIVE. The Company's 2021 Form 10-K includes detailed disclosures of merger consideration, purchase price allocation and intangible assets identified in this transaction. In accordance with GAAP, the total consideration transferred has been allocated to the tangible and intangible net assets acquired based on management's estimates of their fair values and is now finalized as of March 31, 2022. For the three months ended March 31, 2022, there were immaterial changes to the purchase price allocation.
The results of MDLIVE have been included in the Company's Consolidated Financial Statements from the date of the acquisition. Revenues from MDLIVE and their results of operations were not material to Cigna's consolidated results of operations for the three months ended March 31, 2022. The pro forma effects of this acquisition for prior periods were not material to our consolidated results of operations.
B.Integration and Transaction-related Costs
The Company incurred costs related to the acquisition of MDLIVE, the sale of the U.S. Group Disability and Life business and the terminated merger with Anthem, Inc. ("Anthem"). In the first three months of 2022, the Company also incurred costs related to the pending Chubb Transaction (see Note 5 for further information on assets and liabilities of businesses held for sale). These costs were $52 million pre-tax ($37 million after-tax) for the three months ended March 31, 2022 and $29 million pre-tax ($22 million after-tax) for the three months ended March 31, 2021. These costs consisted primarily of certain projects to integrate or separate the Company's systems, products and services, fees for legal, advisory and other professional services and certain employment-related costs.
Note 5 – Assets and Liabilities of Businesses Held for Sale
We entered into a definitive agreement in October 2021 to sell our life, accident and supplemental benefits businesses in several countries to Chubb. As of March 31, 2022, we now expect to sell our life, accident and supplemental benefits businesses in six countries (Hong Kong, Indonesia, New Zealand, South Korea, Taiwan and Thailand) to Chubb for $5.72 billion in cash. Subject to applicable regulatory approvals and customary closing conditions, we expect to complete the sale of these businesses in the second quarter of 2022. The Company has aggregated and classified the assets and liabilities of these businesses as held for sale in our Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021. The assets and liabilities of our interest in a joint venture in Turkey were classified as held for sale in our Consolidated Balance Sheet as of December 31, 2021; however, we no longer expect to sell this business to Chubb and the assets and liabilities are no longer classified as held for sale.
The assets and liabilities of businesses held for sale were as follows: | | | | | | | | | | | |
| (In millions) | March 31, 2022 | | December 31, 2021 |
| Cash and cash equivalents | $ | 591 | | | $ | 406 | |
| Investments | 4,771 | | | 5,109 | |
| Deferred policy acquisition costs | 2,717 | | | 2,755 | |
| Separate account assets | 718 | | | 878 | |
| Goodwill, other intangible assets and all other assets | 896 | | | 909 | |
| Total assets of businesses held for sale | 9,693 | | | 10,057 | |
| Insurance and contractholder liabilities | 4,562 | | | 4,644 | |
| Accounts payable, accrued expenses and other liabilities | 436 | | | 452 | |
| Deferred tax liabilities, net | 400 | | | 449 | |
| Separate account liabilities | 718 | | | 878 | |
| Total liabilities of businesses held for sale | $ | 6,116 | | | $ | 6,423 | |
The held for sale businesses reported Gross unrealized (depreciation) appreciation on securities and derivatives of $(33) million and $137 million and Gross cumulative translation losses on foreign currencies of $160 million and $209 million on our Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021, respectively.
Note 6 – Earnings Per Share ("EPS")
Basic and diluted earnings per share were computed as follows:
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| Three Months Ended | | | | | | |
| March 31, 2022 | | March 31, 2021 | | | | | | |
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| (Shares in thousands, dollars in millions, except per share amounts) | Basic | | Effect of
Dilution | | Diluted | | Basic | | Effect of
Dilution | | Diluted | | | | | | |
| Shareholders' net income | $ | 1,183 | | | | | $ | 1,183 | | | $ | 1,161 | | | | | $ | 1,161 | | | | | | | |
| Shares: | | | | | | | | | | | | | | | | | |
| Weighted average | 318,487 | | | | | 318,487 | | | 348,248 | | | | | 348,248 | | | | | | | |
| Common stock equivalents | | | 2,795 | | | 2,795 | | | | | 3,728 | | | 3,728 | | | | | | | |
| Total shares | 318,487 | | | 2,795 | | | 321,282 | | | 348,248 | | | 3,728 | | | 351,976 | | | | | | | |
| EPS | $ | 3.71 | | | $ | (0.03) | | | $ | 3.68 | | | $ | 3.33 | | | $ | (0.03) | | | $ | 3.30 | | | | | | | |
The following outstanding employee stock options were not included in the computation of diluted earnings per share because their effect was anti-dilutive:
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| | | Three Months Ended March 31, | | |
| (In millions) | | | | | 2022 | | 2021 | | |
| Anti-dilutive options | | | | | 2.8 | | | 1.5 | | | |
The Company held approximately 77.3 million shares of common stock in treasury at March 31, 2022, 71.2 million shares as of December 31, 2021 and 48.7 million shares as of March 31, 2021.
Note 7 – Debt
The outstanding amounts of debt and finance leases were as follows:
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| (In millions) | | March 31, 2022 | | December 31, 2021 |
| Short-term debt | | | | |
| Commercial paper | | $ | 1,570 | | | $ | 2,027 | |
$500 million, 3.05% Notes due 11/2022 | | 496 | | | 495 | |
$17 million, 8.3% Notes due 1/2023 | | 17 | | | — | |
$63 million, 7.65% Notes due 3/2023 | | 63 | | | — | |
| Other, including finance leases | | 27 | | | 23 | |
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| Total short-term debt | | $ | 2,173 | | | $ | 2,545 | |
| Long-term debt | | | | |
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$17 million, 8.3% Notes due 2023 | | $ | — | | | $ | 17 | |
$63 million, 7.65% Notes due 2023 | | — | | | 63 | |
$700 million, Floating Rate Notes due 2023 | | 699 | | | 699 | |
$1,000 million, 3% Notes due 2023 | | 987 | | | 985 | |
$1,187 million, 3.75% Notes due 2023 | | 1,185 | | | 1,185 | |
$500 million, 0.613% Notes due 2024 | | 499 | | | 498 | |
$1,000 million, 3.5% Notes due 2024 | | 985 | | | 983 | |
$900 million, 3.25% Notes due 2025 | | 897 | | | 897 | |
$2,200 million, 4.125% Notes due 2025 | | 2,193 | | | 2,193 | |
$1,500 million, 4.5% Notes due 2026 | | 1,504 | | | 1,504 | |
$800 million, 1.25% Notes due 2026 | | 797 | | | 796 | |
$1,500 million, 3.4% Notes due 2027 | | 1,426 | | | 1,423 | |
$259 million, 7.875% Debentures due 2027 | | 259 | | | 259 | |
$600 million, 3.05% Notes due 2027 | | 596 | | | 596 | |
$3,800 million, 4.375% Notes due 2028 | | 3,783 | | | 3,782 | |
$1,500 million, 2.4% Notes due 2030 | | 1,491 | | | 1,490 | |
$1,500 million, 2.375% Notes due 2031 (1) | | 1,448 | | | 1,500 | |
$45 million, 8.3% Step Down Notes due 2033 | | 45 | | | 45 | |
$190 million, 6.15% Notes due 2036 | | 190 | | | 190 | |
$2,200 million, 4.8% Notes due 2038 | | 2,192 | | | 2,192 | |
$750 million, 3.2% Notes due 2040 | | 743 | | | 743 | |
$121 million, 5.875% Notes due 2041 | | 119 | | | 119 | |
$448 million, 6.125% Notes due 2041 | | 488 | | | 490 | |
$317 million, 5.375% Notes due 2042 | | 315 | | | 315 | |
$1,500 million, 4.8% Notes due 2046 | | 1,465 | | | 1,465 | |
$1,000 million, 3.875% Notes due 2047 | | 989 | | | 988 | |
$3,000 million, 4.9% Notes due 2048 | | 2,968 | | | 2,967 | |
$1,250 million, 3.4% Notes due 2050 | | 1,236 | | | 1,236 | |
$1,500 million, 3.4% Notes due 2051 | | 1,477 | | | 1,477 | |
| Other, including finance leases | | 37 | | | 28 | |
| Total long-term debt | | $ | 31,013 | | | $ | 31,125 | |
(1) The Company has entered into interest rate swap contracts hedging a portion of these fixed-rate debt instruments. See Note 11 for further information about the Company's interest rate risk management and these derivative instruments.
Revolving Credit Agreements. Our revolving credit agreements provide us with the ability to borrow amounts for general corporate purposes, including for the purpose of providing liquidity support if necessary under our commercial paper program discussed below.
As of March 31, 2022, Cigna had a $3.0 billion five-year revolving credit and letter of credit agreement maturing in April 2026; a $1.0 billion three-year revolving credit agreement maturing in April 2024; and a $1.0 billion 364-day revolving credit agreement maturing in April 2022. There were no outstanding balances under these revolving credit agreements as of March 31, 2022.
In April 2022, Cigna entered into the following revolving credit agreements ("Credit Agreements"), which replaced the agreements discussed above:
•a $3.0 billion five-year revolving credit and letter of credit agreement that will mature in April 2027 with an option to extend the maturity date for additional one-year periods, subject to consent of the banks. Cigna can borrow up to $3.0 billion under the credit agreement for general corporate purposes, with up to $500 million available for issuance of letters of credit.
