QUOTE AND NEWS
DailyFinance  Sep 16  Comment 
Cigna (NYSE:CI) today released its 2013 Cigna Connects Corporate Responsibility (CR) Report, available online at www.cigna.com/corporateresponsibility. The company’s first CR report encompasses Cigna’s U.S. operations, ...
Jutia Group  Sep 15  Comment 
[Business Wire] - The Cigna Foundation today announced a $100,000 World of Difference grant to Samahope – a crowdfunding platform that allows anyone, anywhere to directly fund the work of doctors providing life-saving medical treatments for...
SeekingAlpha  Sep 13  Comment 
By Stock Dmitry: Cigna Corporation (NYSE:CI) has had an exciting year with outstanding results in its global and commercial healthcare insurance business. The company is proving to have a very positive outlook due to a number of factors. The...
DailyFinance  Sep 9  Comment 
People define health and well-being in many ways, from their physical, emotional, social and financial needs. Cigna's new brand platform, “Together, all the way,” promises to understand customers' needs and work together...
Benzinga  Sep 5  Comment 
In a report published Friday, Credit Suisse analyst Ralph Giacobbe reiterated an Outperform rating on CIGNA Corporation (NYSE: CI), and raised the price target from $97.00 to $105.00. In the report, Credit Suisse noted, “We hosted investor...
Motley Fool  Sep 3  Comment 
Cigna Corporation's overseas business and non-ACA healthcare insurance should counter risks as it expands its participation in the affordable care act exchanges.
The Hindu Business Line  Sep 3  Comment 
New entrant in health segment Cigna TTK Health Insurance today said it has opened five branches in Ahmedabad, Chandigarh, Coimbatore, Cochin and Pune, as a part of its expansion plan. At...
SeekingAlpha  Aug 27  Comment 
By SA Editor Miriam Metzinger: Stocks discussed on the Lightning Round segment of Jim Cramer's Mad Money Program, Tuesday August 26. Bullish Calls: Cypress (NASDAQ:CY): "Keep reinvesting that dividend. I have such faith in management,...
Motley Fool  Aug 21  Comment 
Cigna doesn't participate in Obamacare exchanges as much as UnitedHealth Group and WellPoint, but shares may still be attractive to investors.
Market Intelligence Center  Aug 18  Comment 
With bullish technical indicators and a 4 STARS (out of 5) buy ranking from Standard & Poor’s, CIGNA Corp. (CI) could be an attractive play for investors according to MarketIntelligenceCenter.com's patented option-trade picking algorithms. A...




 

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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