QUOTE AND NEWS
Market Intelligence Center  Jul 8  Comment 
After closing Monday at $92.43, CIGNA Corp. (CI) presents an attractive opportunity to get a 3.47% return in just 102 days, which is an annualized return of 12.42% (for comparison purposes only). To enter this trade, sell one Oct. '14 $90.00 call...
DailyFinance  Jun 25  Comment 
The National Business Group on Health, a non-profit association of large U.S. employers, honored Cigna today for its ongoing commitment and dedication to promoting a healthy work environment and encouraging workers and...
Motley Fool  Jun 21  Comment 
The U.S. telehealth market is expected to grow 56% over the next four years. How can Cigna, WellPoint, UnitedHealth, and Google benefit from this trend?
Market Intelligence Center  Jun 10  Comment 
CIGNA Corp. (CI) was selected by MarketIntelligenceCenter.com’s trade-picking algorithms today after trading between $89.49 and $90.51 on Monday before closing at $89.84. A diagonal spread using a long position in the Jan. '15 $75.00 call and a...
DailyFinance  Jun 5  Comment 
Cigna (NYSE:CI) welcomed over 100 new customer service employees at a ribbon-cutting opening the company’s new health care call center in North Fayette, as service associates at the new call center began taking customer...
NPR  Jun 2  Comment 
Contradictory letters from an insurer spur a health reporter to explore why the implementation of this key health law protection turns out to be more complicated than she thought.
DailyFinance  Jun 2  Comment 
Cigna (NYSE:CI) has entered into a first-of-its-kind contract with AstraZeneca (NYSE:AZN) to help ensure that customers are given an appropriate cholesterol-lowering medication based on their treatment needs. For Cigna...
StreetInsider.com  Jun 2  Comment 
Visit StreetInsider.com at http://www.streetinsider.com/Corporate+News/Cigna+%28CI%29+Enters+into+First-of-Its-Kind+Contract+with+AstraZeneca+%28AZN%29/9543493.html for the full story.
TheStreet.com  Jun 1  Comment 
NEW YORK (TheStreet) -- A single-payer health care system is coming for Vermont starting next year with full implementation in 2017. Under a single-payer system, there is no role for health insurance companies such as Aetna  and Cigna  as the...
Insurance Journal  May 30  Comment 
Advocates for people with HIV and AIDS charged that insurers including Aetna Inc., Humana Inc. and Cigna Corp. have discriminated against Obamacare patients in Florida infected with the virus. The Tampa-based AIDS Institute and the National Health...




 

CIGNA Corporation (NYSE:CI) is a health insurance company - sort of. For one, three-quarters of Cigna's health insurance business isn't really insurance - Cigna manages health plans for companies who self-insure, agreeing to pay employee's health care costs. Employees get Cigna cards and access to Cigna's negotiated rates with doctors, and Cigna handles billing, but the employer bears the risk of paying for care when employees get sick. This arrangement means less risk for Cigna, but also smaller premiums. The majority of CIGNA's revenues come from these so called self-funded administrative-only plans.

Cigna also differs from its competitors in that the majority of the company's pretax operating income comes from investment income- 50% higher than its next most-invested competitor, Aetna, and almost four times that of other large national health account providers.[1] [2] This reliance on investment income makes the company much more vulnerable to market conditions than most other health insurance companies.

The company’s Medicare membership comprises only 0.3% of its total coverage, shielding CIGNA from legislation like the 2006 Deficit Reduction Act, which aims to cut Medicare funding by over $4.8 billion before 2011 and threatens competitors’ profit margins.

Company Overview

Business Financials

CIGNA earned total revenues of $18.4 billion in 2009, a slight decrease from its 2008 total revenues of $19.1 billion.[3] Despite this decrease in revenues, CIGNA was able to substantially increase its net income from $288 million in 2008 to $1.3 billion in 2009.[3] This was largely the result of CIGNA realizing a run off reinsurance gain of $185 million in 2009 as opposed to a $674 million loss the previous year.

Business Segments

CIGNA breaks its operations into five major business segments: i) Health Care, ii) Disability and Life, iii) International, iv) Run-off Reinsurance, and v) Other Operations.