•a $1.0 billion three-year revolving credit agreement that will mature in April 2025 with an option to extend the maturity date for additional one-year periods, subject to consent of the banks. Cigna can borrow up to $1.0 billion under the credit agreement for general corporate purposes.
•a $1.0 billion 364-day revolving credit agreement that will mature in April 2023. Cigna can borrow up to $1.0 billion under the credit agreement for general corporate purposes. This agreement includes the option to "term out" any revolving loans that are outstanding at maturity by converting them into a term loan maturing on the one-year anniversary of conversion.
Each of the Credit Agreements include an option to increase commitments in an aggregate amount of up to $1.5 billion across all three facilities for a maximum total commitment of $6.5 billion. The Credit Agreements allow for borrowings at either a base rate or an adjusted term secured overnight funding rate ("SOFR") plus, in each case, an applicable margin based on Cigna's senior unsecured credit ratings.
Each of the three facilities is diversified among 22 banks. Each facility also contains customary covenants and restrictions, including a financial covenant that the Company's leverage ratio, as defined in the Credit Agreements, may not exceed 60%, subject to certain exceptions upon the consummation of an acquisition.
Commercial Paper. Under our commercial paper program we may issue short-term, unsecured commercial paper notes privately placed on a discounted basis through certain broker-dealers at any time not to exceed an aggregate amount of $5.0 billion. Amounts available under the program may be borrowed, repaid and re-borrowed from time to time. The net proceeds of issuances have been and are expected to be used for general corporate purposes. The commercial paper average interest rate was 0.60% at March 31, 2022.
The Company was in compliance with its debt covenants as of March 31, 2022.
Interest expense on long-term and short-term debt was $314 million for the three months ended March 31, 2022 and $325 million for the three months ended March 31, 2021.
Note 8 – Common and Preferred Stock
Dividends
In the first quarter of 2022, Cigna declared and paid a quarterly cash dividend of $1.12 per share of Cigna common stock. In 2021, Cigna initiated and declared quarterly cash dividends of $1.00 per share of Cigna common stock.
The following table provides details of Cigna's dividend payments for the three months ended March 31:
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| Record Date | Payment Date | Amount per Share | Total Amount Paid (in millions) |
| 2022 | | | |
| March 9, 2022 | March 24, 2022 | $1.12 | $357 |
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| 2021 | | | |
| March 10, 2021 | March 25, 2021 | $1.00 | $345 |
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On April 27, 2022, the Board of Directors declared the second quarter cash dividend of $1.12 per share of Cigna common stock to be paid on June 23, 2022 to shareholders of record on June 8, 2022. Cigna currently intends to pay regular quarterly dividends, with future declarations subject to approval by its Board of Directors and the Board's determination that the declaration of dividends remains in the best interests of Cigna and its shareholders. The decision of whether to pay future dividends and the amount of any such dividends will be based on the Company's financial position, results of operations, cash flows, capital requirements, the requirements of applicable law and any other factors the Board of Directors may deem relevant.
Note 9 – Insurance and Contractholder Liabilities
A.Account Balances – Insurance and Contractholder Liabilities
The Company's insurance and contractholder liabilities were comprised of the following:
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| March 31, 2022 | | December 31, 2021 | | March 31, 2021 |
| (In millions) | Current | | Non-current | | Total | | Current | | Non-current | | Total | | Total |
| Contractholder deposit funds | $ | 368 | | | $ | 6,641 | | | $ | 7,009 | | | $ | 352 | | | $ | 6,702 | | | $ | 7,054 | | | $ | 7,161 | |
| Future policy benefits | 237 | | | 8,896 | | | 9,133 | | | 312 | | | 9,194 | | | 9,506 | | | 9,306 | |
| Unearned premiums | 619 | | | 416 | | | 1,035 | | | 558 | | | 418 | | | 976 | | | 950 | |
| Unpaid claims and claim expenses | | | | | | | | | | | | | |
Cigna Healthcare | 4,459 | | | 32 | | | 4,491 | | | 4,159 | | | 102 | | | 4,261 | | | 4,027 | |
| Other Operations | 503 | | | 231 | | | 734 | | | 548 | | | 180 | | | 728 | | | 723 | |
| Total | 6,186 | | | 16,216 | | | 22,402 | | | 5,929 | | | 16,596 | | | 22,525 | | | |
Insurance and contractholder liabilities classified as Liabilities of businesses held for sale (1) | (513) | | | (4,049) | | | (4,562) | | | (611) | | | (4,033) | | | (4,644) | | | |
| Total insurance and contractholder liabilities | $ | 5,673 | | | $ | 12,167 | | | $ | 17,840 | | | $ | 5,318 | | | $ | 12,563 | | | $ | 17,881 | | | $ | 22,167 | |
(1) Amounts classified as Liabilities of businesses held for sale primarily include $3.7 billion of Future policy benefits, $0.4 billion of Unpaid claims and $0.4 billion of Unearned premiums as of March 31, 2022 and $3.8 billion of Future policy benefits, $0.4 billion of Unpaid claims and $0.4 billion of Unearned premiums as of December 31, 2021.
Insurance and contractholder liabilities expected to be paid within one year are classified as current.
B.Unpaid Claims and Claim Expenses – Cigna Healthcare
This liability reflects estimates of the ultimate cost of claims that have been incurred but not reported, including expected development on reported claims, those that have been reported but not yet paid (reported claims in process) and other medical care expenses and services payable that are primarily comprised of accruals for incentives and other amounts payable to health care professionals and facilities. This liability includes amounts from the International Health businesses now reported in Cigna Healthcare following our change in segment reporting in 2021. The prior year roll forward has been updated to reflect this segment change.
The total of incurred but not reported liabilities plus expected development on reported claims, including reported claims in process, was $4.2 billion at March 31, 2022 and $3.7 billion at March 31, 2021.
Activity, net of intercompany transactions, in the unpaid claims liability for the Cigna Healthcare segment for the three months ended March 31 was as follows:
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| | Three Months Ended | | |
| (In millions) | March 31, 2022 | | March 31, 2021 | | |
| Beginning balance | $ | 4,261 | | | $ | 3,695 | | | |
| Less: Reinsurance and other amounts recoverable | 261 | | | 237 | | | |
| Beginning balance, net | 4,000 | | | 3,458 | | | |
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| Incurred costs related to: | | | | | |
| Current year | 8,024 | | | 7,755 | | | |
| Prior years | (276) | | | (233) | | | |
| Total incurred | 7,748 | | | 7,522 | | | |
| Paid costs related to: | | | | | |
| Current year | 4,634 | | | 4,640 | | | |
| Prior years | 2,822 | | | 2,555 | | | |
| Total paid | 7,456 | | | 7,195 | | | |
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| Ending balance, net | 4,292 | | | 3,785 | | | |
| Add: Reinsurance and other amounts recoverable | 199 | | | 242 | | | |
| Ending balance | $ | 4,491 | | | $ | 4,027 | | | |
Reinsurance and other amounts recoverable reflect amounts due from reinsurers and policyholders to cover incurred but not reported and pending claims of certain business for which the Company administers the plan benefits without any right of offset. See Note 10 for additional information on reinsurance.
Variances in incurred costs related to prior years' unpaid claims and claim expenses that resulted from the differences between actual experience and the Company's key assumptions for the three months ended March 31 were as follows:
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| Three Months Ended | |
| (Dollars in millions) | March 31, 2022 | March 31, 2021 |
| $ | | % (1) | $ | | % (2) |
| Actual completion factors | $ | 99 | | | 0.3 | | % | $ | 107 | | | 0.4 | | % |
| Medical cost trend | 177 | | | 0.6 | | | 126 | | | 0.4 | | |
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| Total favorable variance | $ | 276 | | | 0.9 | | % | $ | 233 | | | 0.8 | | % |
(1) Percentage of current year incurred costs as reported for the year ended December 31, 2021.
(2) Percentage of current year incurred costs as reported for the year ended December 31, 2020.
Favorable prior year development in both years reflects lower than expected utilization of medical services as compared to our assumptions.
C.Unpaid Claims and Claim Expenses – Other Operations
Liability balance details. The liability details for unpaid claims and claim expenses are as follows. The liability balance no longer includes the International Health businesses now reported in Cigna Healthcare following our change in segment reporting. The prior year roll forward has been updated to reflect the segment change.
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| (In millions) | March 31, 2022 | March 31, 2021 |
Other Operations | | |
| International businesses to be sold and our interest in a joint venture in Turkey | $ | 436 | | $ | 442 | |
| Other Operations | 298 | | 281 | |
Unpaid claims and claim expenses Other Operations | $ | 734 | | $ | 723 | |
Activity in the unpaid claims and claim expenses for international businesses held for sale and our interest in a joint venture in Turkey is presented in the following table. Liabilities associated with Other Operations are excluded because they pertain to obligations for long-duration insurance contracts or, if short-duration, the liabilities have been largely reinsured.
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| Three Months Ended | | |
| (In millions) | March 31, 2022 (1) | | March 31, 2021 | | |
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| Beginning balance | $ | 447 | | | $ | 452 | | | |
| Less: Reinsurance | 46 | | | 45 | | | |
| Beginning balance, net | 401 | | | 407 | | | |
| Incurred claims related to: | | | | | |
| Current year | 259 | | | 254 | | | |
| Prior years | (7) | | | — | | | |
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| Total incurred | 252 | | | 254 | | | |
| Paid claims related to: | | | | | |
| Current year | 116 | | | 115 | | | |
| Prior years | 135 | | | 134 | | | |
| Total paid | 251 | | | 249 | | | |
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| Foreign currency | (6) | | | (15) | | | |
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| Ending balance, net | 396 | | | 397 | | | |
| Add: Reinsurance | 40 | | | 45 | | | |
Ending balance | $ | 436 | | | $ | 442 | | | |
(1) Includes unpaid claims amounts classified as Liabilities of businesses held for sale.
