1. Quarterly Alumni Review Call Business Acumen Learning Class
Cigna Q4 & Full Year 2013
Quarterly Alumni Review Call
and
Follow-up from
Business Acumen Learning Class
Keith Gulledge
Consultant
Acumen Learning, LLC
February 28, 2014 1

2. 4th Quarter 2013 Earnings Call Review
The intent of Cigna University is to help us understand the numbers in the context of our overall Business Acumen training and the 5 Business Drivers. My role is not to editorialize or speculate about business decisions, the sufficiency of communications to investors, or other business matters.
The focus is to understand the quarterly earnings report, the highlights of the earnings call, and what Cigna’s financial results and 2014 outlook mean as related to the 5 Drivers and how Cigna makes money.
Transcript from the Q Cigna Earnings call located at: or

3. Q4-2013–Earnings Call Review
In conjunction with
Q4-2013–Earnings Call Review
Thank you for joining us!
Call will last approximately one hour.
Preparation we hope you have made:
Listen to or read the Transcript of the Q Earnings Call on February 7, 2014
Quarterly News Release
Quarterly Financial Supplement
Conference Call worksheet
Navigating the Financials—FY 2013 (end of worksheet file)
Keith Gulledge 3

4. Preparation Worksheets

5. My Preparation
News Release
Financial Supplement
Transcript

6. Agenda – 1 Hour Introduction & Review 5 Drivers 10 min.
Key Messages & Financial Analysis 40 min.
Overview
Performance: Cash, Profit, Asset, Growth, People, other factors
Analyst Questions & Discussion
Outlook and Guidance for 2013
Wrap up – Q&A min.
These and other workshop slides and materials available for .PDF or .PPT download at:
Q Cigna Earnings Call Summary 6

7. Earnings Call Participants
David M. Cordani—Cigna President and CEO
Thomas A. McCarthy—Cigna CFO and Executive VP
Edwin J. (“Ted”) Detrick—Cigna VP of Investor Relations
13 analysts from:
Goldman Sachs
JPMorgan Chase
Bank of America Merrill Lynch
Barclays Capital
Cowen and Company
Citigroup Inc.
Morgan Stanley & Co.
Deutsche Bank
Jefferies LLC
Credit Suisse AG
Susquehanna Financial Group
UBS Investment Bank
Leerink Swann & Company 7

8. Importance of Earnings Calls
Q Earnings Call—Oct. 31, 2013 8

9. Importance of Earnings Calls
Q Earnings Call—Feb. 7, 2013
Jan. 21
90.13
Feb. 7
85.37
5.3%
Q3 Earnings Call
Oct. 31
76.98
9.3%
Q Earnings Call Feb. 7
77.47 9

10. MEET, EXCEED, then ANTICIPATE Customer Needs
5 Key Drivers: Review
Growth is a MEASURE and a STRATEGY
2 Types of Growth:
Organic & Inorganic
Importance:
Investors expect
Employees energized
Customers attracted
Executives measured
CEO’s #1 Job:
Grow shareholder value
Why is CASH important?
Invest back into the business
Pay Overhead Costs
Acquisitions
Capital Expenditures
Return value to Shareholders
Dividend payments
Stock Repurchases
Cash Balance
and
Cash Flow (NOT same as Profit)
Employees
&
Customers,
Clients
MEET, EXCEED, then ANTICIPATE Customer Needs
Strength
Liquidity
Equity to Assets
Utilization
ROA
ROE
ROI
Asset Balance
Profit = Revenue ▬
Expense
Indicators:
MCR
Operating Profit
Net Margin
EPS
“Financial Leverage”
Profit is a
calculation per
GAAP for financial and tax reporting to match Revenue and Expense

11. Overview of Q4-2013 Earnings Call
13 analysts 26 questions plus follow-ups
Dominant questions and discussion:
PROFITABLE GROWTH driven by PEOPLE
(Customers, Markets) + COST PRESSURES
Analysts’ questions by topics (many questions addressed more than one Driver):
14 or 54% PROFIT – Costs, Revenue—in context of GROWTH & COST PRESSURES
8 or 31% GROWTH STRATEGY – context of COST PRESSURES, justification for Revenue and Profit assumptions including questions about Segment growth
2 or 7.5% CASH – Capital deployment priorities, dividends, stock buy-backs
2 or 7.5% PEOPLE – Exchanges, Customer segments, Medicare Advantage
No direct questions on ASSETS other than CASH use

