Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of Cigna Corporation

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Cigna Corporation and its subsidiaries (the “Company”) as of December 31, 2020 and 2019, and the related consolidated statements of income, comprehensive income, changes in total equity and cash flows for each of the three years in the period ended December 31, 2020, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

Basis for Opinions

The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Annual Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Goodwill Impairment Assessment - Evernorth and U.S. Medical Reporting Units

As described in Note 17 to the consolidated financial statements, as of December 31, 2020, goodwill is primarily reported in the Evernorth segment ($33.8 billion), the U.S. Medical segment ($10.4 billion) and, to a lesser extent, the International Markets segment ($0.4 billion). Management conducts its annual quantitative evaluation for goodwill impairment during the third quarter at the reporting unit level and writes it down through shareholders’ net income if impaired. On a quarterly basis, management performs a qualitative impairment assessment to determine if events or changes in circumstances indicate that it is more likely than not that the carrying value of a reporting unit exceeds its estimated fair value. Fair value of a reporting unit is generally estimated based on either a market approach or a discounted cash flow analysis using assumptions that management believes a hypothetical market participant would use to determine a current transaction price. The significant assumptions and estimates used in determining fair value include the discount rate and future cash flows. A discount rate is selected to correspond with each reporting unit's weighted average cost of capital, consistent with that used for investment decisions considering the specific and detailed operating plans and strategies within that reporting unit. Projections of future cash flows for each reporting unit are consistent with management’s annual planning process for revenues, pharmacy costs, benefits expenses, operating expenses, taxes, capital levels and long-term growth rates.

The principal considerations for our determination that performing procedures relating to the goodwill impairment assessment of the Evernorth and U.S. Medical reporting units is a critical audit matter are the significant judgment by management when determining the fair value measurement of the reporting units. This in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s estimate of the reporting units’ fair value related to the assumptions for the discount rate and projection of future cash flows. In addition, the audit effort involved the use of professionals with specialized skill and knowledge to assist in performing these procedures and evaluating the audit evidence obtained.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s goodwill impairment assessment, including controls over management’s methodology, inputs and assumptions used in its goodwill impairment assessment of the Evernorth and U.S. Medical reporting units. These procedures also included, among others, testing management’s process for determining the fair value estimate of the reporting units; evaluating the appropriateness of the discounted cash flow analysis; testing the completeness and accuracy of underlying data used in the discounted cash flow analysis; and evaluating the key inputs and significant assumptions related to the discount rate and the projections of future cash flows. The underlying inputs and assumptions used in the development of the discount rate and the projections of future cash flows that were evaluated related to the weighted average cost of capital, revenues, pharmacy costs, benefits expenses, operating expenses, capital levels and long-term growth rates. Evaluating the reasonableness of management’s inputs and assumptions involved considering (i) the current and past performance of the reporting unit, (ii) the consistency of the discount rate and long-term growth rates with external market and industry data, and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in the evaluation of certain significant assumptions related to the discount rate.

/s/ PricewaterhouseCoopers LLP

Hartford, Connecticut

February 25, 2021

We have served as the Company’s auditor since 1983.

Cigna Corporation Consolidated Statements of Income
									For the Years Ended December 31,
(In millions, except per share amounts)															2020						2019						2018
Revenues
Pharmacy revenues															$	107,769					$	103,099					$	5,479
Premiums															42,627						39,714						36,113
Fees and other revenues															8,761						9,363						5,578
Net investment income															1,244						1,390						1,480
TOTAL REVENUES															160,401						153,566						48,650
Benefits and expenses
Pharmacy and other service costs															103,484						97,668						4,793
Medical costs and other benefit expenses															32,710						30,819						27,528
Selling, general and administrative expenses															14,072						14,053						11,934
Amortization of acquired intangible assets															1,982						2,949						235
TOTAL BENEFITS AND EXPENSES															152,248						145,489						44,490
Income from operations															8,153						8,077						4,160
Interest expense and other															(1,438)						(1,682)						(498)
Debt extinguishment costs															(199)						(2)						—
Gain (loss) on sale of business															4,203						—						—
Net realized investment gains (losses)															149						177						(81)
Income before income taxes															10,868						6,570						3,581
TOTAL INCOME TAXES															2,379						1,450						935
Net income															8,489						5,120						2,646
Less: Net income attributable to noncontrolling interests															31						16						9
SHAREHOLDERS' NET INCOME															$	8,458					$	5,104					$	2,637
Shareholders’ net income per share
Basic															$	23.17					$	13.58					$	10.69
Diluted															$	22.96					$	13.44					$	10.54

The accompanying Notes to the Consolidated Financial Statements are an integral part of these statements.

Cigna Corporation Consolidated Statements of Comprehensive Income
									For the Years Ended December 31,
(In millions)															2020						2019						2018
Net income															$	8,489					$	5,120					$	2,646
Other comprehensive income (loss), net of tax
Net unrealized (depreciation) appreciation on securities and derivatives															(75)						957						(365)
Net translation gains (losses) on foreign currencies															252						(59)						(167)
Postretirement benefits liability adjustment															(105)						(133)						127
Other comprehensive income (loss), net of tax															72						765						(405)
Total comprehensive income															8,561						5,885						2,241
Comprehensive income (loss) attributable to noncontrolling interests
Net income attributable to redeemable noncontrolling interest															14						11						9
Net income attributable to other noncontrolling interests															17						5						—
Other comprehensive (loss) attributable to redeemable noncontrolling interest															(8)						(5)						(15)
Total comprehensive income (loss) attributable to noncontrolling interests															23						11						(6)
SHAREHOLDERS' COMPREHENSIVE INCOME															$	8,538					$	5,874					$	2,247

The accompanying Notes to the Consolidated Financial Statements are an integral part of these statements.

Cigna Corporation Consolidated Balance Sheets
						As of December 31,
(In millions)						2020						2019
Assets
Cash and cash equivalents						$	10,182					$	4,619
Investments						1,331						937
Accounts receivable, net						12,191						10,716
Inventories						3,165						2,661
Other current assets						930						1,400
Assets of business held for sale						—						9,512
Total current assets						27,799						29,845
Long-term investments						23,262						21,542
Reinsurance recoverables						5,200						5,100
Deferred policy acquisition costs						3,385						2,958
Property and equipment						4,205						4,417
Goodwill						44,648						44,602
Other intangible assets						35,179						36,562
Other assets						2,687						2,283
Separate account assets						9,086						8,465
TOTAL ASSETS						$	155,451					$	155,774
Liabilities
Current insurance and contractholder liabilities						$	5,308					$	4,921
Pharmacy and other service costs payable						13,347						10,454
Accounts payable						5,478						5,090
Accrued expenses and other liabilities						8,515						7,347
Short-term debt						3,374						5,514
Liabilities of business held for sale						—						6,812
Total current liabilities						36,022						40,138
Non-current insurance and contractholder liabilities						16,844						16,052
Deferred tax liabilities, net						8,939						9,387
Other non-current liabilities						4,629						4,460
Long-term debt						29,545						31,893
Separate account liabilities						9,086						8,465
TOTAL LIABILITIES						105,065						110,395
Contingencies — Note 21
Redeemable noncontrolling interests						58						35
Shareholders’ equity
Common stock (1)						4						4
Additional paid-in capital						28,975						28,306
Accumulated other comprehensive loss						(861)						(941)
Retained earnings						28,575						20,162
Less: treasury stock, at cost						(6,372)						(2,193)
TOTAL SHAREHOLDERS’ EQUITY						50,321						45,338
Other noncontrolling interests						7						6
Total equity						50,328						45,344
Total liabilities and equity						$	155,451					$	155,774

*(1)*Par value per share, $0.01; shares issued, 390 million as of December 31, 2020 and 386 million as of December 31, 2019; authorized shares, 600 million.

The accompanying Notes to the Consolidated Financial Statements are an integral part of these statements.

Cigna Corporation
Consolidated Statements of Changes in Total Equity
(In millions)						Common Stock						Additional Paid-in Capital						Accumulated Other Comprehensive (Loss)						Retained Earnings						Treasury Stock						Shareholders’ Equity						Other Non- controlling Interests						Total Equity						Redeemable Noncontrolling Interests
Balance at December 31, 2017						$	74					$	2,940					$	(1,082)					$	15,800					$	(4,021)					$	13,711					$	—					$	13,711					$	49
Cumulative effect of accounting for financial instruments and hedging																		(10)						68												58												58
Reclassification adjustment related to U.S. tax reform legislation																		(229)						229												—												—
Retirement of treasury stock						(13)						(529)												(3,498)						4,040						—												—
Exchange of Old Cigna common stock						(58)						58																								—												—
Acquisition of Express Scripts (see Note 5)						1						25,223																								25,224						7						25,231
Effect of issuing stock for employee benefit plans												59												(138)						206						127												127
Other comprehensive (loss)																		(390)																		(390)												(390)						(15)
Net income																								2,637												2,637												2,637						9
Common dividends declared (per share: $0.04)																								(10)												(10)												(10)
Repurchase of common stock																														(329)						(329)												(329)
Other transactions impacting noncontrolling interests																																				—												—						(6)
Balance at December 31, 2018						$	4					$	27,751					$	(1,711)					$	15,088					$	(104)					$	41,028					$	7					$	41,035					$	37
Cumulative effect of adopting new lease accounting guidance (ASU 2016-02)																								(15)												(15)												(15)
Effect of issuing stock for employee benefit plans												555																		(104)						451												451
Other comprehensive income (loss)																		770																		770												770						(5)
Net income																								5,104												5,104						5						5,109						11
Common dividends declared (per share: $0.04)																								(15)												(15)												(15)
Repurchase of common stock																														(1,985)						(1,985)												(1,985)
Other transactions impacting noncontrolling interests																																				—						(6)						(6)						(8)
Balance at December 31, 2019						$	4					$	28,306					$	(941)					$	20,162					$	(2,193)					$	45,338					$	6					$	45,344					$	35
Cumulative effect of adopting new credit loss guidance (ASU 2016-13) (1)																								(30)												(30)												(30)
Effect of issuing stock for employee benefit plans												672																		(90)						582												582
Other comprehensive income (loss)																		80																		80												80						(8)
Net income																								8,458												8,458						17						8,475						14
Common dividends declared (per share: $0.04)																								(15)												(15)												(15)
Repurchase of common stock																														(4,089)						(4,089)												(4,089)
Other transactions impacting noncontrolling interests												(3)																								(3)						(16)						(19)						17
Balance at December 31, 2020						$	4					$	28,975					$	(861)					$	28,575					$	(6,372)					$	50,321					$	7					$	50,328					$	58

*(1)*See Note 3 for further information about the Company's adoption of new credit loss guidance (ASU 2016-13).

The accompanying Notes to the Consolidated Financial Statements are an integral part of these statements.

Cigna Corporation Consolidated Statements of Cash Flows
						For the Years Ended December 31,
(In millions)						2020						2019						2018
Cash Flows from Operating Activities
Net income						$	8,489					$	5,120					$	2,646
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization						2,802						3,651						695
Realized investment losses (gains), net						(149)						(177)						81
Deferred income tax (benefit)						(386)						(313)						(101)
Gain on sale of business						(4,203)						—						—
Debt extinguishment costs						199						2						—
Net changes in assets and liabilities, net of non-operating effects:
Accounts receivable						(1,496)						(713)						705
Inventories						(504)						149						(107)
Deferred policy acquisition costs						(307)						(242)						(237)
Reinsurance recoverable and Other assets						230						(277)						(234)
Insurance liabilities						841						575						560
Pharmacy and other service costs payable						2,891						(192)						(842)
Accounts payable and Accrued expenses and other liabilities						1,346						1,343						332
Other, net						597						559						272
NET CASH PROVIDED BY OPERATING ACTIVITIES						10,350						9,485						3,770
Cash Flows from Investing Activities
Proceeds from investments sold:
Debt securities and equity securities						2,283						3,487						2,655
Investment maturities and repayments:
Debt securities and equity securities						1,519						1,825						2,151
Commercial mortgage loans						19						199						215
Other sales, maturities and repayments (primarily short-term and other long-term investments)						1,575						1,311						734
Investments purchased or originated:
Debt securities and equity securities						(4,765)						(4,282)						(5,637)
Commercial mortgage loans						(113)						(307)						(312)
Other (primarily short-term and other long-term investments)						(1,924)						(1,753)						(1,189)
Property and equipment purchases, net						(1,094)						(1,050)						(528)
Acquisitions, net of cash acquired						(139)						(153)						(24,455)
Divestiture, net of cash sold						5,592						—						—
Other, net						23						(11)						(12)
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES						2,976						(734)						(26,378)
Cash Flows from Financing Activities
Deposits and interest credited to contractholder deposit funds						1,023						955						1,040
Withdrawals and benefit payments from contractholder deposit funds						(979)						(1,097)						(1,151)
Net change in short-term debt						60						(681)						1,487
Net proceeds on issuance of term loan						1,398						—						—
Repayment of term loan						(1,400)						—						—
Payments for debt extinguishment						(212)						(3)						—
Repayment of long-term debt						(8,047)						(4,491)						(131)
Net proceeds on issuance of long-term debt						3,465						—						22,856
Repurchase of common stock						(4,042)						(1,987)						(342)
Issuance of common stock						376						224						68
Other, net						(175)						(107)						(312)
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES						(8,533)						(7,187)						23,515
Effect of foreign currency rate changes on cash, cash equivalents and restricted cash						41						(8)						(24)
Net increase in cash, cash equivalents and restricted cash						4,834						1,556						883
Cash, cash equivalents and restricted cash January 1, (1)						5,411						3,855						2,972
Cash, cash equivalents and restricted cash, December 31,						10,245						5,411						3,855
Cash reclassified to assets of business held for sale						—						(743)						—
Cash, cash equivalents and restricted cash December 31, per Consolidated Balance Sheets (2)						$	10,245					$	4,668					$	3,855
Supplemental Disclosure of Cash Information:
Income taxes paid, net of refunds						$	1,837					$	1,776					$	1,019
Interest paid						$	1,439					$	1,645					$	267

*(1)*Includes $743 million reported in Assets of business held for sale as of January 1, 2020. See table below for Cash, cash equivalents and restricted cash reconciliation.