Reinsurance in the table above reflects amounts due from reinsurers related to unpaid claims liabilities. See Note 10 for additional information on reinsurance.
Note 10 – Reinsurance
The Company's insurance subsidiaries enter into agreements with other insurance companies to limit losses from large exposures and to permit recovery of a portion of incurred losses. Reinsurance is ceded primarily in acquisition and disposition transactions when the underwriting company is not being acquired. Reinsurance does not relieve the originating insurer of liability. Therefore, reinsured liabilities must continue to be reported along with the related reinsurance recoverables. The Company regularly evaluates the financial condition of its reinsurers and monitors concentrations of its credit risk.
A.Reinsurance Recoverables
The majority of the Company's reinsurance recoverables resulted from acquisition and disposition transactions in which the underwriting company was not acquired. The Company bears the risk of loss if its reinsurers and retrocessionaires do not meet or are unable to meet their reinsurance obligations to the Company. The Company reviews its reinsurance arrangements and establishes reserves against the recoverables. The Company's reinsurance recoverables as of March 31, 2022 are presented in the following table by range of external credit rating and collateral level:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| (In millions) | | Fair value of collateral contractually required to meet or exceed carrying value of recoverable | | Collateral provisions exist that may mitigate risk of credit loss (3) | | No collateral | | Total |
| Ongoing Operations | | | | | | | | |
A- equivalent and higher current ratings (1) | | $ | — | | | $ | — | | | $ | 176 | | | $ | 176 | |
BBB- to BBB+ equivalent current credit ratings (1) | | — | | | — | | | 61 | | | 61 | |
| Not rated | | 116 | | | — | | | 43 | | | 159 | |
Total recoverables related to ongoing operations (2) | | 116 | | | — | | | 280 | | | 396 | |
| Acquisition, disposition or run-off activities | | | | | | | | |
A- equivalent and higher current ratings (1) | | | | | | | | |
| Lincoln National Life and Lincoln Life & Annuity of New York | | — | | | 2,908 | | | — | | | 2,908 | |
| Berkshire Hathaway Life Insurance Company of Nebraska | | 268 | | | 376 | | | — | | | 644 | |
| Prudential Retirement Insurance and Annuity | | 149 | | | — | | | — | | | 149 | |
| Prudential Insurance Company of America | | 404 | | | — | | | — | | | 404 | |
| Life Insurance Company of North America | | — | | | 437 | | | — | | | 437 | |
| Other | | 219 | | | 16 | | | 16 | | | 251 | |
| | | | | | | | |
| Not rated | | — | | | 13 | | | 3 | | | 16 | |
| Total recoverables related to acquisition, disposition or run-off activities | | 1,040 | | | 3,750 | | | 19 | | | 4,809 | |
| Total | | $ | 1,156 | | | $ | 3,750 | | | $ | 299 | | | $ | 5,205 | |
| Allowance for uncollectible reinsurance | | | | | | | | (30) | |
Total reinsurance recoverables (2) | | | | | | | | $ | 5,175 | |
(1) Certified by a Nationally Recognized Statistical Rating Organization ("NRSRO").
(2) Includes $143 million of current reinsurance recoverables that are reported in Other current assets and $95 million of recoverables classified as Assets of businesses held for sale as of March 31, 2022.
(3) Includes collateral provisions requiring the reinsurer to fully collateralize its obligation if its external credit rating is downgraded to a specified level.
Collateral levels are defined internally based on the fair value of the collateral relative to the carrying amount of the reinsurance recoverable, the frequency at which collateral is required to be replenished and the potential for volatility in the collateral's fair value.
B.Effective Exit of GMDB and GMIB Business
The Company entered into an agreement with Berkshire to effectively exit the GMDB and GMIB business via a reinsurance transaction in 2013. Berkshire reinsured 100% of the Company's future claim payments in this business, net of other reinsurance arrangements existing at that time. The reinsurance agreement is subject to an overall limit with approximately $3.2 billion remaining at March 31, 2022.
GMDB is accounted for as assumed and ceded reinsurance and GMIB assets and liabilities are reported as derivatives at fair value as discussed below. GMIB assets are reported in Other current assets and Other assets and GMIB liabilities are reported in Accrued
expenses and other liabilities and Other non-current liabilities. Assumptions used in fair value measurement for these assets and liabilities are discussed in Note 10 of the Company's 2021 Form 10-K.
GMDB
The GMDB exposure arises under annuities written by ceding companies that guarantee the benefit received at death. The Company's exposure arises when the guaranteed minimum death benefit exceeds the fair value of the related mutual fund investments at the time of a contractholder's death.
The following table presents the account value, net amount at risk and the number of contractholders for guarantees assumed by the Company in the event of death. The net amount at risk is the amount that the Company would have to pay if all contractholders died as of the specified date. The Company should be reimbursed in full for these payments unless the Berkshire reinsurance limit is exceeded.
| | | | | | | | | | | |
| (Dollars in millions, excludes impact of reinsurance ceded) | March 31, 2022 | | December 31, 2021 |
| Account value | $ | 9,057 | | | $ | 9,795 | |
| Net amount at risk | $ | 1,508 | | | $ | 1,392 | |
| | | |
| Number of contractholders (estimated) | 165,000 | | | 170,000 | |
GMIB
The Company reinsured contracts with issuers of GMIB products. The Company's exposure represents the excess of a contractually guaranteed amount over the level of variable annuity account values. Payment by the Company depends on the actual account value in the related underlying mutual funds and the level of interest rates when the contractholders elect to receive minimum income payments that can only occur within 30 days of a policy anniversary after the appropriate waiting period. The Company has purchased retrocessional coverage ("GMIB assets") for these contracts including retrocessional coverage from Berkshire.
GMIB liabilities totaling $514 million as of March 31, 2022 and $572 million as of December 31, 2021 are classified as Level 3 because fair value inputs are largely unobservable. The GMIB liabilities reflect the Company's credit risk, while the reinsurance recoverable reflects the credit risk of the reinsurers. There were three reinsurers covering 100% of the GMIB exposures as of March 31, 2022 and December 31, 2021 as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| (In millions) |
| Line of Business | | Reinsurer | | March 31, 2022 | | December 31, 2021 | | Collateral and Other Terms at March 31, 2022 |
| GMIB | | Berkshire | | $ | 257 | | | $ | 283 | | | 100% were secured by assets in a trust. |
| | Sun Life Assurance Company of Canada | | 151 | | | 167 | | | |
| | Liberty Re (Bermuda) Ltd. | | 138 | | | 151 | | | 100% were secured by assets in a trust. |
| Total GMIB recoverables reported in Other current assets and Other assets | | $ | 546 | | | $ | 601 | | | |
All reinsurers are rated A- equivalent and higher by an NRSRO.
Note 11 – Investments
Cigna's investment portfolio consists of a broad range of investments including debt securities, equity securities, commercial mortgage loans, policy loans, other long-term investments, short-term investments and derivative financial instruments. The sections below provide more detail regarding our investment balances and realized investment gains and losses. See Note 12 for information about the valuation of the Company's investment portfolio. Further information about our accounting policies for investment assets can be found in Note 11 of the Company's 2021 Form 10-K.
The following table summarizes the Company's investments by category and current or long-term classification:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2022 | | December 31, 2021 |
| (In millions) | | Current | | Long-term | | Total | | Current | | Long-term | | Total |
| Debt securities | | $ | 803 | | | $ | 14,611 | | | $ | 15,414 | | | $ | 796 | | | $ | 16,162 | | | $ | 16,958 | |
| Equity securities | | 50 | | | 821 | | | 871 | | | — | | | 603 | | | 603 | |
| Commercial mortgage loans | | 13 | | | 1,546 | | | 1,559 | | | 40 | | | 1,526 | | | 1,566 | |
| Policy loans | | — | | | 1,316 | | | 1,316 | | | — | | | 1,338 | | | 1,338 | |
| Other long-term investments | | — | | | 3,845 | | | 3,845 | | | — | | | 3,574 | | | 3,574 | |
| Short-term investments | | 190 | | | — | | | 190 | | | 428 | | | — | | | 428 | |
| Total | | 1,056 | | | 22,139 | | | 23,195 | | | 1,264 | | | 23,203 | | | 24,467 | |
Investments classified as assets of businesses held for sale (1) | | (325) | | | (4,446) | | | (4,771) | | | (344) | | | (4,765) | | | (5,109) | |
| Investments per Consolidated Balance Sheets | | $ | 731 | | | $ | 17,693 | | | $ | 18,424 | | | $ | 920 | | | $ | 18,438 | | | $ | 19,358 | |
(1) Investments related to the international life, accident and supplemental benefits businesses that are held for sale. These investments are primarily comprised of debt securities and other long-term investments, and to a lesser extent, equity securities and short-term investments. See Note 5 to the Consolidated Financial Statements for additional information.
A.Investment Portfolio
Debt Securities
The amortized cost and fair value by contractual maturity periods for debt securities were as follows at March 31, 2022:
| | | | | | | | | | | | | | |
| (In millions) | | Amortized
Cost | | Fair
Value |
| Due in one year or less | | $ | 796 | | | $ | 799 | |
| Due after one year through five years | | 4,978 | | | 4,948 | |
| Due after five years through ten years | | 4,967 | | | 4,859 | |
| Due after ten years | | 4,163 | | | 4,410 | |
| Mortgage and other asset-backed securities | | 413 | | | 398 | |
| Total | | $ | 15,317 | | | $ | 15,414 | |
Actual maturities of these securities could differ from their contractual maturities used in the table above because issuers may have the right to call or prepay obligations, with or without penalties.