12. Initial SEC Disclaimers
Formality: Ted Detrick ― standard financial disclaimers per SEC regulations:
Non-GAAP financial measures
Primary measures of performance:
“adjusted income from operations”
“adjusted earnings per share”
Reconciliation with GAAP measures
“Forward looking comments”—risk factors.
“Guidance” or “outlook” not “forecasts” or “projections”
Management is accountable for its outlook

13. Summary: Cigna’s 2013 Performance
“Our strong full year 2013 results has been outstanding track record of financial performance and marks Cigna's fourth consecutive year of competitively attractive financial results. All of our business segments contributed meaningfully to our results for the year with each segment delivering earnings and revenue growth.”
─ David Cordani, CEO
Q Earnings Call
Strategic accomplishments:
Exit run-off business, Buffett deal improves financial flexibility
Catamaran deal, improves PBM capabilities & financial benefits
Deepen global footprint, growth markets: Turkey, India, China
Advanced capital health, strengthened balance sheet, significant free cash flow

14. Summary: Cigna’s 2013 Performance
“Cigna's operating performance in 2013 was strong, driven by the continued effective execution of our strategy which resulted in improved health outcomes and productivity for our customers and clients.
“In the midst of an environment undergoing rapid change and disruption, our focused strategy and differentiated capabilities will enable us to deliver continued future growth.”
─ David Cordani, CEO
Q News Release

15. Overview of Q4 & FY 2013 Cigna FY 2013 performance Cigna 2014 Outlook
Revenues: UP 11% to $32.4 billion
Adjusted Income from Operations: UP 11% to $1.93 billion
Adjusted Income from Operations per share: UP 13% to $6.79
Premiums and Fees: UP 11% to $28.87 billion
Q4 Revenues: UP 7% to $8.15 billion
Q4 Adj. Inc. from Ops.: DN 14% to $387 million
Cigna 2014 Outlook
Revenue—UP 4% to 7% over 2013
Adjusted Income from Operations — $1.9 B to $2.0 B – UP 0% to 3.5%
Adjusted Earnings per Share from Ops.— $6.80 to $7.20 – UP 0% to 6%
Primary Q Earnings Call Themes
Profitability in 2013 and Outlook for 2014
Impact of Costs on future Growth
Analysis of assumptions underlying Growth Outlook

16. Segment Review: FY 2013
Global Health Care: 79.9 % Rev.-On. Ops; 76% Profit
Premiums and fees UP 9% to $23 billion
Adj. Income fr. Ops: UP 6% to $1.6 billion— Strong revenue growth in specialty; operating expense efficiencies; good medical costs in Commercial
GHC Operating Exp. Ratio: 21.7% − DN 90 bps
US Commercial: Cost trend below 5%
85% of US Commercial customers are ASO
US Commercial Risk: Reflects strong pricing; MCR = 81.5% GAAP; % X-PCD; Q higher than Q4 2012—within normal range
Seniors business: MCR for MA—84.8% (or 85.2% X-PCD)−revenue pressure, higher medical costs, lower gov’t. reimbursements; claims pressure continues

17. Segment Review: FY 2013
Global Supplemental Benefits: 8.3% Rev. On. Ops.; 8.7% Profit
Attractive Growth and Profitability
Premiums & fees UP 27% to $1.984 B Acquisitions: Great American Supplemental Benefits; Turkey—Finansbank JV; also customer retention and new business growth
Adj. Inc. fr. Ops: $183 mill. UP 24%
Continue to fund strategic investments for future Growth
Group Disability and Life: 11.8% Rev. On. Ops % Profit
Premiums & fees UP 10% to $3.425 billion
Adj. Inc. fr. Ops: UP 11% to $311 million
Remaining Operations
Run-off Reinsurance, Other & Corporate: ($134) M loss after tax
Overall: Strong revenue & earnings, significant Free Cash Flow

18. CASH Performance Consolidated from all Segments GROWTH
1 Special Item is cash paid to Berkshire Hathaway to effectively exit the Run-off Reinsurance business.