*(2)*See table below for Cash, cash equivalents and restricted cash reconciliation as of December 31, 2020 and December 31, 2019.

The following table provides a reconciliation of cash, cash equivalents and restricted cash and cash equivalents reported within the Consolidated Balance Sheets to the totals above:

			As of December 31,
(In millions)			2020						2019
Cash and cash equivalents			$	10,182					$	4,619
Restricted cash and cash equivalents, included in other long-term investments			63						49
Total cash, cash equivalents, and restricted cash and cash equivalents			$	10,245					$	4,668

The accompanying Notes to the Consolidated Financial Statements are an integral part of these statements.

CIGNA CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

TABLE OF CONTENTS

Note Number			Footnote			Page
B****USINESS AND C****APITAL S****TRUCTURE
1			Description of Business			86
2			COVID-19 and Related Economic Impact			87
3			Summary of Significant Accounting Policies			87
4			Accounts Receivable, Net			94
5			Mergers, Acquisitions and Divestitures			95
6			Earnings Per Share			96
7			Debt			97
8			Common and Preferred Stock			99
I****NSURANCE I****NFORMATION
9			Insurance and Contractholder Liabilities			100
10			Reinsurance			104
I****NVESTMENTS
11			Investments			108
12			Fair Value Measurements			115
13			Variable Interest Entities			120
14			Accumulated Other Comprehensive Income (Loss)			122
W****ORKFORCE M****ANAGEMENT AND C****OMPENSATION
15			Pension			123
16			Employee Incentive Plans			127
PROPERTY, L****EASES AND O****THER A****SSET B****ALANCES
17			Goodwill, Other Intangibles and Property and Equipment			130
18			Leases			132
COMPLIANCE, R****EGULATION AND C****ONTINGENCIES
19			Shareholders’ Equity and Dividend Restrictions			134
20			Income Taxes			134
21			Contingencies and Other Matters			137
R****ESULTS D****ETAILS
22			Segment Information			138

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. We offer a differentiated set of pharmacy, medical, dental, disability, life and accident insurance and related products and services by our subsidiaries.

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, Medicare and Medicaid products and health, life and accident insurance coverages to individuals in the United States and selected international markets. In addition to these ongoing operations, Cigna also has certain run-off operations.

The Company reports its results in the segments detailed below:

In connection with the launch of Evernorth in the third quarter 2020, two reporting segments were re-named: Health Services was renamed as Evernorth and Integrated Medical was renamed as U.S. Medical. In addition, two of our operating segments were re-named: Commercial and Government were renamed as U.S. Commercial and U.S. Government, respectively. There were no changes to the underlying businesses reported in the segments.

Evernorth includes a broad range of coordinated and point solution health services capabilities, as well as those from partners across the health care system in pharmacy solutions, benefits management solutions, care solutions and intelligence solutions, which are provided to health plans, employers, government organizations and health care providers.

U.S. Medical includes Cigna’s U.S. Commercial and U.S. Government businesses 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 clients. U.S. Government solutions include Medicare Advantage, Medicare Supplement, and Medicare Part D plans for seniors, Medicaid plans, and individual health insurance plans both on and off the public exchanges.

International Markets includes supplemental health, life and accident insurance products and health care coverage in our international markets, as well as health care benefits for globally mobile employees of multinational organizations.

The remainder of our business operations are reported in Group Disability and Other, consisting of the following:

• Group Disability and Life provides group long-term and short-term disability, group life, accident, voluntary and specialty insurance products and related services. On December 31, 2020, Cigna completed the sale of its U.S. Group Disability and Life business to New York Life Insurance Company. See Note 5 for additional information.

• 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.

• 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 business 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 project costs and intersegment eliminations for products and services sold between segments.

Note 2 – COVID-19 and Related Economic Impact

All aspects of our business were impacted in fiscal year 2020 by the ongoing coronavirus ("COVID-19") pandemic. The Company initiated several actions to assist our customers, clients, health care providers and employees in this time of crisis. As described below, management has taken a number of steps to assess the impact on our business, including the financial reporting implications associated with this pandemic.

The COVID-19 pandemic has pervasively impacted the economy, financial markets and the global health care delivery systems. The effects of the COVID-19 pandemic on the Company began to emerge in the United States at the end of the first quarter and were not material to the Company's results of operations or financial condition for that period.

Beginning in April, we experienced a significant deferral of care by our customers. The deferral of care moderated over the course of the second quarter with utilization levels eventually returning to nearly normal levels by the end of June. In the third quarter, we experienced increased medical utilization as we observed a reduction to the level of deferred care and our customers sought care for COVID-19 testing and treatment.

In the fourth quarter, as COVID-19 cases increased, the costs for testing and treatment exceeded the savings related to the deferral of care. These impacts were most prevalent in the U.S. Medical segment where fourth quarter earnings were adversely impacted by increased costs of COVID-19 care and decreased contributions from our specialty products. Full year U.S. Medical results reflect COVID-19 impacts of deferral of care by our customers partially offset by the cost of COVID-19 care, the cost of COVID-19 related actions including premium relief programs for employer clients, cost share waivers for customers, customer disenrollment and actions to support providers and employees.

Our Group Disability and Other results reflect significantly elevated life insurance claims related to the COVID-19 pandemic and its effects in the third and fourth quarters. Quarterly and year-to-date earnings in our Evernorth segment also reflected effects of the pandemic, specifically, a favorable mix of claims as a result of both the type of drugs dispensed as well as the distribution method used for dispensing and fulfilling, partially offset by lower 30-day retail script volume.

The Company conducted its annual quantitative evaluation of goodwill impairment during the third quarter of 2020. These evaluations were performed at the reporting unit level, based on discounted cash flow analyses and market data. The estimated fair value of each of our reporting units exceeded their carrying values by significant margins. During the fourth quarter of 2020, the Company conducted its normal quarterly qualitative assessment and concluded that the current economic and business conditions did not result in a triggering event requiring a quantitative analysis.

For all other long-lived assets, including intangible assets, the Company conducted its normal quarterly qualitative impairment assessment and concluded that the current economic and business conditions did not result in a triggering event requiring a quantitative impairment analysis. There were no material impairments recorded for the year ended December 31, 2020.

The Company reviewed all classes of financial instruments including investments, accounts receivable and reinsurance recoverables. The additional allowance for expected credit losses recorded was not material for the year ended December 31, 2020.

Note 3 – 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.

Recently Adopted Accounting Guidance

The Company adopted Accounting Standards Update (“ASU”) No. 2016-13, Measurement of Credit Losses on Financial Instruments, and its related amendments, as of January 1, 2020, using the modified retrospective transition method. The new standard requires the use of a current expected credit loss impairment model to develop and recognize credit losses for financial instruments at amortized cost when the asset is first originated or acquired, and each subsequent reporting period. The new standard also eliminates the concept

of other-than-temporary impairments and changes the criteria for impairment of available-for-sale debt securities. A cumulative effect adjustment of $30 million after-tax was recorded as a reduction to retained earnings as of January 1, 2020, reflecting an additional allowance for future expected credit losses required under the new model, primarily related to reinsurance recoverables. Subsequent changes in the allowance are reported in current period earnings. See additional information regarding the Company’s accounting policy for establishing the allowance for credit losses in Accounts Receivable, Net (Note 4), Reinsurance (Note 10) and Investments (Note 11).

The Company adopted ASU 2017-04, Simplifying the Test for Goodwill Impairment, as of January 1, 2020, on a prospective basis. The new standard eliminates the need to determine the fair value of individual assets and liabilities of a reporting unit to measure a goodwill impairment. There was no impact of adopting this new standard to the Company’s financial statements because our quarterly qualitative assessments did not result in a triggering event for impairment of goodwill, and the results of our annual quantitative evaluation performed in the third quarter of 2020 indicated that the estimated fair value of each of our reporting units exceeded their carrying values by significant margins.

Accounting Guidance Not Yet Adopted

Facilitation of the Effects of Reference Rate Reform on Financial Reporting (ASU 2020-04)

• Optional, effective upon issuance (March 12, 2020) through December 31, 2022.

• Provides temporary optional relief to ease the potential burden of accounting for reference rate reform under existing GAAP. Amendments are elective and apply to all entities that have contracts, hedging relationships and other transactions that reference interbank offered rates, including LIBOR, expected to be discontinued for new contracts by December 31, 2021.

• Permits optional expedients and exceptions to simplify the accounting for contract modifications, hedging arrangements and held-to-maturity investments, when certain changes are made to a contract or instrument to facilitate reference rate reform.

• An entity may elect to apply the amendments, by topic or subsection, at any point prospectively through December 31, 2022. When elected, the optional expedients must be applied consistently for all eligible contracts or transactions.

To date, the Company has identified minimal exposure to LIBOR and does not anticipate that LIBOR’s phase-out will have a material impact on its operations or financial results.

Targeted Improvements to the Accounting for Long-Duration Contracts (ASU 2018-12)

• Effective date of January 1, 2023 for Cigna (early adoption permitted) and requires the following key provisions (for insurance entities that issue long-duration contracts)

• Changes to the measurement of the future policy benefits liability for traditional and limited-pay insurance contracts:

• Assumptions used to measure cash flows (such as mortality, morbidity and lapse assumptions) to be updated at least annually with the effect of changes in those assumptions remeasured retrospectively and reflected in current period net income.

• Discount rate assumptions to be updated quarterly based on an upper-medium grade fixed-income instrument yield that maximizes the use of observable market inputs, with any changes reflected in other comprehensive income.

• Deferred policy acquisition costs ("DAC") related to long-duration insurance contracts to be amortized on a constant-level basis over the expected term of the related contracts. Other related deferred or capitalized balances (such as unearned revenue liability and value of business acquired) may use this simplified amortization method.

• Market risk benefits (defined as protecting the contractholder from other-than-nominal capital market risk and exposing the insurer to that risk) to be measured at fair value, with changes in fair value recognized in net income each period, except for the effect of changes in the insurance entity’s credit risk to be recognized in other comprehensive income.

• Additional disclosures, including disaggregated rollforwards for the liability for future policy benefits, market risk benefits, separate account liabilities and deferred acquisition costs, as well as information about significant inputs, judgments, assumptions and methods used in measurement.

• Transition methods at adoption vary:

• Changes to the liability for future policy benefits to use a modified retrospective approach applied to all outstanding contracts on the basis of their existing carrying amounts as of the beginning of the earliest period presented, with an option to elect a full retrospective transition under certain criteria. Remeasuring the future policy benefits liability for the discount rate to be recorded through accumulated other comprehensive income at transition.

• DAC to follow the transition method used for future policyholder benefits.

• Market risk benefits to be transitioned retrospectively and measured at fair value at the beginning of the earliest period presented. The difference between this fair value and carrying value to be recognized in the opening balance of retained earnings, excluding the effect of credit risk changes that are to be recognized in accumulated other comprehensive income.

Expected effects:

• The new guidance will apply to our long-duration insurance products predominantly within the International Markets and Other segments.

• The Company will adopt the standard on January 1, 2023, using the modified retrospective transition method for changes to the liability for future policy benefits and DAC.

• The Company has developed a cross-functional implementation project plan and expects to have significant changes to our processes, systems, controls and financial results and disclosures.

• Although we continue to evaluate the new requirements of the standard and model their impacts across various products, we are unable to project or estimate the magnitude or frequency of expected changes to our financial results. However, it is possible that our income recognition pattern could change for several reasons:

• Applying periodic assumption updates, versus the current locked-in model, may change our timing of profit or loss recognition.

• DAC amortization will be on a constant level basis over the expected term of the related contracts, and no longer tied to the emergence of profit on such contracts.

• Features, such as the Company’s GMDB product, that provide market-risk benefits are not currently measured at fair value, so these liabilities and related reinsurance recoverables will become subject to market sensitivity, notably to interest rates.

• While not yet quantified, the cumulative effect of implementing this guidance may be material to the Company’s beginning shareholders' equity balance upon adoption.

• The Company continues to monitor developing implementation guidance, particularly with respect to reinsured blocks of business.

Significant Accounting Policies

The Company’s accounting policies are described either in this Note or in the applicable Notes to the Consolidated Financial Statements as listed in the table of contents.