Gross unrealized appreciation (depreciation) on debt securities by type of issuer is shown below:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (In millions) | | Amortized
Cost | | Allowance for Credit Loss | | Unrealized
Appreciation | | Unrealized
Depreciation | | Fair
Value |
| March 31, 2022 | | | | | | | | | | |
| Federal government and agency | | $ | 298 | | | $ | — | | | $ | 75 | | | $ | (4) | | | $ | 369 | |
| State and local government | | 158 | | | — | | | 4 | | | (3) | | | 159 | |
| Foreign government | | 2,467 | | | — | | | 142 | | | (114) | | | 2,495 | |
| Corporate | | 11,981 | | | (23) | | | 409 | | | (374) | | | 11,993 | |
| Mortgage and other asset-backed | | 413 | | | — | | | 4 | | | (19) | | | 398 | |
| Total | | $ | 15,317 | | | $ | (23) | | | $ | 634 | | | $ | (514) | | | $ | 15,414 | |
Investments supporting liabilities of the Company's run-off settlement annuity business (included in total above) (1) | | $ | 2,297 | | | $ | (5) | | | $ | 412 | | | $ | (52) | | | $ | 2,652 | |
| December 31, 2021 | | | | | | | | | | |
| Federal government and agency | | $ | 287 | | | $ | — | | | $ | 101 | | | $ | (1) | | | $ | 387 | |
| State and local government | | 154 | | | — | | | 17 | | | — | | | 171 | |
| Foreign government | | 2,468 | | | — | | | 194 | | | (46) | | | 2,616 | |
| Corporate | | 12,361 | | | (23) | | | 1,008 | | | (80) | | | 13,266 | |
| Mortgage and other asset-backed | | 505 | | | — | | | 17 | | | (4) | | | 518 | |
| Total | | $ | 15,775 | | | $ | (23) | | | $ | 1,337 | | | $ | (131) | | | $ | 16,958 | |
Investments supporting liabilities of the Company's run-off settlement annuity business (included in total above) (1) | | $ | 2,262 | | | $ | (5) | | | $ | 720 | | | $ | (10) | | | $ | 2,967 | |
(1) Net unrealized appreciation for these investments is excluded from Accumulated other comprehensive loss.
Review of declines in fair value. Management reviews impaired debt securities to determine whether a credit loss allowance is needed based on criteria that include:
•severity of decline;
•financial health and specific prospects of the issuer; and
•changes in the regulatory, economic or general market environment of the issuer's industry or geographic region.
The table below summarizes debt securities with a decline in fair value from amortized cost for which an allowance for credit losses has not been recorded, by investment grade and the length of time these securities have been in an unrealized loss position. These debt securities are primarily corporate securities with a decline in fair value that reflects an increase in market yields since purchase. Our allowance for credit losses on debt securities was not material as of March 31, 2022 and December 31, 2021.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2022 | | December 31, 2021 |
| (Dollars in millions) | | Fair
Value | | Amortized
Cost | | Unrealized
Depreciation | | Number
of Issues | | Fair
Value | | Amortized
Cost | | Unrealized
Depreciation | | Number
of Issues |
| One year or less | | | | | | | | | | | | | | | | |
| Investment grade | | $ | 5,398 | | | $ | 5,730 | | | $ | (332) | | | 1,761 | | $ | 2,785 | | | $ | 2,861 | | | $ | (76) | | | 909 | |
| Below investment grade | | 957 | | | 1,006 | | | (49) | | | 1,406 | | 561 | | | 578 | | | (17) | | | 781 | |
| More than one year | | | | | | | | | | | | | | | | |
| Investment grade | | 816 | | | 930 | | | (114) | | | 348 | | 382 | | | 412 | | | (30) | | | 143 | |
| Below investment grade | | 226 | | | 245 | | | (19) | | | 137 | | 162 | | | 170 | | | (8) | | | 53 | |
| Total | | $ | 7,397 | | | $ | 7,911 | | | $ | (514) | | | 3,652 | | | $ | 3,890 | | | $ | 4,021 | | | $ | (131) | | | 1,886 | |
Equity Securities
The following table provides the values of the Company's equity security investments as of March 31, 2022 and December 31, 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2022 | | December 31, 2021 |
| (In millions) | | Cost | | Carrying Value | | Cost | | Carrying Value |
| Equity securities with readily determinable fair values | | $ | 840 | | | $ | 464 | | | $ | 257 | | | $ | 207 | |
| Equity securities with no readily determinable fair value | | 280 | | | 407 | | | 270 | | | 396 | |
| Total | | $ | 1,120 | | | $ | 871 | | | $ | 527 | | | $ | 603 | |
Approximately 65% of our investments in equity securities are in the health care sector, consistent with our strategy to invest in targeted startup and growth-stage companies in the health care industry.
Commercial Mortgage Loans
Mortgage loans held by the Company are made exclusively to commercial borrowers and are diversified by property type, location and borrower. Loans are generally issued at fixed rates of interest and are secured by high quality, primarily completed and substantially leased operating properties.
The Company regularly evaluates and monitors credit risk from the initial mortgage loan underwriting and throughout the investment holding period. For more information on the Company's accounting policies and methodologies regarding these investments, see Note 11 to the Company's 2021 Form 10-K for the year ended December 31, 2021.
The following table summarizes the credit risk profile of the Company's commercial mortgage loan portfolio as of March 31, 2022 and December 31, 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Dollars in millions) | | March 31, 2022 | | December 31, 2021 | |
| Loan-to-Value Ratio | | Carrying Value | | Average Debt Service Coverage Ratio | | Average Loan-to-Value Ratio | | Carrying Value | | Average Debt Service Coverage Ratio | | Average Loan-to-Value Ratio | |
| Below 60% | | $ | 555 | | | 2.21 | | | | $ | 560 | | | 2.18 | | | |
| 60% to 79% | | 882 | | | 1.89 | | | | 883 | | | 1.89 | | | |
| 80% to 100% | | 129 | | | 1.47 | | | | 129 | | | 1.47 | | | |
| Allowance for credit losses | | (7) | | | | | | | (6) | | | | | | |
| Total | | $ | 1,559 | | | 1.97 | | 61 | | % | $ | 1,566 | | | 1.96 | | 61 | | % |
All commercial mortgage loans in the Company's portfolio are current as of March 31, 2022 and December 31, 2021.
Other Long-Term Investments
Other long-term investments include investments in unconsolidated entities, including certain limited partnerships and limited liability companies holding real estate, securities or loans. These investments are carried at cost plus the Company's ownership percentage of reporting income or loss, based on the financial statements of the underlying investments that are generally reported at fair value. Income or loss from these investments is reported on a one quarter lag due to the timing of when financial information is received from the general partner or manager of the investments.
Other long-term investments also include investment real estate carried at depreciated cost less any impairment write-downs to fair value when cash flows indicate that the carrying value may not be recoverable. Additionally, statutory and other restricted deposits and foreign currency swaps carried at fair value are reported in the table below as Other. The following table provides the carrying value information for these investments:
| | | | | | | | | | | | | | |
| | Carrying value as of |
| (In millions) | | March 31, 2022 | | December 31, 2021 |
| Real estate investments | | $ | 1,212 | | | $ | 1,152 | |
| Securities partnerships | | 2,463 | | | 2,272 | |
| Other | | 170 | | | 150 | |
| Total | | $ | 3,845 | | | $ | 3,574 | |
B.Derivative Financial Instruments
The Company uses derivative financial instruments to manage the characteristics of investment assets (such as duration, yield, currency and liquidity) to meet the varying demands of the related insurance and contractholder liabilities. The Company also uses derivative financial instruments to hedge the risk of changes in the net assets of certain of its foreign subsidiaries due to changes in foreign currency exchange rates and to hedge the interest rate risk of certain long-term debt. The Company has written and purchased GMIB reinsurance contracts in its run-off reinsurance business that are accounted for as freestanding derivatives as discussed in Note 10. Derivatives in the Company's separate accounts are excluded from the following discussion because associated gains and losses generally accrue directly to separate account policyholders.