19. CASH – Capital Deployment Priorities
“Our capital deployment strategies and priorities have not changed.” These priorities are:
Growth of our ongoing operations;
M&A activity to further grow in our targeted areas of focus; and
Return capital to shareholders—primarily through share repurchase.
─ Tom McCarthy, CFO — Q Earnings Call

20. CASH: Discussion Points
Two questions: dividends, M&A, stock repurchase
Pension funding: In 2014 about $100 million funding (DN from $250)
No change in capital deployment priorities
No change in dividend policy

21. CASH: Capital Management Report
“Overall, we continue to have good financial flexibility. Our subsidiaries remain well capitalized and are generating significant free cash flow to the parent, with strong return on capital in each of our ongoing businesses.” ―Tom McCarthy, CFO
Capital Deployment: 2013 & 2014
2013: Year-end Parent Company Cash $ 760 M
2013: Repurchased 13.6 mill. shares of stock $ 1.0 B
2014: Dividends to Parent from Subsidiaries $ 1.6 B
2014: Set-aside for liquidity needs $ 250 M
2014: Available for Capital deployment* $ 1.8 B*
*Jan-Feb 2014: Repurchased 2.6 mill. Shares of stock $ 225 M*
Pension Funding
2014—Expect $100 million, down from $250 million

22. PROFIT Performance
Earnings per Share (EPS) are diluted
GROWTH

23. PROFIT & GROWTH: Discussion Points
Tom McCarthy: Q4 organizational efficiency plan―$40 mill. Special Charge. Annual $45 M after-tax savings, $30 M in 2014
Explanation for 2013 margins
Guidance explanation for 2014 margins
Medicare Advantage MCR or MLR trends
MA costs—Different physician engagement models
Explanations for margins, medical costs
Public and private exchanges—profitability
Margins in and costs in each Segment
Catamaran effect on PBM profitability
ASO / stop-loss / risk-based business—costs and margins
CACs—impact on cost-sharing performance

24. ASSETS Performance GROWTH Equity Ratio = Equity ÷ Assets1
Liabilities adds redeemable non-controlling interests of Finansbank 1
Equity Ratio = Equity ÷ Assets
ROE uses Adj. Inc. fr. Operations
When Analysts talk about Cigna’s Assets, they are usually referring to the business portfolio of products and services, or to the business units, such as HealthSpring.

25. ASSETS: Questions & Discussion
No direct questions about ASSETS except regarding CASH, M&A Strategy, Catamaran
Exec comments re strength of our Balance Sheet
Investment portfolio: $141 M gain; pleased— quality and diversification

26. Overall Long-term Strategy: GROWTH
“Cigna's businesses have the strategic direction, focus and core capabilities to anticipate, adapt and win in the global market. Our core strategy of Going Deep, Going Global and Going Individual continues to guide our company around the world. And by executing this strategy in our target markets and in new ones when we see opportunities, our capabilities are delivering differentiated values for our customers, clients and shareholders.”
― David Cordani, Q Earnings Call

27. GROWTH & PEOPLE Performance by Segments for Full Years:
Policies & Lives in 000’s
Medical customers up by 172,000 in
Favorable prior year reserve development.
PEOPLE
PEOPLE
PEOPLE
* Adjusted Margin After Tax = Adj. Inc. fr. Ops. After Tax ÷ Segment Revenues

29. GROWTH: Discussion Points
Almost all questions linked to Growth.
Analysts concerned about assumptions sustaining Growth outlook
Growth outlook for Global Supplemental Benefits
M&A future strategy—capital deployment
Explanation of Cigna’s 2014 Growth Outlook—industry flat
Global Health Care as a slow-growth business
Regional and Select Segment growth outlook
Growth of risk-based vs. ASP/self-insured
Need new markets with well-developed physician engagement

30. PEOPLE: Discussion Points
2013: CAC relationships increased customers by 50% or 400,000
86 CACs—up from 52 end of 2012
Public exchange business—enrollment experience
Private exchange business—early stages of innovation
Cigna has launched proprietary private exchange
Modest MA membership Growth for 2014

31. EXTERNAL FACTORS “Challenging marketplace.” Disruptive market forces
Changing client & customer needs
Aging population
Growing middle class
Rising chronic illness levels
Affordability pressures
Uncertain Medicare Advantage reimbursements
Cost pressure
Reduction in hospital reimbursements—gov’t. cuts
Public exchange implementation challenges
Changing physician reward structures