**A.**Cash and Cash Equivalents

Cash and cash equivalents are carried at cost that approximates fair value. Cash equivalents consist of short-term investments with maturities of three months or less from the time of purchase. The Company reclassifies cash overdraft positions to liabilities when the legal right of offset does not exist.

**B.**Inventories

Inventories consist of prescription drugs and medical supplies and are stated at the lower of first-in-first-out cost or net realizable value.

**C.**Deferred Policy Acquisition Costs

Costs eligible for deferral include incremental, direct costs of acquiring new or renewal insurance and investment contracts and other costs directly related to successful contract acquisition. Examples of deferrable costs include commissions, sales compensation and benefits, policy issuance and underwriting costs. The Company records acquisition costs differently depending on the product line. Acquisition costs for:

• Supplemental health, life and accident insurance products** (primarily individual products) that comprise the majority of the Company’s deferred policy acquisition costs and group health and accident insurance products are deferred and amortized, generally in proportion to the ratio of periodic revenue to the estimated total revenues over the contract periods.

• Universal life products** are deferred and amortized in proportion to the present value of total estimated gross profits over the expected lives of the contracts.

• Other products** are expensed as incurred.

Deferred policy acquisition costs also include the value of business acquired (“VOBA”) for certain acquisitions with material long-duration insurance contracts. The Company recorded amortization of deferred policy acquisition costs of $502 million in 2020, $483 million in 2019 and $406 million in 2018 primarily in Selling, general and administrative expenses.

Each year, deferred policy acquisition costs are tested for recoverability. For universal life and other individual products, management estimates the present value of future revenues less expected payments. For group health and accident insurance products, management estimates the sum of unearned premiums and anticipated net investment income less future expected claims and related costs. If management’s estimates of these sums are less than the deferred costs, the Company reduces deferred policy acquisition costs and records an additional expense.

**D.**Other Assets (Current and Non-Current)

Other current assets consist primarily of prepaid expenses, accrued investment income and the current portion of reinsurance recoverables. Other non-current assets consist primarily of GMIB assets, operating lease right-of-use assets and various other insurance-related assets. See Note 10 for the Company’s accounting policy for GMIB assets and Note 18 for the Company's accounting policy related to leases. Additionally, other non-current assets include the carrying value of our equity-method investments in joint ventures in China, India, the U.S. and other foreign jurisdictions.

**E.**Assets and Liabilities of Business Held for Sale

The Company classifies assets and liabilities as held for sale (“disposal group”) when management commits to a plan to sell the disposal group, the sale is probable within one year and the disposal group is available for immediate sale in its present condition. The Company considers various factors, particularly whether actions required to complete the plan indicate it is unlikely that significant changes to the plan will be made or the plan will be withdrawn. Assets held for sale are measured at the lower of carrying value or fair value less costs to sell. Any loss resulting from the measurement is recognized in the period the held for sale criteria are met. Conversely, gains are not recognized until the date of the sale. When the disposal group is classified as held for sale, depreciation and amortization ceases and the Company tests the assets for impairment.

**F.**Redeemable Noncontrolling Interest

Redeemable noncontrolling interest on our Consolidated Balance Sheets represents the noncontrolling shareholders preferred and common stock interests of the Company's consolidated less than fully owned subsidiaries. Those shareholders may choose to require the Company to purchase their redeemable noncontrolling interest. We also have the right to require those shareholders to sell their redeemable noncontrolling interest to us. The redeemable noncontrolling interest was recorded at fair value as of the date of purchase. When the estimated redemption value for a redeemable noncontrolling interest exceeds its carrying value, an adjustment to increase the redeemable noncontrolling interest is recorded with an offsetting reduction to retained earnings or additional paid-in capital in the absence of retained earnings. When an adjustment is made to the carrying value of the redeemable noncontrolling interest, the calculation of shareholders’ net income per share will be adjusted if the redemption value exceeds fair value.

**G.**Accrued Expenses and Other Current and Non-Current Liabilities

Accrued expenses (current) primarily includes financial and performance guarantee liabilities under pharmacy contracts (see section I), management compensation and various insurance-related liabilities, including experience-rated refunds, reinsurance contracts and the risk adjustment and minimum medical loss ratio rebate accruals under The Patient Protection and Affordable Care Act (the “ACA”). Other non-current liabilities include obligations for pension (see Note 15), GMIB contract liabilities (see Note 10), lease liabilities (see Note 18) and self-insured exposures not expected to be settled within one year.

The Company accrues for legal and regulatory matters when a loss contingency is both probable and estimable. The estimated loss is generally recorded in Selling, general and administrative expenses and represents the Company’s best estimate of the loss contingency. If the loss estimate is a range, the Company accrues the minimum amount in the range if no amount is better than any other estimated amount in the range. Legal costs to defend the Company’s litigation and arbitration matters are expensed as incurred in cases that the Company cannot reasonably estimate the ultimate cost to defend. If the Company can reasonably estimate the cost to defend, a liability for these costs is accrued when the claim is reported. Litigation and legal or regulatory matters that the Company has identified with a reasonable possibility of material loss are described in Note 21.

**H.**Translation of Foreign Currencies

The Company generally conducts its international business through foreign operating entities that maintain assets and liabilities in local currencies that are their functional currencies. The Company uses exchange rates as of the balance sheet date to translate assets and liabilities into U.S. dollars. Translation gains or losses on functional currencies, net of applicable taxes, are recorded in Accumulated other comprehensive income (loss). The Company uses average monthly exchange rates during the year to translate revenues and expenses into U.S. dollars.

**I.**Pharmacy revenues and Costs

Pharmacy revenues**.** Pharmacy revenues are primarily derived from providing pharmacy benefit management services to clients and customers. Pharmacy revenues are recognized when control of the promised goods or services is transferred to clients and customers, in an amount that reflects the consideration the Company expects to receive for those goods or services.

The Company provides or makes available various services supporting benefit management and claims administration and is generally obligated to provide prescription drugs to clients’ members using multiple distribution methods including retail networks, home delivery and specialty pharmacies. These goods and services are integrated into a single performance obligation to process claims, dispense prescription drugs and provide other services over the contract period (generally three years). This performance obligation is satisfied as the business stands ready to fulfill its obligation.

Revenues for dispensing prescription drugs through retail pharmacies are reported gross and consist of the prescription price (ingredient cost and dispensing fee) contracted with clients, including the customer copayment, and any associated fees for services because the Company acts as the principal in these arrangements. When a prescription is presented to a retail network pharmacy, the Company is solely responsible for customer eligibility, drug utilization review, drug-to-drug interaction review, any required clinical intervention, plan provision information, payment to the pharmacy and client billing. These revenues are recognized based on the full prescription price when the pharmacy claim is processed and approved for payment. The Company also provides benefit design and formulary consultation services to clients and negotiates separate contractual relationships with clients and network pharmacies. These factors indicate that the Company has control over these transactions until the prescription is processed. Revenues are billed, due and recognized at contract rates either on a periodic basis or as services are provided (such as based on volume of claims processed). This recognition pattern aligns with the benefits from services provided.

Home delivery and specialty pharmacy revenues are due and recognized as each prescription is shipped, net of reserves for discounts and contractual allowances estimated based on historical experience. Any differences between estimates and actual collections are reflected in operations when payments are received. Historically, adjustments to original estimates and returns have not been material. The Company has elected the practical expedient to account for shipping and handling as a fulfillment activity.

We 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 at the end of the guarantee period. Historically, adjustments to original estimates have not been material. The performance guarantee liability was $1.1 billion as of December 31, 2020 and $1.0 billion as of December 31, 2019.

The Company administers programs through which we may receive rebates and other vendor consideration from pharmaceutical manufacturers. The amounts of such rebates or other vendor consideration shared with pharmacy benefit management services clients vary based on the contractual arrangement with the client and in some cases the type of consideration received from the pharmaceutical manufacturer. Rebates and other vendor consideration payable to pharmacy benefit management services clients are recorded as a reduction of Pharmacy revenues. Estimated amounts payable to clients are based on contractual sharing arrangements between the Company and the client and these amounts are adjusted when amounts are collected from pharmaceutical manufacturers in accordance with the contractual arrangement between the Company and the client. Historically, these adjustments have not been material.

In certain retail, home delivery and specialty transactions certain amounts may be collected from third-party payors. These are billed and collected subject to normal account receivable collections procedures.

Other pharmacy service revenues are earned by distributing specialty pharmaceuticals and medical supplies to providers, clinics and hospitals and services to specialty pharmacy manufacturers. These revenues are recognized as prescriptions and supplies are shipped and services are provided.

Pharmacy costs**.** Pharmacy costs include the cost of prescriptions sold, network pharmacy claim costs and copayments. Also included are direct costs of dispensing prescriptions including supplies, shipping and handling and direct costs associated with clinical programs, such as drug utilization management and medication adherence counseling. Home delivery and specialty pharmacy costs are recognized when the drug is shipped and retail network costs are recognized when the drug is processed and approved for payment. Rebates and other vendor consideration received when providing pharmacy benefit management services are recorded as a reduction of pharmacy costs. Rebates are recognized as prescriptions are shipped or processed and approved for payment. Historically, the effect of adjustments resulting from the reconciliation of rebates recognized to the amounts billed and collected has not been material. The Company maintains reimbursement guarantees with certain retail network pharmacies. For each such guarantee, the Company records a pharmacy and other service costs payable or prepaid asset for applicable retail network claims based on our actual performance throughout the period against the contractual reimbursement rate. The Company’s contracts with certain retail pharmacies give the Company the right to adjust reimbursement rates during the annual guarantee period.

Other**.** Incremental costs of obtaining service and pharmacy contracts for short-term arrangements are expensed as incurred.

**J.**Premiums and Related Expenses

Premiums for group life, accident and health insurance and managed care coverages are recognized as revenue on a pro rata basis over the contract period. Benefits and expenses are recognized when incurred and, for our U.S. Medical insured business, are presented net of pharmaceutical manufacturer rebates. For experience-rated contracts, premium revenue includes an adjustment for experience-rated refunds based on contract terms and calculated using the customer’s experience (including estimates of incurred but not reported claims).

Premium revenue also includes an adjustment to reflect the estimated effect of rebates due to customers under the commercial minimum medical loss ratio provisions of the ACA. These rebates are settled in the subsequent calendar year.

Premiums received for the Company’s Medicare Advantage plans and Medicare Part D products from the Centers for Medicare and Medicaid Services (“CMS”) and customers are recognized as revenue ratably over the contract period. CMS provides risk-adjusted premium payments for Medicare Advantage Plans and Medicare Part D products based on our customer demographics and wellness. The Company recognizes periodic changes to risk-adjusted premiums as revenue when the amounts are determinable and collection is reasonably assured. Additionally, Medicare Part D premiums include payments from CMS for risk-sharing adjustments. These

adjustments are estimated quarterly based on claim experience by comparing actual incurred drug benefit costs to estimated costs submitted in original contracts. These adjustments may result in more or less revenue from CMS. Final revenue adjustments are determined and settled with CMS in the year following the contract year. Premium revenue may also include an adjustment to reflect the estimated effect of rebates due to CMS under the Medicare Advantage and Medicare Part D minimum medical loss ratio provisions of the ACA.

The ACA prescribed three programs to mitigate the risk for participating health insurance companies selling coverage on the public exchanges: risk adjustment, reinsurance and risk corridor. The reinsurance and ACA risk corridor programs expired at the end of 2016, while the permanent risk-adjustment program continues.

The risk-adjustment program reallocates funds from insurers with lower risk populations to insurers with higher risk populations based on the relative risk scores of participants in non-grandfathered plans in the individual and small group markets, both on and off the exchanges. We estimate our receivable or payable based on the risk of our customers compared to the risk of other customers in the same state and market, considering data obtained from industry studies and the United States Department of Health and Human Services (“HHS”). Receivables or payables are recorded as adjustments to premium revenue based on our year-to-date experience when the amounts are reasonably estimable and collection is reasonably assured. Final revenue adjustments are determined by HHS in the year following the policy year.

Premiums for individual life, accident and supplemental health insurance and annuity products, excluding universal life and investment-related products, are recognized as revenue when due. Benefits and expenses are matched with premiums.

Revenue for universal life products is recognized as follows:

• Investment income on assets supporting universal life products is recognized in Net investment income as earned.

• Charges for mortality, administration and policy surrender are recognized in premiums as earned. Administrative fees are considered earned when services are provided.

Benefits and expenses for universal life products consist of benefit claims in excess of policyholder account balances and income earned by policyholders. Expenses are recognized when claims are incurred, and income is credited to policyholders in accordance with contract provisions.

The unrecognized portion of premiums received is recorded as unearned premiums included in insurance and contractholder liabilities (see Note 9 for further information).

**K.**Fees and Related Expenses

The majority of the Company’s service fees are derived from administrative services only (“ASO”) arrangements, fee-for-service clinical solutions and health benefit management services.

ASO arrangements allow plan sponsors to self-fund claims and assume the risk of medical or other benefit costs. Most of the Company’s ASO arrangements are for medical and specialty services, including pharmacy benefits. Generally, the Company’s ASO arrangements are short-term. Contract modifications typically occur on renewal and are prospective in nature.