The gross fair values of our derivative financial instruments are presented in Note 12. As of March 31, 2022 and December 31, 2021, the effects of derivative financial instruments used in these individual hedging strategies were not material to the Consolidated Financial Statements, including gains or losses reclassified from Accumulated other comprehensive loss into Shareholders' net income, amounts excluded from the assessment of hedge effectiveness and fair values of assets posted or held as collateral supporting the fair values of these derivative financial instruments. The following table summarizes the types and notional quantity of derivative instruments held by the Company:
| | | | | | | | | | | | | | | | | | | | |
| | | | Notional Value as of |
| (In millions) | | | March 31, 2022 | | December 31, 2021 |
| Purpose | | Type of Instrument | | |
Fair value hedge: To hedge the foreign exchange-related changes in fair values of certain foreign-denominated bonds. The notional value of these derivatives matches the amortized cost of the hedged bonds. A majority of these instruments are denominated in Euros, with the remaining instruments denominated in British Pounds Sterling and Australian Dollars. | | Foreign currency swap contracts | | $ | 1,110 | | | $ | 1,081 | |
Fair value hedge: To convert a portion of the interest rate exposure on the Company's long-term debt from fixed to variable rates. This more closely aligns the Company's interest expense with the interest income received on its cash equivalent and short-term investment balances. The variable rates are benchmarked to SOFR. | | Interest rate swap contracts | | $ | 750 | | | $ | 750 | |
Net investment hedge: To reduce the risk of changes in net assets due to changes in foreign currency spot exchange rates for certain foreign subsidiaries that conduct their business principally in currencies other than the U.S. Dollar. The notional value of hedging instruments matches the hedged amount of subsidiary net assets. Foreign currency swap contracts are denominated in Euros, while foreign currency forward contracts are primarily denominated in Korean Won, with the remaining instruments denominated in New Zealand Dollars and Taiwan Dollars. | | Foreign currency swap contracts | | $ | 526 | | | $ | 526 | |
| Foreign currency forward contracts | | $ | 1,360 | | | $ | 1,380 | |
Economic hedge: To hedge the foreign exchange-related changes in fair value of U.S. dollar-denominated investment assets to reflect the local currency for the Company's foreign subsidiary in South Korea. The notional value of hedging instruments generally aligns with the fair value of the hedged investments. | | Foreign currency forward contracts | | $ | 749 | | | $ | 720 | |
| | | | | | |
As there have been no changes to the types of derivative financial instruments the Company uses, refer to the Company's 2021 Form 10-K for further discussion on our accounting policy.
C.Realized Investment Gains and Losses
The following realized gains and losses on investments exclude amounts required to adjust future policy benefits for the run-off settlement annuity business (consistent with accounting for a premium deficiency), as well as realized gains and losses attributed to the Company's separate accounts because those gains and losses generally accrue directly to separate account policyholders:
| | | | | | | | | | | | | | | | | | | | |
| | | | Three Months Ended March 31, | | |
| (In millions) | | | | | | 2022 | | 2021 | | |
| Net realized investment gains (losses), excluding credit loss expense and asset write-downs | | | | | | $ | (319) | | | $ | 10 | | | |
| Credit loss (expense) recoveries | | | | | | — | | | (9) | | | |
| | | | | | | | | | |
| Net realized investment gains (losses), before income taxes | | | | | | $ | (319) | | | $ | 1 | | | |
Net realized investment losses for the three months ended March 31, 2022 were primarily mark-to-market losses on equity securities held in a strategic health care sector investment.
Note 12 – Fair Value Measurements
The Company carries certain financial instruments at fair value in the financial statements including debt securities, certain equity securities, short-term investments and derivatives. Other financial instruments are measured at fair value only under certain conditions, such as when impaired or when there are observable price changes for equity securities with no readily determinable fair value.
Fair value is defined as the price at which an asset could be exchanged in an orderly transaction between market participants at the balance sheet date. A liability's fair value is defined as the amount that would be paid to transfer the liability to a market participant, not the amount that would be paid to settle the liability with the creditor.
The Company's financial assets and liabilities carried at fair value have been classified based upon a hierarchy defined by GAAP. The hierarchy gives the highest ranking to fair values determined using unadjusted quoted prices in active markets for identical assets and
liabilities (Level 1) and the lowest ranking to fair values determined using methodologies and models with unobservable inputs (Level 3). An asset's or a liability's classification is based on the lowest level of input that is significant to its measurement. For example, a financial asset or liability carried at fair value would be classified in Level 3 if unobservable inputs were significant to the instrument's fair value, even though the measurement may be derived using inputs that are both observable (Levels 1 and 2) and unobservable (Level 3).
For a description of the policies, methods and assumptions that are used to estimate fair value and determine the fair value hierarchy for each class of financial instruments, see Note 12 "Fair Value Measurements" to the Company's 2021 Form 10-K.
A.Financial Assets and Financial Liabilities Carried at Fair Value
The following table provides information as of March 31, 2022 and December 31, 2021 about the Company's financial assets and liabilities carried at fair value. Separate account assets are also recorded at fair value on the Company's Consolidated Balance Sheets and are reported separately in the Separate Accounts section below as gains and losses related to these assets generally accrue directly to policyholders.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (In millions) | | Quoted Prices in Active Markets for Identical Assets
(Level 1) | | Significant Other Observable Inputs
(Level 2) | | Significant Unobservable Inputs
(Level 3) | | Total |
| | As of March 31, 2022 | | As of December 31, 2021 | | As of March 31, 2022 | | As of December 31, 2021 | | As of March 31, 2022 | | As of December 31, 2021 | | As of March 31, 2022 | | As of December 31, 2021 |
| Financial assets at fair value | | | | | | | | | | | | | | | | |
| Debt securities | | | | | | | | | | | | | | | | |
| Federal government and agency | | $ | 149 | | | $ | 147 | | | $ | 220 | | | $ | 240 | | | $ | — | | | $ | — | | | $ | 369 | | | $ | 387 | |
| State and local government | | — | | | — | | | 159 | | | 171 | | | — | | | — | | | 159 | | | 171 | |
| Foreign government | | — | | | — | | | 2,490 | | | 2,611 | | | 5 | | | 5 | | | 2,495 | | | 2,616 | |
Corporate | | — | | | — | | | 11,468 | | | 12,606 | | | 525 | | | 660 | | | 11,993 | | | 13,266 | |
| Mortgage and other asset-backed | | — | | | — | | | 273 | | | 418 | | | 125 | | | 100 | | | 398 | | | 518 | |
| Total debt securities | | 149 | | | 147 | | | 14,610 | | | 16,046 | | | 655 | | | 765 | | | 15,414 | | | 16,958 | |
Equity securities (1) | | 12 | | | 16 | | | 421 | | | 160 | | | 31 | | | 31 | | | 464 | | | 207 | |
| Short-term investments | | — | | | — | | | 190 | | | 428 | | | — | | | — | | | 190 | | | 428 | |
| Derivative assets | | — | | | — | | | 159 | | | 143 | | | — | | | — | | | 159 | | | 143 | |
| Financial liabilities at fair value | | | | | | | | | | | | | | | | |
| Derivative liabilities | | $ | — | | | $ | — | | | $ | 29 | | | $ | 33 | | | $ | — | | | $ | — | | | $ | 29 | | | $ | 33 | |
(1) Excludes certain equity securities that have no readily determinable fair value.
Level 3 Financial Assets and Financial Liabilities
Certain inputs for instruments classified in Level 3 are unobservable (supported by little or no market activity) and significant to their resulting fair value measurement. Unobservable inputs reflect the Company's best estimate of what hypothetical market participants would use to determine a transaction price for the asset or liability at the reporting date.
Quantitative Information about Unobservable Inputs
The significant unobservable input used to value our corporate and government debt securities and mortgage and other asset-backed securities is an adjustment for liquidity. This adjustment is needed to reflect current market conditions and issuer circumstances when there is limited trading activity for the security.
The following table summarizes the fair value and significant unobservable inputs that were developed directly by the Company and used in pricing these debt securities as of March 31, 2022 and December 31, 2021. The range and weighted average basis point ("bps") amounts for liquidity reflect the Company's best estimates of the unobservable adjustments a market participant would make to calculate these fair values.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fair Value as of | | | | Unobservable Adjustment Range (Weighted Average by Quantity) as of | |
| (Fair value in millions ) | | March 31, 2022 | | December 31, 2021 | | Unobservable input March 31, 2022 | | March 31, 2022 | | December 31, 2021 | |
| Debt securities | | | | | | | | | | | |
| Corporate and government debt securities | | $ | 529 | | | $ | 664 | | | Liquidity | | 60 - 1200 (370) | bps | 60 - 1060 (410) | bps |
| Mortgage and other asset-backed securities | | 125 | | | 100 | | | Liquidity | | 60 - 380 (130) | bps | 60 - 390 (100) | bps |
| Other debt securities | | 1 | | | 1 | | | | | | | | |
| Total Level 3 debt securities | | $ | 655 | | | $ | 765 | | | | | | | | |
A significant increase in liquidity spread adjustments would result in a lower fair value measurement, while a decrease would result in a higher fair value measurement.
Changes in Level 3 Financial Assets and Financial Liabilities Carried at Fair Value
The following table summarizes the changes in financial assets and financial liabilities classified in Level 3 for the three months ended March 31, 2022 and 2021. Gains and losses reported in the table may include net changes in fair value that are attributable to both observable and unobservable inputs.
| | | | | | | | | | | | | | | | | | |
| | | | For the Three Months Ended
March 31, |
| (In millions) | | | | | | 2022 | | 2021 |
| Debt and Equity Securities | | | | | | | | |
| Beginning balance | | | | | | $ | 796 | | | $ | 854 | |
| Total gains (losses) included in shareholders' net income | | | | | | 12 | | | (10) | |
| Gains (losses) included in other comprehensive income | | | | | | (15) | | | (16) | |
Gains (losses) required to adjust future policy benefits for settlement annuities (1) | | | | | | (12) | | | (8) | |
| Purchases, sales and settlements | | | | | | | | |
| Purchases | | | | | | 49 | | | 29 | |
| | | | | | | | |
| Settlements | | | | | | (81) | | | (16) | |
| Total purchases, sales and settlements | | | | | | (32) | | | 13 | |
| Transfers into/(out of) Level 3 | | | | | | | | |
| Transfers into Level 3 | | | | | | 101 | | | 86 | |
| Transfers out of Level 3 | | | | | | (164) | | | (16) | |
| Total transfers into/(out of) Level 3 | | | | | | (63) | | | 70 | |
| Ending balance | | | | | | $ | 686 | | | $ | 903 | |
Total gains (losses) included in Shareholders' net income attributable to instruments held at the reporting date | | | | | | $ | — | | | $ | (11) | |
Change in unrealized gains or losses included in Other comprehensive (loss), net of tax for assets held at the end of the reporting period | | | | | | $ | (13) | | | $ | (16) | |
(1) Amounts do not accrue to shareholders.