32. EXTERNAL FACTORS: Global Strategy
David Cordani: Three KEY AREAS to focus on to succeed in Global Markets:
Customer insights and engagement:
Identify customer needs
Determine proper distribution channels
Consultative distribution:
Brokers and consultants for employers
Affinity partners: banks, financial institutions
Individual direct: internet, TV, direct response
Proprietary private exchanges
Care delivery and physician engagement:
Differentiated approach: care extenders, actionable information
86 CAC initiatives, 1.2 million customers

33. 2014 Outlook AIO = Adjusted Income from Operations
Revenue Growth: UP 4% to 7% over 2013
Adjusted Inc. from Operations: $1.9 to $2.0 B (2013 = $1.932 B) UP 0% to 3.5%
Adjusted Inc. fr. Ops. EPS: $6.80 to $7.20 (2013 Adj. EPS = $6.79) UP 0% to 6%
Global Health Care―AIO: $1.58 B to $1.64 B (2013 = $1.57 B: UP 5%-9% X-PCD)
Medical Customers UP 1% to 2%
Medical Cost trend—US Commercial UP 5% to 6%
MCR—US Commercial guaran: 80% to 81% (2013 = 81.5% GAAP/82.3% X-PCD)
Seniors—Medicare Advantage: MCR—84% to 85% (2013 = 84.8% GAAP/85.2% X-PCD)
Operating Expense Ratio: Same—22.5% to 23.5% (130 bps indus. fee & tax impact―2013 = 21.7%)
Global Supp. Benefits―AIO: $195 to $215 M (2013 = $183 M, UP 7% to 17%)
Group Disability & Life―AIO: $305-$325 M (2013 = $311 M, DN 2% to UP 5%)

34. 2013 Summary
“Our outstanding performances are made possible by the passion and focus of our 35,000 colleagues who are deployed around the world. And our Go Deep, Go Global, Go Individual strategy has enabled us to grow over the long- term in the midst of environment that continues to undergo considerable change and disruption.”
“By leveraging our flexible and transferable capabilities across the globe which include our ability to have a deep understanding of our customers, use of complicated distribution and physician capabilities, we will continue to compete and win in the global markets for the benefit of our customers, clients and shareholders.”
― David Cordani, CEO
Q Earnings Call

35. 2014 Outlook: David Cordani
2014—Grow US and Global Health Care and Global Supplemental businesses
Strengthen Group Disability and Life
Will offset market disruption in US Seniors business
Global markets will continue to be disrupted
“…we will successfully execute our focused strategy and leverage our differentiated capabilities…with the objective of delivering differentiated value for our customers and clients.
“…we are confident in achieving our full year outlook for And we remain committed to our long-term EPS growth outlook of 10% to 13%.”
― David Cordani, CEO
Q Earnings Call

36. Prepare for Q1-2014 Alumni Review Call: May 16
2 hrs. Each Quarter
Review These Slides
Prepare for Q Alumni Review Call: May 16

37. Encouragement & Challenge
Quarterly review of Cigna’s financial performance
Investor Relations section of website
Financial information each Quarter
Listen to quarterly Earnings Call or review transcript
Quarterly reviews of competitors, industry, economy
Continue to watch stock performance
Consider how your decisions impact business Growth
Teach your teams
QUESTIONS & COMMENTS?

38. 2014 Business Acumen Events Cigna University
A recording will be available after this call.
Block your calendars for Quarterly Alumni Review Calls
May 16th (Q1 2014) ; August 22nd (Q2 2014); November 20th (Q3 2014)
Start time either 1 pm or 2 pm EST
Review each month’s e-newsletter:
Published the last week of each month
Use these concepts and ideas to drive team discussions
As of today, you all have subscriptions!
Nominate managers and leaders for the 2-day Business Acumen Learning class (through HRGs)
April 8-9: Phoenix, AZ, Norterra
April 22-23: Bloomfield, CT, Cigna University Training Center
April 24-25: Bloomfield, CT, Cigna University Training Center
September 9-10: Bloomfield, CT, Cigna University Training Center
October 7-8: Nashville, TN, 1000 Corporate Center Drive, Franklin