In return for fees from these clients, the Company provides access to our participating provider networks and other services supporting benefit management, including claims administration, behavioral health services, disease management, utilization management and cost containment programs. In general, the Company considers these services to be a combined performance obligation to provide cost effective administration of plan benefits over the contract period. Fees are billed, due and recognized monthly at contracted rates based on current membership or utilization. This recognition pattern aligns with the benefits from services provided to clients. These revenues are reported in Fees and other revenues in the Consolidated Statements of Income.

The Company may also provide performance guarantees that provide potential refunds to clients if certain service standards, clinical outcomes or financial metrics are not met. If these standards, outcomes and metrics are not met, the Company may be financially at risk up to a stated percentage of the contracted fee or a stated dollar amount. The Company defers revenue by recording a liability for estimated payouts associated with these guarantees within Accrued expenses and other liabilities. The amount of revenue deferred is estimated for each type of guarantee using either a most likely amount or expected value method depending on the nature of the guarantee and the information available to estimate refunds. Estimates are refined each reporting period as additional information on the Company’s performance becomes available and upon final reconciliation and settlement at the end of the guarantee period. Amounts accrued and paid for these performance guarantees during the reporting periods were not material.

Rebates from pharmaceutical manufacturers for ASO client purchases at retail pharmacies, net of amounts payable to ASO clients, were considered compensation for use of the manufacturer’s products and recorded in Fees and other revenues prior to transitioning U.S. Commercial customers to Express Scripts’ retail pharmacy network in the third quarter of 2019. After this transition, these rebates are reflected as a reduction to pharmacy costs (See “Pharmacy Costs” above).

Expenses associated with administrative programs and services are recognized as incurred in Selling, general and administrative expenses.

The Company also earns revenue, as part of its integrated pharmacy benefits performance obligation, by offering fee-for-service clinical solutions to our clients, such as drug utilization management and medication adherence counseling. These clinical programs help clients to drive better health outcomes at a lower cost by identifying and addressing potentially unsafe or wasteful prescribing, dispensing and utilization of prescription drugs and communicating with, or supporting communications with physicians, pharmacies and patients. Fees are billed, due and recognized at contracted rates either on a periodic basis or as services are provided. This recognition pattern aligns with the benefits from services provided. These revenues are reported in Fees and other revenues in the Consolidated Statements of Income. Direct costs associated with these programs are recognized in Pharmacy and other service costs, and other related expenses are recorded as incurred in Selling, general and administrative expenses.

The Company also earns fees by providing health benefit management solutions that drive cost reductions and improve quality outcomes. Clients are primarily sponsors of health benefit plans and fees may be stated as a per-member-per-month fee or as a per-claim fee. The Company considers the services to be a single performance obligation to stand ready to provide utilization management services over the contract period (generally three years). In certain arrangements, the Company assumes the financial obligation for third-party provider costs for medical services provided to the health plan’s customers. Fees are recorded gross in Fees and other revenues in the Consolidated Statements of Income because the Company is acting as a principal in arranging for and controlling the services provided by third-party network providers. Contractual fees vary based on enrollment and provider costs and are billed, due and recognized monthly. Direct costs associated with these programs are recognized in Pharmacy and other service costs, and other related expenses are recorded in Selling, general and administrative expenses as incurred.

Certain health benefit management contracts require the Company to share the results of medical cost experience that differ from specified targets. This variable consideration is estimated at contract inception and adjusted through the contract period. The estimated profits and costs are recognized net in Fees and other revenues.

Note 4 – Accounts Receivable, Net

Accounting policy. The Company's accounts receivable balances primarily include amounts due from clients, third-party payors, customers and pharmaceutical manufacturers, and are presented net of allowances. The Company's adoption of ASU 2016-13, Measurement of Credit Losses on Financial Instruments (ASU 2016-13), as of January 1, 2020 did not have a material impact on our accounts receivable credit loss allowance, as there were no substantive changes to our methodology for this class of assets. The allowance for expected credit losses for current accounts receivable is based primarily on past collections experience relative to the length of time receivables are past due; however, when available evidence reasonably supports an assumption that counterparty credit risk over the expected payment period will differ from current and historical payment collections, a forecasting adjustment is reflected in the allowance for expected credit losses.

All other (non-credit) allowances are based on the current status of each customer's receivable balance as well as current economic and market conditions and a variety of other factors, including the length of time the receivables are past due, the financial health of customers and our past experience. We bill pharmaceutical manufacturers based on management's interpretation of contractual terms and estimate a contractual allowance based on the best information available at the time a claim is processed. Contractual allowances for certain rebates receivable from pharmaceutical manufacturers are determined by reviewing payment experience and specific known items that could be adjusted under contract terms. The Company's estimation process for contractual allowances for pharmaceutical manufacturer receivables generally results in an allowance for balances outstanding greater than 90 days. Contractual allowances for certain receivables from third-party payors are based on their contractual terms and are estimates based on the Company's best information available at the time revenue is recognized.

Receivables and any associated allowance are written off only when all collection attempts have failed and such amounts are determined unrecoverable. We regularly review the adequacy of these allowances based on a variety of factors, including age of the outstanding receivable and collection history. When circumstances related to specific collection patterns change, estimates of the recoverability of receivables are adjusted.

The following amounts were included within Accounts receivable, net:

(In millions)			December 31, 2020						December 31, 2019
Noninsurance customer receivables			$	5,534					$	5,143
Pharmaceutical manufacturers receivable			4,676						3,439
Insurance customer receivables			1,789						2,321
Other receivables			192						334
Total									11,237
Accounts receivable, net classified as assets of business held for sale									(521)
Accounts receivable, net per Consolidated Balance Sheets			$	12,191					$	10,716

These receivables are reported net of our allowances of $1.2 billion as of December 31, 2020 and $778 million as of December 31, 2019. The allowances as of December 31, 2020 include contractual allowances for certain rebates receivable with pharmaceutical manufacturers of $757 million and contractual allowances from third-party payors of $208 million based upon the contractual payment terms. The remaining allowances of $224 million include allowances, 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 December 31, 2020 and $39 million as of January 1, 2020 (no change to allowance for credit losses from December 31, 2019).

Note 5 – Mergers, Acquisitions and Divestitures

A.Divestiture of Group Disability and Life business

On December 31, 2020, Cigna completed the sale of its U.S. Group Disability and Life business to New York Life Insurance Company for cash proceeds of $6.2 billion. The Company recognized a gain of $4.2 billion pre-tax ($3.2 billion after-tax), which includes recognition of previously unrealized capital gains on investments sold (see Note 14 for further information).

In December 2019, Cigna entered into a definitive agreement to sell this business and since the sale was expected to close in the fourth quarter of 2020 following applicable regulatory approvals and other customary closing conditions, the Company aggregated and classified the assets and liabilities directly associated with the pending sale of its Group Disability and Life business as held for sale and has reported them separately on our Consolidated Balance Sheet as of December 31, 2019.

The assets and liabilities of business held for sale were as follows:

(In millions)			December 31, 2019
Cash and cash equivalents			$	743
Accounts receivable, net			521
Investments			7,709
Other assets			539
Total assets of business held for sale			9,512
Insurance and contractholder liabilities			6,308
Other liabilities			504
Total liabilities of business held for sale			$	6,812

**B.**Acquisition of Express Scripts

On December 20, 2018, Cigna acquired Express Scripts Holding Company (“Express Scripts") through a series of mergers for a purchase price of $52.8 billion, which consisted of cash and stock consideration. The purchase price was allocated to the tangible and intangible net assets acquired based on management’s final estimates of their fair values. Total goodwill of $38.4 billion was recorded, of which $33.7 billion resides in the Company’s Evernorth segment, with the remainder in the Company’s U.S. Medical segment. The results of Express Scripts have been included in the Company’s Consolidated Financial Statements from the date of the acquisition. Revenues of Express Scripts included in the Company’s results for 2018 approximated $2.6 billion and Express Scripts’ results of operations were immaterial to Cigna’s net income.

**C.**Integration and Transaction-related Costs

The Company has incurred costs detailed in the table below related to the acquisition and integration of Express Scripts, the terminated merger with Anthem, Inc. (“Anthem”), the sale of the U.S. Group Disability and Life business and other transactions.

These costs consisted primarily of certain projects to integrate the Company’s systems, products and services, fees for legal, advisory and other professional services and certain employment-related costs. Costs in 2018 also included charitable contributions and amortization of certain financing fees and interest expense on the debt issued in the third quarter of 2018 to fund the Express Scripts merger, net of investment income earned on proceeds of the debt issuance.

			2020												2019												2018
(In millions)			Before-tax						After-tax						Before-tax						After-tax						Before-tax						After-tax
Interest expense on newly-issued debt			$	—					$	—					$	—					$	—					$	227					$	179
Net investment income on debt proceeds			—						—						—						—						(123)						(97)
Charitable contributions			—						—						—						—						200						158
Legal and advisory fees			48						36						53						41						204						185
Bridge facility fees			—						—						—						—						140						111
All other integration and transaction-related costs			479						368						499						386						204						133
Integration and transaction-related costs, net			$	527					$	404					$	552					$	427					$	852					$	669

Note 6 – Earnings Per Share (“EPS”)

Accounting policy. The Company computes basic earnings per share using the weighted-average number of unrestricted common and deferred shares outstanding. Diluted earnings per share also includes the dilutive effect of outstanding employee stock options and restricted stock using the treasury stock method and the effect of strategic performance shares.

Basic and diluted earnings per share were computed as follows:

			2020																		2019																		2018
(Shares in thousands, dollars in millions, except per share amounts)			Basic						Effect of Dilution						Diluted						Basic						Effect of Dilution						Diluted						Basic						Effect of Dilution						Diluted
Shareholders’ net income			$	8,458											$	8,458					$	5,104											$	5,104					$	2,637											$	2,637
Shares:
Weighted average			364,979												364,979						375,919												375,919						246,652												246,652
Common stock equivalents									3,410						3,410												3,898						3,898												3,573						3,573
Total shares			364,979						3,410						368,389						375,919						3,898						379,817						246,652						3,573						250,225
EPS			$	23.17					$	(0.21)					$	22.96					$	13.58					$	(0.14)					$	13.44					$	10.69					$	(0.15)					$	10.54

The following outstanding employee stock options were not included in the computation of diluted earnings per share because their effect was anti-dilutive.

(In millions)															2020						2019						2018
Anti-dilutive options															4.1						3.5						0.9

Note 7 – Debt

The outstanding amounts of debt and finance leases were as follows:

(In millions)									December 31, 2020						December 31, 2019
Short-term debt
$1,000 million, Floating Rate Notes due 3/2020									$	—					$	999
$300 million, 5.125% Notes due 6/2020									—						300
$1,750 million, 3.2% Notes due 9/2020									—						1,748
$349 million, 4.125% Notes due 9/2020									—						351
$500 million, 2.6% Notes due 11/2020									—						496
$400 million, Floating Rate Notes due 11/2020									—						400
$250 million, 4.375% Notes due 12/2020									—						249
$78 million, 6.37% Notes due 6/2021									78						—
$1,000 million, Floating Rate Notes due 9/2021									999						—
$1,250 million, 3.4% Notes due 9/2021									1,249						—
Commercial paper									1,030						944
Other, including finance leases									18						27
Total short-term debt									$	3,374					$	5,514
Long-term debt
$500 million, 3.3% Notes due 2021									$	—					$	499
$300 million, 4.5% Notes due 2021									—						298
$78 million, 6.37% Notes due 2021									—						78
$1,000 million, Floating Rate Notes due 2021									—						998
$1,250 million, 3.4% Notes due 2021									—						1,247
$1,248 million, 4.75% Notes due 2021									—						1,272
$277 million, 4% Notes due 2022									276						747
$973 million, 3.9% Notes due 2022									972						999
$500 million, 3.05% Notes due 2022									490						485
$17 million, 8.3% Notes due 2023									17						17
$63 million, 7.65% Notes due 2023									63						100
$700 million, Floating Rate Notes due 2023									698						698
$1,000 million, 3% Notes due 2023									975						966
$2,187 million, 3.75% Notes due 2023									2,181						3,088
$1,000 million, 3.5% Notes due 2024									977						970
$900 million, 3.25% Notes due 2025									896						895
$2,200 million, 4.125% Notes due 2025									2,191						2,188
$1,500 million, 4.5% Notes due 2026									1,505						1,506
$1,500 million, 3.4% Notes due 2027									1,410						1,396
$259 million, 7.875% Debentures due 2027									259						259
$600 million, 3.05% Notes due 2027									595						595
$3,800 million, 4.375% Notes due 2028									3,780						3,776
$1,500 million, 2.4% Notes due 2030									1,489						—
$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									2,180						2,178
$750 million, 3.2% Notes due 2040									742						—
$121 million, 5.875% Notes due 2041									119						119
$448 million, 6.125% Notes due 2041									490						491
$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									988						988
$3,000 million, 4.9% Notes due 2048									2,966						2,964
$1,250 million, 3.4% Notes due 2050									1,235						—
Other, including finance leases									36						61
Total long-term debt									$	29,545					$	31,893

Debt Issuance and Redemption. In order to decrease future interest expense and reduce future refinancing risk, the Company entered into the following transactions during 2020:

• Debt issuance: On March 16, 2020, the Company issued $3.5 billion of new senior notes. The proceeds of this issuance were mainly used to pay the consideration for the cash tender and redemption offer as described below. Interest on this debt is paid semi-annually.