Total gains and losses included in Shareholders' net income in the tables above are reflected in the Consolidated Statements of Income as Net realized investment gains (losses) and Net investment income.
Gains and losses included in Other comprehensive (loss), net of tax in the tables above are reflected in Net unrealized (depreciation) appreciation on securities and derivatives in the Consolidated Statements of Comprehensive Income.
Transfers into or out of the Level 3 category occur when unobservable inputs, such as the Company's best estimate of what a market participant would use to determine a current transaction price, become more or less significant to the fair value measurement. Market activity typically decreases during periods of economic uncertainty and this decrease in activity reduces the availability of market observable data. As a result, the level of unobservable judgment that must be applied to the pricing of certain instruments increases and is typically observed through the widening of liquidity spreads. Transfers between Level 2 and Level 3 during 2022 and 2021 primarily reflected changes in liquidity estimates for certain private placement issuers across several sectors. See discussion under Quantitative Information about Unobservable Inputs above for more information.
Separate Accounts
The investment income and fair value gains and losses of separate account assets generally accrue directly to the contractholders and, together with their deposits and withdrawals, are excluded from the Company's Consolidated Statements of Income and Cash Flows.
Fair values of Separate account assets at March 31, 2022 and December 31, 2021 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (In millions) | | Quoted Prices in Active Markets for Identical Assets
(Level 1) | | Significant Other Observable Inputs
(Level 2) | | Significant Unobservable Inputs
(Level 3) | | Total |
| | March 31, 2022 | | December 31, 2021 | | March 31, 2022 | | December 31, 2021 | | March 31, 2022 | | December 31, 2021 | | March 31, 2022 | | December 31, 2021 |
Guaranteed separate accounts (See Note 18) | | $ | 239 | | | $ | 227 | | | $ | 271 | | | $ | 276 | | | $ | — | | | $ | — | | | $ | 510 | | | $ | 503 | |
Non-guaranteed separate accounts (1) | | 460 | | | 1,130 | | | 6,676 | | | 6,406 | | | 311 | | | 334 | | | 7,447 | | | 7,870 | |
| Subtotal | | $ | 699 | | | $ | 1,357 | | | $ | 6,947 | | | $ | 6,682 | | | $ | 311 | | | $ | 334 | | | 7,957 | | | 8,373 | |
Non-guaranteed separate accounts priced at net asset value ("NAV") as a practical expedient (1) | | | | | | | | | | | | 909 | | | 842 | |
| Total | | | | | | | | | | | | | | 8,866 | | | 9,215 | |
Separate account assets of businesses classified as held for sale (2) | | | | | | | | | | | | | | (718) | | | (878) | |
| Separate account assets per Consolidated Balance Sheets | | | | | | | | | | | | | | $ | 8,148 | | | $ | 8,337 | |
(1)Non-guaranteed separate accounts include $4.4 billion as of March 31, 2022 and $4.5 billion as of December 31, 2021 in assets supporting the Company's pension plans, including $0.3 billion classified in Level 3 as of March 31, 2022 and December 31, 2021.
(2)Investments related to the international life, accident and supplemental benefits businesses that are held for sale. See Note 5 to the Consolidated Financial Statements for additional information.
.
Separate account assets classified in Level 3 primarily support Cigna's pension plans and include certain newly-issued, privately-placed, complex or illiquid securities that are priced using methods discussed above, as well as commercial mortgage loans. Activity, including transfers into and out of Level 3, was not material for the three months ended March 31, 2022 or 2021.
Separate account investments in securities partnerships, real estate and hedge funds are generally valued based on the separate account's ownership share of the equity of the investee (NAV as a practical expedient), including changes in the fair values of its underlying investments. Substantially all of these assets support the Cigna pension plans. The following table provides additional information on these investments:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fair Value as of | | Unfunded Commitment as of March 31, 2022 | | Redemption Frequency
(if currently eligible) | | Redemption Notice
Period |
| (In millions) | | March 31, 2022 | | December 31, 2021 | | | |
| Securities partnerships | | $ | 557 | | | $ | 513 | | | $ | 262 | | | Not applicable | | Not applicable |
| Real estate funds | | 348 | | | 325 | | | — | | | Quarterly | | 30 - 90 days |
| Hedge funds | | 4 | | | 4 | | | — | | | Up to annually, varying by fund | | 30 - 90 days |
| Total | | $ | 909 | | | $ | 842 | | | $ | 262 | | | | | |
As of March 31, 2022, the Company does not have plans to sell any of these assets at less than fair value. These investments are structured to satisfy longer-term investment objectives. Securities partnerships are contractually non-redeemable and the underlying investment assets are expected to be liquidated by the fund managers within ten years after inception.
B.Assets and Liabilities Measured at Fair Value under Certain Conditions
Some financial assets and liabilities are not carried at fair value, such as commercial mortgage loans that are carried at unpaid principal, investment real estate that is carried at depreciated cost and equity securities with no readily determinable fair value when there are no observable market transactions. However, these financial assets and liabilities may be measured using fair value under certain conditions, such as when investments become impaired and are written down to their fair value, or when there are observable price changes from orderly market transactions of equity securities that otherwise had no readily determinable fair value.
For the three months ended March 31, 2022 and 2021, no impairments were recognized requiring these assets to be measured at fair value. Realized investment gains and losses from these observable price changes for the three months ended March 31, 2022 and March 31, 2021 were not material.
C.Fair Value Disclosures for Financial Instruments Not Carried at Fair Value
The following table includes the Company's financial instruments not recorded at fair value, however fair value disclosure is required at March 31, 2022 and December 31, 2021. In addition to universal life products and finance leases, financial instruments that are carried in the Company's Consolidated Financial Statements at amounts that approximate fair value are excluded from the following table:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Classification in Fair Value Hierarchy | | March 31, 2022 | | December 31, 2021 |
| (In millions) | | | Fair Value | | Carrying Value | | Fair Value | | Carrying Value |
| Commercial mortgage loans | | Level 3 | | $ | 1,519 | | | $ | 1,559 | | | $ | 1,598 | | | $ | 1,566 | |
| Long-term debt, including current maturities, excluding finance leases | | Level 2 | | $ | 32,646 | | | $ | 31,552 | | | $ | 35,621 | | | $ | 31,593 | |
Note 13 – Variable Interest Entities
We perform ongoing qualitative analyses of our involvement with variable interest entities to determine if consolidation is required. The Company determined that it was not a primary beneficiary in any material variable interest entity as of March 31, 2022 or December 31, 2021. The Company’s involvement with variable interest entities for which it is not the primary beneficiary has not changed materially from December 31, 2021. For details of our accounting policy for variable interest entities and the composition of variable interest entities with which the Company is involved, refer to Note 13 in the Company's 2021 Form 10-K. The Company has not provided, and does not intend to provide, financial support to any of these variable interest entities in excess of its maximum exposure.
Note 14 – Accumulated Other Comprehensive Income (Loss) ("AOCI")
AOCI includes net unrealized appreciation (depreciation) on securities and derivatives (excluding appreciation on investments supporting future policy benefit liabilities of the run-off settlement annuity business) (see Note 11), foreign currency translation and the net postretirement benefits liability adjustment. AOCI includes the Company's share from unconsolidated entities reported on the equity method. Generally, tax effects in AOCI are established at the currently enacted tax rate and reclassified to Shareholders' net income in the same period that the related pre-tax AOCI reclassifications are recognized. Changes in the components of AOCI were as follows:
| | | | | | | | | | | | | | | | | | | | |
| | | | Three Months Ended March 31, |
| (In millions) | | | | | | 2022 | | 2021 | | |
| Securities and Derivatives | | | | | | | | | | |
| Beginning balance | | | | | | $ | 685 | | | $ | 900 | | | |
| (Depreciation) appreciation on securities and derivatives | | | | | | (705) | | | (342) | | | |
| Tax benefit | | | | | | 154 | | | 65 | | | |
| Net (depreciation) appreciation on securities and derivatives | | | | | | (551) | | | (277) | | | |
| | | | | | | | | | |
| Reclassification adjustment for (gains) losses included in Shareholders' net income (Net realized investment (gains) losses) | | | | | | (11) | | | 5 | | | |
| Reclassification adjustment for tax expense (benefit) included in Shareholders' net income | | | | | | 2 | | | (1) | | | |
| Net (gains) losses reclassified from AOCI to Shareholders' net income | | | | | | (9) | | | 4 | | | |
| Other comprehensive (loss), net of tax | | | | | | (560) | | | (273) | | | |
| Ending balance | | | | | | $ | 125 | | | $ | 627 | | | |
| | | | | | | | | | |
| Translation of foreign currencies | | | | | | | | | | |
| Beginning balance | | | | | | $ | (233) | | | $ | (15) | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| Translation of foreign currencies | | | | | | (60) | | | (114) | | | |
| Tax (expense) | | | | | | (3) | | | (5) | | | |
| Other comprehensive (loss), net of tax | | | | | | (63) | | | (119) | | | |
| Less: Net translation gain (loss) on foreign currencies attributable to noncontrolling interests | | | | | | (2) | | | (4) | | | |
| Shareholders' other comprehensive (loss), net of tax | | | | | | (61) | | | (115) | | | |
| Ending balance | | | | | | $ | (294) | | | $ | (130) | | | |
| | | | | | | | | | |
| Postretirement benefits liability | | | | | | | | | | |
| Beginning balance | | | | | | $ | (1,336) | | | $ | (1,746) | | | |
| Reclassification adjustment for amortization of net prior actuarial losses and prior service costs (Interest expense and other) | | | | | | 16 | | | 20 | | | |
| Reclassification adjustment for settlement (Interest expense and other) | | | | | | — | | | 3 | | | |
| Reclassification adjustment for tax (benefit) included in Shareholders' net income | | | | | | (3) | | | (5) | | | |
| Net adjustments reclassified from AOCI to Shareholders' net income | | | | | | 13 | | | 18 | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| Other comprehensive income, net of tax | | | | | | 13 | | | 18 | | | |
| Ending balance | | | | | | $ | (1,323) | | | $ | (1,728) | | | |
Note 15 – Organizational Efficiency Plan
During the fourth quarter of 2021, the Company approved a strategic plan to further leverage its ongoing growth to drive operational efficiency through enhancements to organizational structure and increased use of automation and shared services. As a result, during the fourth quarter of 2021, we recognized a charge in Selling, general and administrative expenses of $168 million, pre-tax ($119 million, after-tax) that included $59 million of one-time expenses related to abandonment of leased assets and impairment of property and equipment as well as $109 million of accrued expenses primarily for severance costs related to headcount reductions. We expect most of the severance to be paid by 2023.