The Health Care Segment (61.8% of 2009 revenue)[4]

The health care segment provides health insurance through a variety of forms such as health maintenance organizations (HMOs), point of service (POS) plans, preferred provider (PPO) plans, and more limited voluntary plans primarily to national, regional, and small-business employers. They also offer specialty plans such as dental insurance and prescription drug plans. The division offers three pricing schemes: a guaranteed cost scheme, where CIGNA takes on all medical cost risk in exchange for a monthly premium; a retrospectively experience-rated scheme, where the premium includes a margin that can be adjusted based on each individual or employers medical history; and a self-funded administrative services only (ASO) scheme, in which the customer pays a smaller fee in exchange for CIGNA taking on all administrative costs, but the customer incurs their own medical costs up to a "stop-loss" amount. In 2009, this segment earned $13.1 billion in total revenues.[4]

The Disability and Life Segment (16.2% of 2009 revenue)[5]

This segment provides group life insurance, long and short-term disability insurance, workers’ compensation, and accident insurance to national and regional employers and employees through its subsidiaries. For disability insurance, CIGNA acts for both the employer and employee, providing a fixed level of income to the employee, assisting the employee in his/her return to work, and assisting the employer in managing the cost of employee disability. All services in this division are contracted under a guaranteed cost scheme. In 2009, this segment earned $2.99 billion in total revenues.[5]

The International Segment (10.7% of 2009 revenue)[6]

This segment includes revenues from life, accident, and health insurance services offered by CIGNA’s foreign subsidiaries. These services are offered to foreign employers, as well as multinational companies. In 2009, this segment posted total revenues of $1.97 billion.[6]

Run Off Reinsurance

Prior to 2000, this segment offered to reinsure part or all of the risks written off by other insurance companies under life, accident, or health insurance policies. In 2000, CIGNA sold these subsidiaries, but still generates revenue from previously invested income and incurs contractual payments as a “run-off” to these policies. In 2009, the segment had a negative revenue of $141 million.[7]

Other Operations (3.2% of 2009 revenue)[8]

This segment includes the sale of corporate-owned life insurance (COLI) plans, or employers’ life insurance on certain employees; deferred revenue from the 1998 and 2004 sales of their life insurance, annuity, and retirement benefits businesses; and their settlement annuity business, or liability settlements for non-guaranteed payments. In 2009, this segment posted total sales of $583 million.[8]

Trends and Forces

Decline in proportional Medicare membership allows CIGNA to maintain margins in wake of funding cuts

Under Medicare and Medicaid plans, a health insurance company takes on medical cost risk for a customer in exchange for monthly premiums paid by the government. The 2006 Deficit Reduction Act, however, included a plan to cut Medicaid funding by $4.8 billion before 2011.[9] This bill, along with any additional legislation of this form, would lead to decreased profit margin for any customer under a Medicaid or Medicare plan. As this funding is cut, CIGNA increasingly low exposure to government payments offers it a competitive advantage over competitors providing a large proportion of Medicare plans. Medicare customers represented only 0.3% of CIGNA’s coverage, helping keep CIGNA insulated from this development.

Heavy reliance on self-funded accounts mediates risks, but dampens revenue growth potential

Under self-funded accounts, customers pay a smaller premium in exchange for administrative services, but incur their own medical costs up to a given "stop-loss" amount. While this prevalence of self-funded accounts eliminates some inherent risks of medical costs, it dampens revenue growth by generating smaller premiums per member. For example, Medical Membership in CIGNA's Health Care Segment grew by over 8% in 2007, but the total premiums generated by this segment grew only 7% in this same time period.[10]

Competition

CIGNA’s Health Care services face a highly competitive industry that competes on the prices and comprehensiveness of benefits, location and choice of health care providers, quality of customer service, and reputation of financial strength. Its greatest competition comes from other national account companies such as Aetna (AET), UnitedHealth Group (UNH), and WellPoint Health Networks (WLP).


References

  1. | CI 2007 10-K, Item 8: Financial Statements and Supplementary Data, pg 67
  2. Stiffel Nicolaus Report, CVH, 8/16/2007
  3. 3.0 3.1 CI 10-K 2009 Item 6 Pg. 47
  4. 4.0 4.1 CI 10-K 2009 Item 7 Pg. 62
  5. 5.0 5.1 CI 10-K 2009 Item 7 Pg. 69
  6. 6.0 6.1 CI 10-K 2009 Item 7 Pg. 71
  7. CI 10-K 2009 Item 7 Pg. 73
  8. 8.0 8.1 CI 10-K 2009 Item 7 Pg. 77
  9. CVH 2007 10-K, Risk Factors, pg 20
  10. | CI 2007 10-K, Membership, pg 49-51
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