Principal						Maturity Date						Interest Rate						Net Proceeds
$1,500 million						March 15, 2030						2.4%						$1,491 million
$750 million						March 15, 2040						3.2%						$743 million
$1,250 million						March 15, 2050						3.4%						$1,237 million

• Debt tender and redemption: In March and April 2020, the Company completed a tender offer and an optional redemption totaling $3.5 billion of aggregate principal amount of certain of its outstanding debt securities. The principal amount repurchased in this tender offer was $1.5 billion. Additionally, $2.0 billion of notes were repurchased via optional redemption. The Company recorded a pre-tax loss of $199 million ($151 million after-tax), consisting primarily of premium payments on the tender and optional redemption.

Debt Exchange**.** In the fourth quarter of 2019, the Company settled an exchange of approximately $12.7 billion of Notes issued by Express Scripts Holding Company, Medco Health Solutions, Inc. and Cigna Holding Company (formerly named Cigna Corporation) for privately placed Notes issued by Cigna with the same interest rates and maturities and comparable other terms. We initiated an exchange offer to register such debt in the second quarter of 2020 and completed the exchange in July 2020.

Debt Repayment. In 2020, the Company repaid $8.0 billion of long-term debt, including the $3.5 billion debt tender and redemption described above. On December 31, 2020 Cigna issued a notice of full redemption to the holders of Cigna’s Senior Floating Rate Notes due 2021 (the “Notes”) pursuant to which Cigna redeemed the entire $1.0 billion aggregate principal amount of the Notes outstanding on January 15, 2021 at a redemption price calculated in accordance with the terms and conditions of the indenture governing the Notes.

Revolving Credit Agreements. Cigna has a revolving credit and letter of credit agreement that matures in April 2023 and is diversified among 23 banks. Cigna can borrow up to $3.25 billion for general corporate purposes, with up to $500 million available for issuance of letters of credit. This revolving credit agreement also includes an option to increase the facility amount up to $500 million and an option to extend the termination date for additional one-year periods, subject to consent of the banks.

Additionally, Cigna has a 364-day $1.0 billion revolving credit agreement that will mature in October 2021. The agreement replaces the $1.0 billion 364-day revolving credit agreement that expired in October 2020. The agreement is diversified among 23 banks. Pursuant to this revolving credit agreement, Cigna can borrow up to $1.0 billion for general corporate purposes. The 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.

The revolving credit agreements contain customary covenants and restrictions including a financial covenant that the Company’s leverage ratio may not exceed 60%. As of December 31, 2020, there were no outstanding balances under the revolving credit agreements.

Term Loan Credit Agreement**.** On April 1, 2020, the Company borrowed an aggregate principal amount of $1.4 billion under a new 364-Day Term Loan Credit Agreement. In connection with the sale of the Group Life and Disability business, on December 31, 2020 we repaid the entire $1.4 billion balance outstanding.

Commercial Paper. Under our commercial paper program we may issue short-term, unsecured commercial paper notes privately placed on a discount basis through certain broker dealers at any time not to exceed $4.25 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 program had approximately $1.0 billion outstanding at December 31, 2020 at an average interest rate of 0.2%.

The Company was in compliance with its debt covenants as of December 31, 2020.

Maturities of outstanding long-term debt are as follows:

(in millions)			Scheduled Maturities (1)
2021			$	2,328
2022			$	1,749
2023			$	3,967
2024			$	1,000
2025			$	3,100
Maturities after 2025			$	19,981

*(1)*Long-term debt maturity amounts include current maturities of long-term debt.

Interest expense on long-term and short-term debt was $1.4 billion in 2020, $1.6 billion in 2019 and $507 million in 2018.

Note 8 – Common and Preferred Stock

On December 20, 2018 Cigna acquired Express Scripts through a series of mergers (collectively, the "Merger"). Cigna Holding Company (formerly named Cigna Corporation and referred to as "Old Cigna") and Express Scripts each merged with and into a wholly-owned subsidiary of Cigna. As a result of these transactions, Cigna became the parent of the combined company. Old Cigna shareholders exchanged each of their shares for a share of Cigna common stock and shareholders of Express Scripts received 0.2434 of a share of Cigna (and $48.75 in cash) for each share of Express Scripts. Following the Merger, Old Cigna was de-listed and shares of Cigna were listed on the New York Stock Exchange for trading.

Cigna (and, prior to the Merger, Old Cigna) has a total of 25 million shares of $1 par value preferred stock authorized for issuance. No shares of preferred stock were outstanding at December 31, 2020, 2019 or 2018.

The following table presents the share activity of Cigna and Old Cigna for the years ended December 31, 2020, 2019 and 2018.

(Shares in thousands)			2020						2019						2018
Common: Par value $0.01; 600,000 shares authorized - Cigna
Outstanding- January 1,			372,531						380,924						—
Shares issued to Old Cigna shareholders															243,785
Shares issued to Express Scripts shareholders															137,337
Issued for stock option exercises and other benefit plans			4,142						3,413						91
Repurchased common stock			(21,902)						(11,806)						(289)
Outstanding- December 31,			354,771						372,531						380,924
Treasury stock			35,505						13,012						570
Issued- December 31,			390,276						385,543						381,494
Common: Par value $0.25; 600,000 shares authorized - Old Cigna
Outstanding- January 1,															243,967
Issued for stock option exercises and other benefit plans															1,118
Repurchased common stock															(1,300)
Balance, December 20, 2018 (Merger Date)															243,785
Exchange of Old Cigna shares for shares of Cigna															(243,785)
Outstanding- December 31,															—
Retirement of treasury stock on December 20, 2018															(52,358)
Exchange of Old Cigna certificated treasury stock for new Cigna certificated treasury stock															(2)
Treasury stock- December 31,															—
Issued- December 31,															—

Note 9 – Insurance and Contractholder Liabilities

**A.**Account Balances – Insurance and Contractholder Liabilities

As of December 31, 2020 and December 31, 2019, the Company’s insurance and contractholder liabilities were comprised of the following:

			December 31, 2020																		December 31, 2019
(In millions)			Current						Non-current						Total						Current						Non-current						Total
Contractholder deposit funds			$	350					$	6,823					$	7,173					$	600					$	7,139					$	7,739
Future policy benefits			327						9,317						9,644						553						9,281						9,834
Unearned premiums			485						394						879						453						360						813
Unpaid claims and claim expenses
U.S. Medical			3,166						18						3,184						2,875						17						2,892
Other segments			980						292						1,272						2,529						3,474						6,003
Total																					7,010						20,271						27,281
Insurance and contractholder liabilities classified as liabilities of business held for sale (1)																					(2,089)						(4,219)						(6,308)
Total insurance and contractholder liabilities			$	5,308					$	16,844					$	22,152					$	4,921					$	16,052					$	20,973

*(1)*Amounts classified as Liabilities of business held for sale primarily include $4.9 billion of unpaid claims, $717 million of contractholder deposit funds and $653 million of future policy benefits as of December 31, 2019.

Insurance and contractholder liabilities expected to be paid within one year are classified as current.

Accounting Policy - Contractholder Deposit Funds. Liabilities for contractholder deposit funds primarily include deposits received from customers for investment-related and universal life products and investment earnings on their fund balances. These liabilities are adjusted to reflect administrative charges and, for universal life fund balances, mortality charges. In addition, this caption includes: 1) premium stabilization reserves under group health insurance contracts representing experience refunds left with the Company to pay future premiums; 2) deposit administration funds used to fund non-pension retiree insurance programs; 3) retained asset accounts and 4) annuities or supplementary contracts without significant life contingencies. Interest credited on these funds is accrued ratably over the contract period.

Accounting Policy - Future Policy Benefits. Future policy benefits represent the present value of estimated future obligations under long-term life and supplemental health insurance policies and annuity products currently in force. These obligations are estimated using actuarial methods and consist primarily of reserves for annuity contracts, life insurance benefits, GMDB contracts (GMDB contracts are fully reinsured, see Note 10 for additional information) and certain health, life and accident insurance products of our International Markets segment.

Obligations for annuities represent specified periodic benefits to be paid to an individual or groups of individuals over their remaining lives. Obligations for life insurance policies and GMDB contracts represent benefits expected to be paid to policyholders, net of future premiums expected to be received. Management estimates these obligations based on assumptions as to premiums, interest rates, mortality or morbidity, future claim adjudication expenses and surrenders, allowing for adverse deviation as appropriate. Mortality, morbidity and surrender assumptions are based on the Company’s own experience and published actuarial tables. Interest rate assumptions are based on management’s judgment considering the Company’s experience and future expectations, and range from 1% to 9%. Obligations for the direct and assumed run-off settlement annuity business include adjustments for realized and unrealized investment returns consistent with GAAP when a premium deficiency exists. As of December 31, 2020, approximately 20% of the liability for future policy benefits was supported by assets held in trust for the benefit of the ceding company under reinsurance agreements.

Accounting Policy - Unearned Premium. The unrecognized portion of premiums received is recorded as unearned premiums included in insurance and contractholder liabilities.

**B.**Unpaid Claims and Claim Expenses – U.S. Medical

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.

Accounting policy. The Company uses actuarial principles and assumptions that are consistently applied each reporting period and recognizes the actuarial best estimate of the ultimate liability along with a margin for adverse deviation. This approach is consistent with actuarial standards of practice that the liabilities be adequate under moderately adverse conditions.

The Company compares key assumptions used to establish the medical costs payable to actual experience for each reporting period. The unpaid claims liability is adjusted through current period shareholders’ net income when actual experience differs from these assumptions. Additionally, the Company evaluates expected future developments and emerging trends that may impact key assumptions. The process used to determine this liability requires the Company to make critical accounting estimates that involve considerable judgment, reflecting the variability inherent in forecasting future claim payments. These estimates are highly sensitive to changes in the Company’s key assumptions, specifically completion factors and medical cost trend.

The liability is primarily calculated using “completion factors” developed by comparing the claim incurral date to the date claims were paid. Completion factors are impacted by several key items including changes in: 1) electronic (auto-adjudication) versus manual claim processing; 2) frequency and timeliness of provider claims submissions; 3) membership and 4) the mix of products. The Company uses historical completion factors combined with an analysis of current trends and operational factors to develop current estimates of completion factors. The Company estimates the liability for claims incurred in each month by applying the current estimates of completion factors to the current paid claims data. This approach implicitly assumes that historical completion rates will be a useful indicator for the current period.

The Company relies more heavily on medical cost trend analysis that reflects expected claim payment patterns and other relevant operational considerations for more recent months. Medical cost trend is primarily impacted by medical service utilization and unit costs that are affected by changes in the level and mix of health benefits offered, including inpatient, outpatient and pharmacy, the impact of copays and deductibles, changes in provider practices and changes in consumer demographics and consumption behavior.

The total of incurred but not reported liabilities plus expected development on reported claims, including reported claims in process, was $2.9 billion at December 31, 2020 and $2.7 billion at December 31, 2019.

Activity, net of intercompany transactions, in the unpaid claims liability for the U.S. Medical segment for the years ended December 31 was as follows:

(In millions)			2020						2019						2018
Beginning balance			$	2,892					$	2,697					$	2,420
Less: Reinsurance and other amounts recoverable			303						264						262
Beginning balance, net			2,589						2,433						2,158
Acquired, net			—						—						40
Incurred costs related to:
Current year			25,889						24,368						21,331
Prior years			(115)						(165)						(173)
Total incurred			25,774						24,203						21,158
Paid costs related to:
Current year			23,005						21,851						18,978
Prior years			2,398						2,196						1,945
Total paid			25,403						24,047						20,923
Ending balance, net			2,960						2,589						2,433
Add: Reinsurance and other amounts recoverable			224						303						264
Ending balance			$	3,184					$	2,892					$	2,697

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 years ended December 31 were as follows:

			Year Ended
(Dollars in millions)			December 31, 2020												December 31, 2019
			$						%****(1)						$						%****(2)
Actual completion factors			$	42					0.2			%			$	90					0.4			%
Medical cost trend			73						0.3						75						0.4
Total favorable variance			$	115					0.5			%			$	165					0.8			%

*(1)*Percentage of current year incurred costs as reported for the year ended December 31, 2019.

*(2)*Percentage of current year incurred costs as reported for the year ended December 31, 2018.

Favorable prior year development in both years reflects lower than expected utilization of medical services.

The following table depicts the incurred and paid claims development as of December 31, 2020 (net of reinsurance), claims frequency metrics and incurred but not reported liabilities reported in the U.S. Medical segment. The information about incurred and paid claims development for the year ended December 31, 2019 is presented as supplementary information and is unaudited.