The following table summarizes a roll forward of the accrued liability recorded in Accrued expenses and other liabilities:
| | | | | |
| (In millions) | |
| Balance, December 31, 2021 | $ | 103 | |
| 2022 payments | (14) | |
| Balance, March, 31, 2022 | $ | 89 | |
Note 16 – Leases
Operating and finance lease right-of-use ("ROU") assets and lease liabilities were as follows:
| | | | | | | | | | | | | | |
| (In millions) | | March 31, 2022 | | December 31, 2021 |
Operating leases: (1) | | | | |
Operating lease ROU assets in Other assets | | $ | 456 | | | $ | 478 | |
| | | | |
| Accrued expenses and other liabilities | | $ | 154 | | | $ | 159 | |
| Other non-current liabilities | | 407 | | | 436 | |
| Total operating lease liabilities | | $ | 561 | | | $ | 595 | |
| | | | |
| Finance leases: | | | | |
| Property and equipment, gross | | $ | 118 | | | $ | 101 | |
| Accumulated depreciation | | (56) | | | (51) | |
| Property and equipment, net | | $ | 62 | | | $ | 50 | |
| | | | |
| Short-term debt | | $ | 27 | | | $ | 23 | |
| Long-term debt | | 37 | | | 28 | |
| Total finance lease liabilities | | $ | 64 | | | $ | 51 | |
(1) Operating leases include $28 million as of March 31, 2022 and $27 million as of December 31, 2021 classified as Assets of businesses held for sale and $25 million as of March 31, 2022, and $28 million as of December 31, 2021 classified as Liabilities of businesses held for sale.
Note 17 – Income Taxes
Income Tax Expense
The 22.7% effective tax rate for the three months ended March 31, 2022 was higher than the 22.6% rate for the same period in 2021. This increase is primarily attributable to an increase in state and foreign income taxes, partially offset by the favorable impact of the remeasurement of deferred income taxes.
Note 18 – Contingencies and Other Matters
The Company, through its subsidiaries, is contingently liable for various guarantees provided in the ordinary course of business.
A.Financial Guarantees: Retiree and Life Insurance Benefits
The Company guarantees that separate account assets will be sufficient to pay certain life insurance or retiree benefits. For the majority of these 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. If employers fail to do so, the Company or an affiliate of the buyer of the retirement benefits business has the right to redirect the management of the related assets to provide for benefit payments. As of March 31, 2022, employers maintained assets that generally exceeded the benefit obligations under these arrangements of approximately $430 million. An additional liability is established if management believes that the Company will be required to make payments under the guarantees; there were no additional liabilities required for these guarantees, net of reinsurance, as of March 31, 2022. Separate account assets supporting these guarantees are classified in Levels 1 and 2 of the GAAP fair value hierarchy.
The Company does not expect that these financial guarantees will have a material effect on the Company's consolidated results of operations, liquidity or financial condition.
B.Certain Other Guarantees
The Company had indemnification obligations as of March 31, 2022 in connection with acquisition and disposition transactions. These indemnification obligations are triggered by the breach of representations or covenants provided by the Company, such as representations for the presentation of financial statements, filing of tax returns, compliance with law or 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. The Company does not believe that it is possible to determine the maximum potential amount due under these obligations because not all amounts due under these indemnification obligations are subject to limitation. There were no liabilities for these indemnification obligations as of March 31, 2022.
C.Guaranty Fund Assessments
The Company operates in a regulatory environment that may require its participation in assessments under state insurance guaranty association laws. The Company's exposure to assessments for certain obligations of insolvent insurance companies to policyholders and claimants is based on its share of business written in the relevant jurisdictions.
There were no material charges or credits resulting from existing or new guaranty fund assessments for the three months ended March 31, 2022.
D.Legal and Regulatory Matters
The Company is routinely involved in numerous claims, lawsuits, regulatory inquiries and audits, government investigations, including under the federal False Claims Act and state false claims acts initiated by a government investigating body or by a qui tam relator's filing of a complaint under court seal and other legal matters arising, for the most part, in the ordinary course of managing a global health services business. Additionally, the Company has received and is cooperating with subpoenas or similar processes from various governmental agencies requesting information, all arising in the normal course of its business. Disputed tax matters arising from audits by the Internal Revenue Service or other state and foreign jurisdictions, including those resulting in litigation, are accounted for under GAAP guidance for uncertain tax positions.
Pending litigation and legal or regulatory matters that the Company has identified with a reasonably possible material loss and certain other material litigation matters are described below. For those matters that the Company has identified with a reasonably possible material loss, the Company provides disclosure in the aggregate of accruals and range of loss, or a statement that such information cannot be estimated. The Company's accruals for the matters discussed below under "Litigation Matters" and "Regulatory Matters" are not material. Due to numerous uncertain factors presented in these cases, it is not possible to estimate an aggregate range of loss (if any) for these matters at this time. In light of the uncertainties involved in these matters, there is no assurance that their ultimate resolution will not exceed the amounts currently accrued by the Company. An adverse outcome in one or more of these matters could be material to the Company's results of operations, financial condition or liquidity for any particular period. The outcomes of lawsuits are inherently unpredictable and we may be unsuccessful in these ongoing litigation matters or any future claims or litigation.
Litigation Matters
Express Scripts Litigation with Anthem. In March 2016, Anthem filed a lawsuit in the United States District Court for the Southern District of New York alleging various breach of contract claims against Express Scripts relating to the parties' rights and obligations under the periodic pricing review section of the pharmacy benefit management agreement between the parties including allegations that Express Scripts failed to negotiate new pricing concessions in good faith, as well as various alleged service issues. Anthem also requested that the court enter declaratory judgment that Express Scripts is required to provide Anthem competitive benchmark pricing, that Anthem can terminate the agreement and that Express Scripts is required to provide Anthem with post-termination services at competitive benchmark pricing for one year following any termination by Anthem. Anthem claims it is entitled to $13 billion in additional pricing concessions over the remaining term of the agreement, as well as $1.8 billion for one year following any contract termination by Anthem and $150 million damages for service issues ("Anthem's Allegations"). On April 19, 2016, in response to Anthem's complaint, Express Scripts filed its answer denying Anthem's Allegations in their entirety and asserting affirmative defenses and counterclaims against Anthem. The court subsequently granted Anthem's motion to dismiss two of six counts of Express Scripts' amended counterclaims. Express Scripts filed its Motion for Summary Judgment on August 27, 2021. Anthem completed filing of its Response to Express Scripts' Motion for Summary Judgment on October 16, 2021. Express Scripts filed its Reply in Support of its Motion for Summary Judgment on November 19, 2021. On March 31, 2022, the court granted summary judgment in favor of Express Scripts on all of Anthem's pricing claims for damages totaling $14.8 billion and on most of Anthem's claims relating to service issues. Anthem's only remaining service claim relates to the review or processing of prior authorizations.
Medicare Advantage. A qui tam action that was filed by a private individual on behalf of the government in the United States District Court for the Southern District of New York in 2017 was unsealed on August 6, 2020. The action asserts claims related to risk adjustment practices arising from certain health exams conducted as part of the Company's Medicare Advantage business. In September 2021, the qui tam action was transferred to the United States District Court for the Middle District of Tennessee. On January 11, 2022, the U.S. Department of Justice ("DOJ") (U.S. Attorney's Offices for the Southern District of New York and the Middle District of Tennessee) filed a motion to partially intervene, which is pending before the court. The Company has opposed the
DOJ's motion to intervene and the government filed its reply brief on February 1, 2022. The motion has been fully briefed and is under the court's review.
Regulatory Matters
Civil Investigative Demand. The DOJ is conducting industry-wide investigations of Medicare Advantage organizations' risk adjustment practices. For certain Medicare Advantage organizations, including Cigna, those investigations have resulted in litigation (see "Litigation Matters—Medicare Advantage" above). The Company is currently responding to information requests (civil investigative demands) from the DOJ (U.S. Attorney's Office for the Eastern District of Pennsylvania). The Company is cooperating with the DOJ and has responded and continues to respond to its requests.
Note 19 – Segment Information
See Note 1 for a description of our segments, including the segment change effective in the fourth quarter of 2021. Prior year segment information has been adjusted to reflect the segment change and a description of our basis of reporting segment operating results is outlined below. Intersegment revenues primarily reflect pharmacy related transactions between the Evernorth and Cigna Healthcare segments.
The Company uses "pre-tax adjusted income (loss) from operations" and "adjusted revenues" as its principal financial measures of segment operating performance because management believes these metrics best reflect the underlying results of business operations and permit analysis of trends in underlying revenue, expenses and profitability. We define pre-tax adjusted income from operations as income before income taxes excluding pre-tax income/loss attributable to noncontrolling interests, net realized investment results, amortization of acquired intangible assets, and special items. Cigna's share of certain realized investment results of its joint ventures reported in the Cigna Healthcare segment using the equity method of accounting are also excluded. Special items are matters that management believes are not representative of the underlying results of operations due to their nature or size. Adjusted income (loss) from operations is measured on an after-tax basis for consolidated results and on a pre-tax basis for segment results.
The Company defines adjusted revenues as total revenues excluding the following adjustments: special items and Cigna's share of certain realized investment results of its joint ventures reported in the Cigna Healthcare segment using the equity method of accounting. Special items are matters that management believes are not representative of the underlying results of operations due to their nature or size. We exclude these items from this measure because management believes they are not indicative of past or future underlying performance of the business.
The Company does not report total assets by segment because this is not a metric used to allocate resources or evaluate segment performance.
The following tables present the special items recorded by the Company for the three months ended March 31, 2022 and 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended |
| (In millions) | | | | | March 31, 2022 | | March 31, 2021 | | |
| Description of Special Item Charges (Benefits) and Financial Statement Line Item(s) | | | | | | | | | After-tax | | Before-tax | | After-tax | | Before-tax | | | | |
Integration and transaction-related costs
(Selling, general and administrative expenses) | | | | | | | | | $ | 37 | | | $ | 52 | | | $ | 22 | | | $ | 29 | | | | | |
Debt extinguishment costs
| | | | | | | | | — | | | — | | | 101 | | | 131 | | | | | |
(Benefits) charges associated with litigation matters
(Selling, general and administrative expenses) | | | | | | | | | — | | | — | | | (21) | | | (27) | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| Total impact from special items | | | | | | | | | $ | 37 | | | $ | 52 | | | $ | 102 | | | $ | 133 | | | | | |
Summarized segment financial information was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (In millions) | | Evernorth | | Cigna Healthcare | | Other Operations | | Corporate and Eliminations | | Total |
| Three months ended March 31, 2022 |
| Revenues from external customers | | $ | 32,289 | | | $ | 10,461 | | | $ | 841 | | | $ | — | | | $ | 43,591 | |
| Inter-segment revenues | | 1,287 | | | 562 | | | — | | | (1,849) | | | |
| Net investment income | | 10 | | | 266 | | | 138 | | | — | | | 414 | |
| Total revenues | | 33,586 | | | 11,289 | | | 979 | | | (1,849) | | | 44,005 | |
Net realized investment results from certain equity method investments | | — | | | 103 | | | — | | | — | | | 103 | |
| | | | | | | | | | |
| Adjusted revenues | | $ | 33,586 | | | $ | 11,392 | | | $ | 979 | | | $ | (1,849) | | | $ | 44,108 | |
| | | | | | | | | | |
| Income (loss) before taxes | | $ | 870 | | | $ | 859 | | | $ | 215 | | | $ | (395) | | | $ | 1,549 | |
| Pre-tax adjustments to reconcile to adjusted income from operations | | | | | | | | | | |
| (Income) attributable to noncontrolling interests | | (11) | | | (1) | | | (5) | | | — | | | (17) | |
Net realized investment (gains) losses (1) | | — | | | 406 | | | 16 | | | — | | | 422 | |
| Amortization of acquired intangible assets | | 443 | | | 15 | | | — | | | — | | | 458 | |
| Special items | | | | | | | | | | |
| Integration and transaction-related costs | | — | | | — | | | — | | | 52 | | | 52 | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| Pre-tax adjusted income (loss) from operations | | $ | 1,302 | | | $ | 1,279 | | | $ | 226 | | | $ | (343) | | | $ | 2,464 | |
| | | | | | | | | | |
| (In millions) | | Evernorth | | Cigna Healthcare | | Other Operations | | Corporate and Eliminations | | Total |
| Three months ended March 31, 2021 |
Revenues from external customers | | $ | 29,419 | | | $ | 10,285 | | | $ | 876 | | | $ | — | | | $ | 40,580 | |
| Inter-segment revenues | | 1,198 | | | 509 | | | — | | | (1,707) | | | |
| Net investment income | | 3 | | | 259 | | | 129 | | | — | | | 391 | |
| Total revenues | | 30,620 | | | 11,053 | | | 1,005 | | | (1,707) | | | 40,971 | |
| | | | | | | | | | |
| Net realized investment results from certain equity method investments | | — | | | 14 | | | — | | | — | | | 14 | |
| | | | | | | | | | |
| Adjusted revenues | | $ | 30,620 | | | $ | 11,067 | | | $ | 1,005 | | | $ | (1,707) | | | $ | 40,985 | |
| | | | | | | | | | |
| Income (loss) before taxes | | $ | 749 | | | $ | 1,045 | | | $ | 206 | | | $ | (487) | | | $ | 1,513 | |
| Pre-tax adjustments to reconcile to adjusted income from operations | | | | | | | | | | |
| (Income) attributable to noncontrolling interests | | (5) | | | (1) | | | (6) | | | — | | | (12) | |
Net realized investment (gains) losses (1) | | 2 | | | (16) | | | 27 | | | — | | | 13 | |
| Amortization of acquired intangible assets | | 477 | | | 14 | | | 4 | | | — | | | 495 | |
| Special items | | | | | | | | | | |
| Integration and transaction-related costs | | — | | | — | | | — | | | 29 | | | 29 | |
| Debt extinguishment costs | | — | | | — | | | — | | | 131 | | | 131 | |
| (Benefits) charges associated with litigation matters | | — | | | — | | | — | | | (27) | | | (27) | |
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| | | | | | | | | | |
| Pre-tax adjusted income (loss) from operations | | $ | 1,223 | | | $ | 1,042 | | | $ | 231 | | | $ | (354) | | | $ | 2,142 | |
(1) Includes the Company's share of certain realized investment results of its joint ventures reported in the Cigna Healthcare segment using the equity method of accounting.
Revenue from external customers includes Pharmacy revenues, Premiums and Fees and other revenues. The following table presents these revenues by product, premium and service type for the three months ended March 31:
| | | | | | | | | | | | | | | | | | | | |
| | | | Three Months Ended March 31, | | |
| (In millions) | | | | | | 2022 | | 2021 | | |
| Products (Pharmacy revenues) (ASC 606) | | | | | | | | | | |
| Network revenues | | | | | | $ | 15,531 | | | $ | 15,138 | | | |
| Home delivery and specialty revenues | | | | | | 14,699 | | | 12,774 | | | |
| Other | | | | | | 1,712 | | | 1,388 | | | |
| Intercompany eliminations | | | | | | (1,245) | | | (1,275) | | | |
| Total pharmacy revenues | | | | | | 30,697 | | | 28,025 | | | |
| Insurance premiums (ASC 944) | | | | | | | | | | |
| Cigna Healthcare | | | | | | | | | | |
| U.S. Commercial | | | | | | | | | | |
| Insured | | | | | | 3,720 | | | 3,523 | | | |
| Stop loss | | | | | | 1,325 | | | 1,194 | | | |
| Other | | | | | | 360 | | | 310 | | | |
| U.S. Government | | | | | | | | | | |
| Medicare Advantage | | | | | | 2,078 | | | 2,092 | | | |
| Medicare Part D | | | | | | 401 | | | 450 | | | |
| Other | | | | | | 940 | | | 1,138 | | | |
| International Health | | | | | | 702 | | | 641 | | | |
| Total Cigna Healthcare | | | | | | 9,526 | | | 9,348 | | | |
| International businesses held for sale | | | | | | 763 | | | 809 | | | |
| | | | | | | | | | |
| Other | | | | | | 69 | | | 58 | | | |
| Intercompany eliminations | | | | | | (2) | | | (1) | | | |
| Total premiums | | | | | | 10,356 | | | 10,214 | | | |
| Services (Fees) (ASC 606) | | | | | | | | | | |
| | | | | | | | | | |
Evernorth | | | | | | 1,624 | | | 1,314 | | | |
Cigna Healthcare | | | | | | 1,496 | | | 1,434 | | | |
Other Operations | | | | | | 5 | | | 5 | | | |
| Other revenues | | | | | | 15 | | | 19 | | | |
| Intercompany eliminations | | | | | | (602) | | | (431) | | | |
| Total fees and other revenues | | | | | | 2,538 | | | 2,341 | | | |
| Total revenues from external customers | | | | | | $ | 43,591 | | | $ | 40,580 | | | |
Evernorth may also provide certain financial and performance guarantees, including a minimum level of discounts a client may receive, generic utilization rates and various service levels. Clients may be entitled to receive compensation if we fail to meet the guarantees. Actual performance is compared to the contractual guarantee for each measure throughout the period and the Company defers revenue for any estimated payouts within Accrued expenses and other liabilities (current). These estimates are adjusted and paid following the end of the annual guarantee period. Historically, adjustments to original estimates have not been material. The performance guarantee liability was $1.3 billion as of March 31, 2022 and $1.1 billion as of December 31, 2021.