			Incurred Costs
Incurral Year			2019 (Unaudited)						2020						Unpaid Claims & Claim Expenses						Claims Frequency
(In millions)
2019			$	23,306					$	23,211					60						3.5		million
2020									24,927						2,764						3.7		million
Cumulative incurred costs for the periods presented									$	48,138
			Cumulative Costs Paid
Incurral Year			2019 (Unaudited)						2020
2019			$	20,920					$	23,151
2020									22,163
Cumulative paid costs for the periods presented									$	45,314
Outstanding liabilities for the periods presented, net of reinsurance									$	2,824
Other long-duration liabilities not included in development table above									136
Net unpaid claims and claims expenses - U.S. Medical									2,960
Reinsurance and other amounts recoverable									224
Unpaid claims and claim expenses - U.S. Medical									$	3,184

More than 95% of health claims incurred in a calendar year are paid within one year of their incurred date.

There is no single or common claim frequency metric used in the health care industry. The Company believes a relevant metric for its health insurance business is the number of customers for whom an insured medical claim was paid. Customers for whom no insured medical claim was paid are excluded from the calculation. Claims that did not result in a liability are not included in the frequency metric.

**C.**Unpaid Claims and Claim Expenses – Group Disability and Other and International Markets

Accounting policy. Liabilities for unpaid claims and claim expenses are established by book of business within Group Disability and Other and International Markets. Unpaid claims and claim expenses within the Group Disability and Other and International Markets segments consist of (1) case or claims reserves for reported claims that are unpaid as of the balance sheet date; (2) incurred but not reported reserves for claims when the insured event has occurred but has not been reported to the Company and (3) loss adjustment expense reserves for the expected costs of settling these claims. The Company consistently estimates incurred but not yet reported losses using actuarial principles and assumptions based on historical and projected claim incidence patterns, claim size and the expected payment period. The Company recognizes the actuarial best estimate of the ultimate liability within a level of confidence, consistent with actuarial standards of practice that the liabilities be adequate under moderately adverse conditions. The Company immediately records an adjustment in Medical costs and other benefit expenses when estimates of these liabilities change.

See Note 5 for a discussion of the divestiture of the Group Disability and Life business on December 31, 2020. For the year ended December 31, 2019, liabilities for unpaid claims and claim expenses within the Group Disability and Life business reflect the following primary products: long-term and short-term disability, life insurance and accident coverages and the majority of the Company’s liability for disability claims consisted of “disabled life reserves”, measured as the present value of estimated future benefit payments, including expected development, for each reported claim that is currently receiving benefit payments over the expected disability period or pending a decision on eligibility for benefits. The Company projected the expected disability period by using historical resolution rates combined with an analysis of current trends and operational factors to develop current estimates of resolution rates. Expected claim resolution rates may vary based upon the Company’s experience for the anticipated disability period, the covered benefit period, the cause of disability, the benefit design and the claimant’s age, gender and income level. The gross monthly benefit is reduced (offset) by disability income received under other benefit programs, most commonly Social Security Disability Income, workers’ compensation, statutory disability or other group benefit plans. The Company estimated the probability and amount of future offset awards and lapses based on the Company’s experience for certain offsets not yet finalized.

The Company also establishes a liability for the expected present value of future benefit payments for known claims that have recently been resolved but may reopen in the future, based on Company experience. Prior to a claim becoming known, the Company establishes a liability for incurred but not reported claims using standard actuarial techniques and calculations based on completion factors and loss ratio assumptions using the Company’s experience combined with an analysis of current trends and operational factors. Completion factors are impacted by several key items including changes in claim inventory levels, claim payment patterns, changes in business volume and other factors. Loss ratio assumptions are developed using historical Company experience, adjusted prospectively for expected changes in the underlying business including rate actions, persistency and inforce growth.

Liability balance details. The liability details for unpaid claims and claim expenses for the years ended December 31 are as follows:

(In millions)			2020						2019 (1)
Group Disability and Other
Group Disability and Life			$	150					$	4,972
Other Operations			159						187
Total Group Disability and Other			309						5,159
International Markets			963						844
Unpaid claims and claim expenses Group Disability and Other and International Markets			$	1,272					$	6,003

*(1)*Includes unpaid claim amounts classified as Liabilities of business held for sale, see Note 5.

Group Disability and Life balances as of December 31, 2020 include reserves associated with retained business and amounts reinsured to New York Life as part of the sale of the Group Disability and Life business.

The Company discounts certain liabilities, predominantly long-term disability liabilities, because benefits payments are made over extended periods. Discount rate assumptions for these liabilities are based on projected investment returns for the supporting asset portfolios.

Details of the Company’s Group Disability and Life unpaid claim discounted liability balance as of December 31, 2019 were as follows:

(In billions)						2019 (1)
Discounted liabilities									$	4.5
Aggregate amount of discount									$	1.2
Range of discount rates																					4.0			%			—						5.2			%

*(1)*Includes unpaid claims amounts classified as Liabilities held for sale.

Activity in the Company’s liabilities for unpaid claims and claim expenses, excluding Other Operations, are 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 fully reinsured.

(In millions)			2020						2019 (1)						2018
Beginning balance			$	5,816					$	5,432					$	5,274
Less: Reinsurance			184						156						140
Beginning balance, net			5,632						5,276						5,134
Incurred claims related to:
Current year			5,810						5,616						5,350
Prior years:
Interest accretion			154						152						156
All other incurred			19						(40)						(147)
Total incurred			5,983						5,728						5,359
Paid claims related to:
Current year			3,595						3,488						3,391
Prior years			2,015						1,873						1,808
Total paid			5,610						5,361						5,199
Acquisitions			—						—						23
Foreign currency			42						(11)						(41)
Divestiture of Group Disability and Life business			(5,093)						—						—
Ending balance, net			954						5,632						5,276
Add: Reinsurance			159						184						156
Ending balance			$	1,113					$	5,816					$	5,432

*(1)*Includes unpaid claims amounts classified as Liabilities of business held for sale.

Reinsurance in the table above reflects amounts due from reinsurers related to unpaid claims liabilities. The Company’s insurance subsidiaries enter into agreements with other companies primarily to limit losses from large exposures and to permit recovery of a portion of incurred losses. See Note 10 for additional information on reinsurance.

Following the sale of the Company's Group Disability and Life business (see Note 5 for further information), the majority of the liability for unpaid claims and claim expenses relates to products sold in the International Markets segment. Prior to the sale, the majority of the liability for unpaid claims and claim expenses related to disability claims with long-tailed payouts. The rollforward above reflects activity inclusive of these reserves, which were sold on December 31, 2020. Interest earned on assets backing these liabilities is an integral part of pricing and reserving. Therefore, interest accreted on prior year balances is shown as a separate component of prior year incurred claims and reported in Medical costs and other benefit expenses in the Consolidated Statements of Income. This interest is calculated by applying the average discount rate used in determining the liability balance to the average liability balance over the period. The remaining prior year incurred claims amount primarily reflects updates to the Company’s liability estimates and variances between actual experience during the period relative to the assumptions and expectations reflected in determining the liability. Assumptions reflect the Company’s expectations over the life of the book of business and will vary from actual experience in any period, both favorably and unfavorably, with variation in resolution rates being the most significant driver for the long-term disability business. Favorable prior year incurred claims for the year ended December 31, 2019 primarily reflected favorable long-term disability resolution rate experience relative to expectations reflected in the prior year reserve and favorable reserve development for life, accident and voluntary driven by lower than expected incidence. Development for the year ended December 31, 2020 was immaterial.

Note 10 – Reinsurance

The Company’s insurance subsidiaries enter into agreements with other insurance companies to assume and cede reinsurance. Reinsurance is ceded primarily in acquisition and disposition transactions when the underwriting company is not being acquired. Reinsurance is also used to limit losses from large exposures and to permit recovery of a portion of direct or assumed losses. 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

Accounting policy. Reinsurance recoverables represent amounts due from reinsurers for both paid and unpaid claims of the Company’s insurance businesses. Most reinsurance recoverables are classified as non-current assets. The current portion of reinsurance recoverables is reported in Other current assets and consists primarily of recoverables on paid claims expected to be settled within one year. Reinsurance recoverables are presented net of allowances for uncollectible reinsurance that, effective with adopting ASU 2016-13 on January 1, 2020, consists primarily of an allowance for expected credit losses. $31 million was recorded as a cumulative effect adjustment to retained earnings at adoption. Estimates of the allowance for expected credit losses are based on internal and external data used to develop expected loss rates over the anticipated duration of the recoverable asset that vary by external credit rating and collateral level. The Company's allowance for credit losses on reinsurance recoverables was $32 million as of December 31, 2020, of which $31 million was recorded as a cumulative effect adjustment to retained earnings at adoption.

The majority of the Company’s reinsurance recoverables resulted from acquisition and disposition transactions in which the underwriting company was not acquired. Included in the table below is $217 million of current reinsurance recoverables that are reported in Other current assets as of December 31, 2020; as of December 31, 2019 there was $222 million of current reinsurance recoverables reported in Other current assets. The Company’s reinsurance recoverables are presented in the following table by range of external credit rating and collateral level.

(Dollars 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
Upper-medium grade and higher (1)						$	—					$	—					$	173					$	173
Lower-medium grade (2)						—						—						64						64
Not rated						92						—						29						121
Total recoverables related to ongoing operations						92						—						266						358
Acquisition, disposition or runoff activities
Upper-medium grade and higher (1)
Lincoln National Life and Lincoln Life & Annuity of New York						—						3,033						—						3,033
Berkshire						309						409						—						718
Prudential Retirement Insurance and Annuity						625						—						—						625
Life Insurance Company of North America						—						424						—						424
Other						232						18						20						270
Not rated						—						17						4						21
Total recoverables related to acquisition, disposition or runoff activities						1,166						3,901						24						5,091
Total						$	1,258					$	3,901					$	290					$	5,449
Allowance for uncollectible reinsurance																								(32)
Total reinsurance recoverables																								$	5,417

*(1)*Includes A- equivalent and higher current ratings certified by a nationally recognized statistical rating organization ("NRSRO")

*(2)*Includes BBB- to BBB+ equivalent current credit ratings certified by an NRSRO

*(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.

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, as further described above.

**B.**Effects of Reinsurance

The following table presents direct, assumed and ceded premiums for both short-duration and long-duration insurance contracts. It also presents reinsurance recoveries that have been netted against benefit expenses in the Company’s Consolidated Statements of Income.

(In millions)			2020						2019						2018
Premiums
Short-duration contracts
Direct			$	38,425					$	35,690					$	32,148
Assumed			85						64						77
Ceded			(230)						(203)						(182)
Total short-duration contract premiums			38,280						35,551						32,043
Long-duration contracts
Direct			4,517						4,352						4,268
Assumed			99						105						116
Ceded
Individual life insurance and annuity business sold			(119)						(126)						(133)
Other			(150)						(168)						(181)
Total long-duration contract premiums			4,347						4,163						4,070
Total premiums			$	42,627					$	39,714					$	36,113
Reinsurance recoveries
Individual life insurance and annuity business sold			$	240					$	238					$	249
Other			191						157						203
Total reinsurance recoveries			$	431					$	395					$	452

**C.**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 December 31, 2020.

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.

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.

Accounting policy. The Company estimates the gross liability and reinsurance recoverable with an internal model based on the Company’s experience and future expectations over an extended period, consistent with the long-term nature of this product. As a result of the reinsurance transaction, reserve increases have a corresponding increase in the recorded reinsurance recoverable, provided the increased recoverable remains within the overall Berkshire limit (including the GMIB asset presented below).

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)			December 31, 2020						December 31, 2019
Account value			$	9,523					$	9,110
Net amount at risk			$	1,570					$	1,764
Average attained age of contractholders (weighted by exposure)			77						76
Number of contractholders (estimated)			185,000						200,000

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.

Accounting policy. The Company reports GMIB liabilities and assets as derivatives at fair value because cash flows of these liabilities and assets are affected by equity markets and interest rates, but are without significant life insurance risk and are settled in lump sum payments. The Company receives and pays fees periodically based on either contractholders’ account values or deposits increased at a contractual rate. The Company will also pay and receive cash depending on changes in account values and interest rates when contractholders first elect to receive minimum income payments. Cash flows on these contracts are reported in operating activities.

Assumptions used in fair value measurement. GMIB assets and liabilities are established using capital market assumptions and assumptions related to future annuitant behavior (including mortality, lapse and annuity election rates). The Company classifies GMIB assets and liabilities in Level 3 of the fair value hierarchy described in Note 12 because assumptions related to future annuitant behavior are largely unobservable.

The only assumption expected to impact future shareholders’ net income is non-performance risk. The non-performance risk adjustment reflects a market participant’s view of nonpayment risk by adding an additional spread to the discount rate in the calculation of both (a) the GMIB liabilities to be paid by the Company, and (b) the GMIB assets to be paid by the reinsurers, after considering collateral. The impact of non-performance risk was immaterial for the years ended December 31, 2020 and December 31, 2019.

GMIB liabilities totaling $729 million as of December 31, 2020 and $688 million as of December 31, 2019 were reported in Accrued expenses and other liabilities and Other non-current liabilities. There were three reinsurers covering 100% of the GMIB exposures as of December 31, 2020 and December 31, 2019 as follows:

(In millions)
Line of Business						Reinsurer						December 31, 2020						December 31, 2019						Collateral and Other Terms at December 31, 2020
GMIB						Berkshire						$	353					$	332					100% were secured by assets in a trust.
						Sun Life Assurance Company of Canada						215						202
						Liberty Re (Bermuda) Ltd.						190						179						100% were secured by assets in a trust.
Total GMIB recoverables reported in Other current assets and Other assets												$	758					$	713

All reinsurers are rated A- equivalent and higher by an NRSRO.

Amounts included in shareholders’ net income for GMIB assets and liabilities were not material in 2020, 2019 and 2018.

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. Debt securities, commercial mortgage loans, derivative financial instruments and short-term investments with contractual maturities during the next twelve months are classified on the balance sheet as current investments, unless they are held as statutory deposits or restricted for other purposes and then they are classified in Long-term investments. Equity securities may include exchange traded funds that are used in our cash management strategy and are classified as current investments. All other investments are classified as Long-term investments. The following table summarizes the Company's investments by category and current or long-term classification.

						December 31, 2020																		December 31, 2019
(In millions)						Current						Long-term						Total						Current						Long-term						Total
Debt securities						$	959					$	17,172					$	18,131					$	928					$	22,827					$	23,755
Equity securities						—						501						501						—						303						303
Commercial mortgage loans						13						1,406						1,419						—						1,947						1,947
Policy loans						—						1,351						1,351						—						1,357						1,357
Other long-term investments						—						2,832						2,832						—						2,403						2,403
Short-term investments						359						—						359						423						—						423
Total																								1,351						28,837						30,188
Investments classified as assets of business held for sale(1)																								(414)						(7,295)						(7,709)
Investments per Consolidated Balance Sheets						$	1,331					$	23,262					$	24,593					$	937					$	21,542					$	22,479
*(1)*On December 31, 2020, Cigna completed the sale of its U.S. Group Disability and Life business and transferred a total of $8.4 billion of investments to New York Life Insurance Company as part of this divestiture. The table above includes $7.7 billion as of December 31, 2019 of investments associated with this business that was previously held for sale.

**A.**Investment Portfolio

Debt Securities

Accounting policy. Debt securities (including bonds, mortgage and other asset-backed securities and preferred stocks redeemable by the investor) are classified as available for sale and are carried at fair value with changes in fair value recorded either in Accumulated other comprehensive income (loss) within Shareholders’ equity or in credit loss expense based on fluctuations in the allowance for credit losses, as further discussed below. Net unrealized appreciation on debt securities supporting the Company’s run-off settlement annuity business is reported in Non-current insurance and contractholder liabilities rather than Accumulated other comprehensive income (loss). When the Company intends to sell or determines that it is more likely than not to be required to sell an impaired debt security, the excess of amortized cost over fair value is directly written down with a charge to Realized investment gains and losses. A portion of these investments are unconsolidated variable interest entities, see Note 13 for additional information.

As of January 1, 2020, the Company adopted ASU 2016-13 that included certain targeted improvements to the accounting for available-for-sale debt securities. The new guidance resulted in certain policy changes related to the process used by the Company to review declines in fair value from a security’s amortized cost basis to determine whether a credit loss exists. For example, the length of time that a debt security has been impaired is no longer a criterion for this review. In addition, under this new guidance, the Company recognizes an allowance for credit loss with a corresponding charge to credit loss expense, presented in Realized investment gains and losses in the Company’s income statement. Prior to this new guidance, the Company recorded a direct write-down of the instrument’s amortized cost basis. The allowance for credit loss represents the excess of amortized cost over the greater of its fair value or the net present value of the debt security's projected future cash flows (based on qualitative and quantitative factors, including the probability of default, and the estimated timing and amount of recovery). Each period, the allowance for credit loss is adjusted through credit loss expense.

The Company elected the expedient to not measure an allowance for credit losses for accrued interest receivables. Consistent with prior practice, when interest payments are delinquent based on contractual terms or when certain terms (interest rate or maturity date) of the investment have been restructured, accrued interest, reported in Other current assets, is written off through a charge to Net investment income, and interest income is recognized on a cash basis.

Debt securities are classified as either Current or Long-term investments based on their contractual maturities.

The amortized cost and fair value by contractual maturity periods for debt securities were as follows at December 31, 2020:

(In millions)						Amortized Cost						Fair Value
Due in one year or less						$	991					$	1,001
Due after one year through five years						5,412						5,699
Due after five years through ten years						5,581						6,178
Due after ten years						3,809						4,818
Mortgage and other asset-backed securities						427						435
Total						$	16,220					$	18,131

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. As a result of the U.S. Group Disability and Life business divestiture, debt securities with a fair value of $7.8 billion, primarily in the Corporate and State and local government sectors, were transferred to New York Life on December 31, 2020. These debt securities included unrealized appreciation of $864 million and unrealized depreciation of $2 million. See Note 5 for further information.

(In millions)						Amortized Cost						Allowance for Credit Loss						Unrealized Appreciation						Unrealized Depreciation						Fair Value
December 31, 2020
Federal government and agency						$	334					$	—					$	122					$	—					$	456
State and local government						150						—						17						—						167
Foreign government						2,201						—						318						(8)						2,511
Corporate						13,108						(19)						1,506						(33)						14,562
Mortgage and other asset-backed						427						(7)						27						(12)						435
Total						$	16,220					$	(26)					$	1,990					$	(53)					$	18,131
Investments supporting liabilities of the Company’s run-off settlement annuity business (included in total above) (1)						$	2,282					$	(5)					$	838					$	(3)					$	3,112
December 31, 2019
Federal government and agency						$	498					$	—					$	235					$	—					$	733
State and local government						729						—						81						—						810
Foreign government						2,027						—						230						(1)						2,256
Corporate						18,149						—						1,299						(28)						19,420
Mortgage and other asset-backed						506						—						31						(1)						536
Total						$	21,909					$	—					$	1,876					$	(30)					$	23,755
Investments supporting liabilities of the Company’s run-off settlement annuity business (included in total above) (1)						$	2,229					$	—					$	740					$	(4)					$	2,965

*(1)*Net unrealized appreciation for these investments is excluded from accumulated other comprehensive income.

The Company had commitments to purchase $149 million of debt securities as of December 31, 2020, bearing interest at a fixed market rate.

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. See discussion of Realized Investment Gains and Losses below for further information on the credit loss expense recorded for the Company's investments.

						December 31, 2020																								December 31, 2019
(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						$	1,026					$	1,045					$	(19)					300						$	723					$	729					$	(6)					267
Below investment grade						$	381					$	405					$	(24)					232						$	340					$	348					$	(8)					355
More than one year
Investment grade						$	18					$	18					$	—					6						$	366					$	378					$	(12)					118
Below investment grade						$	90					$	100					$	(10)					33						$	84					$	88					$	(4)					93
Total						$	1,515					$	1,568					$	(53)					571						$	1,513					$	1,543					$	(30)					833

The table below presents a roll-forward of the allowance for credit losses on debt securities for the year ended December 31, 2020.

(In millions)									2020
Balance at beginning of period									$	—
Additions for debt securities where no credit loss has previously been recognized									82
Reductions for securities sold during the period									(15)
Decrease for debt securities where credit losses have previously been recorded									(41)
Balance December 31,									$	26

Equity Securities

Accounting policy. Changes in the fair values of equity securities that have a readily determinable fair value are reported in Net realized investment gains (losses). Equity securities without a readily determinable fair value are carried at cost minus impairment, if any, plus or minus changes resulting from observable price changes. Equity securities also include hybrid investments consisting of preferred stock with call features that are carried at fair value with changes in fair value reported in Net realized investment gains (losses) and dividends reported in Net investment income.

Equity securities with a readily determinable fair value consist primarily of mutual funds that invest in fixed income debt securities while those without a readily determinable fair value consist of private equity investments. The amount of impairments or value changes resulting from observable price changes on equity securities still held was not material as of December 31, 2020 or 2019.

The following table provides the values of the Company's equity security investments as of December 31, 2020 and December 31, 2019.

						December 31, 2020												December 31, 2019
(In millions)						Cost						Carrying Value						Cost						Carrying Value
Equity securities with readily determinable fair values						$	180					$	202					$	61					$	64
Equity securities with no readily determinable fair value						$	225					$	255					$	183					$	192
Hybrid equity securities						$	58					$	44					$	58					$	47
Total						$	463					$	501					$	302					$	303

Commercial Mortgage Loans

Accounting policy. Commercial mortgage loans are carried at unpaid principal balances. Beginning January 1, 2020 with the adoption of ASU 2016-13, unpaid principal balances are presented net of an allowance for expected credit losses. Changes in the allowance for expected credit losses are recognized as credit loss expense and presented in Realized investment gains and losses in the Company’s income statement. Each period, the Company establishes (or adjusts) its allowance for expected credit losses for commercial mortgage loans. The allowance for expected credit losses is based on a credit risk category that is assigned to each loan at origination using key credit quality indicators, including debt service coverage and loan-to-value ratios. Credit risk categories are updated as key credit quality indicators change. An expected loss rate, assigned based on the credit risk category, is applied to each loan's unpaid principal balance to develop an aggregate allowance for expected credit losses. Prior to adoption, impaired commercial mortgage loans were written down to the lower of unpaid principal or fair value of the underlying collateral when it became probable that the Company

would not collect all amounts due under its promissory note. The Company recorded an allowance of $7 million through a cumulative effect adjustment to retained earnings to reflect expected credit losses at adoption. The credit loss allowance for the Company’s commercial mortgage loan investments was $6 million as of December 31, 2020.

Commercial mortgage loans are considered impaired and written off against the allowance when it is probable that the Company will not collect all amounts due per the terms of the promissory note. The Company elected the expedient to not measure an allowance for credit losses for accrued interest receivables. Consistent with our prior practice, accrued interest, reported in Other current assets, is written off through a charge to Net investment income; interest income on impaired loans is only recognized when a payment is received.

In the event of a foreclosure, the allowance for credit losses is based on the excess of the carrying value of the mortgage loan over the fair value of its underlying collateral.

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. Commercial mortgage loans are classified as either current or long-term investments based on their contractual maturities.

Credit quality**.** The Company regularly evaluates and monitors credit risk, beginning with the initial underwriting of a mortgage loan and continuing throughout the investment holding period. Mortgage origination professionals employ an internal credit quality rating system designed to evaluate the relative risk of the transaction at origination that is then updated each year as part of the annual portfolio loan review. The Company evaluates and monitors credit quality on a consistent and ongoing basis.

Quality ratings are based on our evaluation of a number of key inputs related to the loan, including real estate market-related factors such as rental rates and vacancies, and property-specific inputs such as growth rate assumptions and lease rollover statistics. However, the two most significant contributors to the credit quality rating are the debt service coverage and loan-to-value ratios. The debt service coverage ratio measures the amount of property cash flow available to meet annual interest and principal payments on debt, with a ratio below 1.0 indicating that there is not enough cash flow to cover the required loan payments. The loan-to-value ratio, commonly expressed as a percentage, compares the amount of the loan to the fair value of the underlying property collateralizing the loan.

The following table summarizes the credit risk profile of the Company’s commercial mortgage loan portfolio based on loan-to-value and debt service coverage ratios as of December 31, 2020 and December 31, 2019. As a result of the U.S. Group Disability and Life business divestiture, $0.6 billion of commercial mortgage loans were transferred to New York Life on December 31, 2020, see Note 5 for further information.

(Dollars in millions)						December 31, 2020																		December 31, 2019
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%						$	533					2.28												$	1,136					2.19
60% to 79%						751						2.08												723						1.98
80% to 100%						141						1.33												88						1.62
Allowance for credit losses						(6)
Total						$	1,419					2.08						61			%			$	1,947					2.09						58			%

The Company’s annual in-depth review of its commercial mortgage loan investments is the primary mechanism for identifying emerging risks in the portfolio. The Company’s investment professionals completed the annual in-depth review in the second quarter of 2020 that included an analysis of each underlying property’s most recent annual financial statements, rent rolls, operating plans, budgets, a physical inspection of the property and other pertinent factors. Based on historical results, current leases, lease expirations and rental conditions in each market, the Company estimated the current year and future stabilized property income and fair value for each loan.

The Company re-evaluates a loan’s credit quality between annual reviews if new property information is received or an event such as delinquency or a borrower’s request for restructure causes management to believe that the Company’s estimate of financial performance, fair value or the risk profile of the underlying property has been impacted.

All commercial mortgage loans in the Company's portfolio are current as of December 31, 2020 and December 31, 2019.

Policy Loans

Accounting policy**.** Policy loans, primarily associated with our corporate-owned life insurance business, are carried at unpaid principal balances plus accumulated interest, the total of which approximates fair value. These loans are collateralized by life insurance policy cash values and therefore have minimal exposure to credit loss. Interest rates are reset annually based on a rolling average of benchmark interest rates.

Other Long-Term Investments

Accounting policy. 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. Depreciation is generally recorded using the straight-line method based on the estimated useful life of each asset. Investment real estate as of December 31, 2020 and 2019 is expected to be held longer than one year and may include real estate acquired through the foreclosure of commercial mortgage loans.

Additionally, statutory and other restricted deposits, healthcare related investment partnerships and foreign currency swaps carried at fair value are reported in the table below as Other. See discussion below for information on the Company’s accounting policies for derivative financial instruments.

Other long-term investments and related commitments are diversified by issuer, property type and geographic regions. A majority of these investments are unconsolidated variable entities, see Note 13 for additional information. The following table provides unfunded commitment and carrying value information for these investments. The Company expects to disburse approximately 38% of the committed amounts in 2021.

																		Unfunded Commitments as of
						Carrying value as of December 31,
(In millions)						2020						2019						December 31, 2020
Real estate investments						$	951					$	788					$	677
Securities partnerships						1,683						1,409						1,617
Other						198						206						31
Total						$	2,832					$	2,403					$	2,325

Short-Term Investments and Cash Equivalents

Accounting policy. Security investments with maturities of greater than three months to one year from time of purchase are classified as short-term, available for sale and carried at fair value that approximates cost. Cash equivalents consist of short-term investments with maturities of three months or less from the time of purchase and are carried at cost that approximates fair value.

Short-term investments and cash equivalents included the following types of issuers. The increase since prior year end is substantially attributable to proceeds received on December 31, 2020 from the U.S. Group Disability and Life business divestiture, see Note 5 for further information.

(In millions)						December 31, 2020						December 31, 2019
Corporate securities						$	2,669					$	1,985
Federal government securities						$	158					$	472
Foreign government securities						$	90					$	65
Money market funds						$	5,134					$	631

**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 contract holder 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. 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.

Derivative instruments used by the Company typically include foreign currency swap contracts and foreign currency forward contracts. Foreign currency swap contracts periodically exchange cash flows between two currencies for principal and interest. Foreign currency forward contracts require the Company to purchase a foreign currency in exchange for the functional currency of its operating unit at a future date.

The Company manages the credit risk of these derivative instruments by diversifying its portfolio among approved dealers of high credit quality and through routine monitoring of credit risk exposures. Certain of the Company’s over-the-counter derivative instruments require either the Company or the counterparty to post collateral or demand immediate payment depending on the amount of the net liability position of the derivative instrument and predefined financial strength or credit rating thresholds. These collateral posting requirements vary by counterparty. The Company may incur a loss if dealers failed to perform under derivative contracts, however collateral has been posted by dealers to cover substantially all of the net fair values owed at December 31, 2020 and December 31, 2019. The fair value of collateral posted by the Company was not significant as of December 31, 2020 or December 31, 2019.

Accounting policy. Derivatives are recorded on our balance sheet at fair value and are classified as current or non-current according to their contractual maturities. Further information on our policies for determining fair value are discussed in Note 12. The Company applies hedge accounting when derivatives are designated, qualified and highly effective as hedges. Under hedge accounting, the changes in fair value of the derivative and the hedged risk are generally recognized together and offset each other when reported in Shareholders’ net income. Various qualitative or quantitative methods appropriate for each hedge are used to formally assess and document hedge effectiveness at inception and each period throughout the life of a hedge.

The gross fair values of our derivative financial instruments are presented in Note 12. The following table summarizes the types and notional quantity of derivative instruments held by the Company. As of December 31, 2020 and December 31, 2019, the effects of these individual hedging strategies were not material to the Consolidated Financial Statements, including gains or losses reclassified from accumulated other comprehensive income into shareholders' net income, as well as amounts excluded from the assessment of hedge effectiveness.

												Notional Value as of
(In millions)									December 31, 2020						December 31, 2019
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.						Foreign currency swap contracts						$	925					$	817
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 Euros, Korean Won and Taiwan Dollar. The notional value of hedging instruments matches the hedged amount of subsidiary net assets.						Foreign currency swap contracts						$	526					$	438
			Foreign currency forward contracts						$	636					$	406
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						$	538					$	410

The Company’s derivative financial instruments are presented as follows:

• Fair value hedges of the foreign exchange-related changes in fair values of certain foreign-denominated bonds: Swap fair values are reported in Long-term investments or Other non-current liabilities. Changes in fair values attributable to foreign exchange risk of the swap contracts and the hedged bonds are reported in Realized investment gains and losses. The portion of the swap contracts’ changes in fair value excluded from the assessment of hedge effectiveness is recorded in Other comprehensive income and recognized in Net investment income as swap coupon payments are accrued, offsetting the foreign-denominated coupons received on the designated bonds. Net cash flows are reported in Operating activities, while exchanges of notional principal amounts are reported in Investing activities.

• Net investment hedges of certain foreign subsidiaries that conduct their business principally in currencies other than the U.S. dollar: The fair values of the foreign currency swap and forward contracts are reported in Other assets or Other liabilities. The changes in fair values of these instruments are reported in Other comprehensive income, specifically in translation of foreign currencies. The portion of the change in fair values relating to foreign exchange spot rates will be recognized in earnings upon deconsolidation of the hedged foreign subsidiaries. The remaining changes in fair value of these instruments are excluded from our effectiveness assessment and recognized in interest expense when coupon payments are accrued or ratably

over the term of the instrument. The notional value of hedging instruments matches the hedged amount of subsidiary net assets. Cash flows relating to these contracts are reported in Investing activities.

• Economic hedges for derivatives not designated as accounting hedges: Fair values of forward contracts are reported in Current investments or Accrued expenses and other liabilities. The changes in fair values are reported in Realized investment gains and losses. Cash flows relating to these contracts are reported in Investing activities.

Concentration of Risk

The Company did not have a concentration of investments in a single issuer or borrower exceeding 10% of shareholders' equity as of December 31, 2020 or 2019.

**C.**Net Investment Income

Accounting policy. When interest and principal payments on investments are current, the Company recognizes interest income when it is earned. The Company recognizes interest income on a cash basis when interest payments are delinquent based on contractual terms or when certain terms (interest rate or maturity date) of the investment have been restructured. For unconsolidated entities that are included in Other long-term investments, investment income is generally recognized according to the Company’s share of the reported income or loss on the underlying investments. Investment income attributed to the Company’s separate accounts is excluded from our earnings because associated gains and losses generally accrue directly to separate account policyholders.

The components of Net investment income for the years ended December 31 were as follows:

(In millions)						2020						2019						2018
Debt Securities						$	962					$	986					$	1,009
Equity securities						11						5						28
Commercial mortgage loans						80						88						78
Policy loans						64						66						70
Other long-term investments						127						167						156
Short-term investments and cash						52						131						194
Total investment income						1,296						1,443						1,535
Less investment expenses						52						53						55
Net investment income						$	1,244					$	1,390					$	1,480

**D.**Realized Investment Gains and Losses

Accounting policy. Realized investment gains and losses are based on specifically identified assets and result from sales, investment asset write-downs, change in the fair value of certain derivatives and equity securities and changes in valuation reserves on commercial mortgage loans. Commencing January 1, 2020, realized gains and losses also include credit loss expense resulting from the impact of changes in the allowances for credit losses on debt securities and commercial mortgage loan investments under ASU 2016-13.

Gains and losses relating to the transfers of investment assets associated with the divestiture of the U.S. Group Disability and Life business are excluded from the activity below, see Note 5 for further information. 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, see Note 9 for further information), 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.

(In millions)																		2020						2019						2018
Net realized investment gains (losses), excluding credit loss expense and asset write-downs																		$	186					$	189					$	(34)
Credit loss (expense) recoveries on invested assets																		(27)						—						—
Other investment asset write-downs																		(10)						(12)						(47)
Net realized investment gains (losses), before income taxes																		$	149					$	177					$	(81)

Net realized investment gains, excluding credit loss expense and asset write-downs for the year ended December 31, 2020 was primarily driven by mark-to-market gains on equity securities and sales of debt securities, while this activity for the year ended December 31, 2019 was primarily driven by gains on the sales of real estate partnerships and debt securities. Net realized investment losses, excluding credit loss expense and asset write-downs in 2018 represented mark-to-market losses on equity securities and

derivatives, partially offset by gains on the sales of real estate partnerships. Credit loss (expense) recoveries on invested assets for the year ended December 31, 2020 reflects credit losses incurred primarily on debt securities due to uncertainty around issuers in certain industries that are particularly impacted by the global COVID-19 pandemic. Realized gains and losses on equity securities still held at December 31, 2020, 2019 and 2018 were not material.

The following table presents sales information for available-for-sale debt securities. Gross gains on sales and gross losses on sales exclude amounts required to adjust future policy benefits for the run-off settlement annuity business.

(In millions)																		2020						2019						2018
Proceeds from sales																		$	2,186					$	3,077					$	2,625
Gross gains on sales																		$	89					$	72					$	28
Gross losses on sales																		$	(23)					$	(19)					$	(47)

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).

The Company estimates fair values using prices from third parties or internal pricing methods. Fair value estimates received from third-party pricing services are based on reported trade activity and quoted market prices when available, and other market information that a market participant would use to estimate fair value. The internal pricing methods are performed by the Company’s investment professionals and generally involve using discounted cash flow analyses, incorporating current market inputs for similar financial instruments with comparable terms and credit quality as well as other qualitative factors. In instances where there is little or no market activity for the same or similar instruments, fair value is estimated using methods, models and assumptions that the Company believes a hypothetical market participant would use to determine a current transaction price. These valuation techniques involve some level of estimation and judgment that becomes significant with increasingly complex instruments or pricing models.

The Company is responsible for determining fair value and for assigning the appropriate level within the fair value hierarchy based on the significance of unobservable inputs. The Company reviews methodologies, processes and controls of third-party pricing services and compares prices on a test basis to those obtained from other external pricing sources or internal estimates. The Company performs ongoing analyses of both prices received from third-party pricing services and those developed internally to determine that they represent appropriate estimates of fair value. The controls executed by the Company include evaluating changes in prices and monitoring for potentially stale valuations. The Company also performs sample testing of sales values to confirm the accuracy of prior fair value estimates. The minimal exceptions identified during these processes indicate that adjustments to prices are infrequent and do not significantly impact valuations. An annual due-diligence review of the most significant pricing service is conducted to review their processes, methodologies and controls. This review includes a walk-through of inputs for a sample of securities held across various asset types to validate the documented pricing process.

**A.**Financial Assets and Financial Liabilities Carried at Fair Value

The following table provides information as of December 31, 2020 and December 31, 2019 about the Company’s financial assets and liabilities carried at fair value. As a result of the U.S. Group Disability and Life business divestiture, debt securities with a fair value of $7.8 billion, primarily classified in Level 2 of the fair value hierarchy, were transferred to New York Life on December 31, 2020. See Note 5 for further information. 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 December 31, 2020						As of December 31, 2019						As of December 31, 2020						As of December 31, 2019						As of December 31, 2020						As of December 31, 2019						As of December 31, 2020						As of December 31, 2019
Financial assets at fair value
Debt securities
Federal government and agency						$	207					$	197					$	249					$	536					$	—					$	—					$	456					$	733
State and local government						—						—						167						810						—						—						167						810
Foreign government						—						—						2,498						2,228						13						28						2,511						2,256
Corporate						—						—						13,878						19,063						684						357						14,562						19,420
Mortgage and other asset-backed						—						—						309						398						126						138						435						536
Total debt securities						207						197						17,101						23,035						823						523						18,131						23,755
Equity securities (1)						50						7						165						72						31						32						246						111
Short-term investments						—						—						325						423						—						—						325						423
Derivative assets (3)						—						—						72						83						—						—						72						83
Real estate funds priced at NAV as a practical expedient (2)																																										156						184
Financial liabilities at fair value
Derivative liabilities						$	—					$	—					$	108					$	18					$	—					$	—					$	108					$	18

*(1)*Excludes certain equity securities that have no readily determinable fair value.

*(2)*As a practical expedient, certain real estate funds are carried at fair value based on the Company’s ownership share of the equity of the investee (Net Asset Value (“NAV”)) including changes in the fair value of its underlying investments. The Company has $50 million in unfunded commitments in these funds as of December 31, 2020.

*(3)*Derivative assets above include $34 million that are presented in the Short-term investments category in Note 11. See Note 11 for more information on our accounting for Derivative Financial Instruments.

Level 1 Financial Assets

Inputs for instruments classified in Level 1 include unadjusted quoted prices for identical assets in active markets accessible at the measurement date. Active markets provide pricing data for trades occurring at least weekly and include exchanges and dealer markets.

Assets in Level 1 include actively-traded U.S. government bonds and exchange-listed equity securities. A relatively small portion of the Company’s investment assets are classified in this category given the narrow definition of Level 1 and the Company’s investment asset strategy to maximize investment returns.

Level 2 Financial Assets and Financial Liabilities

Inputs for instruments classified in Level 2 include quoted prices for similar assets or liabilities in active markets, quoted prices from those willing to trade in markets that are not active or other inputs that are market observable or can be corroborated by market data for the term of the instrument. Such other inputs include market interest rates and volatilities, spreads and yield curves. An instrument is classified in Level 2 if the Company determines that unobservable inputs are insignificant.

Debt and equity securities. Approximately 94% of the Company’s investments in debt and equity securities are classified in Level 2 including most public and private corporate debt and hybrid equity securities, federal agency and municipal bonds, non-government mortgage-backed securities and preferred stocks. Third-party pricing services and internal methods often use recent trades of securities

with similar features and characteristics because many debt securities do not trade daily. Pricing models are used to determine these prices when recent trades are not available. These models calculate fair values by discounting future cash flows at estimated market interest rates. Such market rates are derived by calculating the appropriate spreads over comparable U.S. Treasury securities based on the credit quality, industry and structure of the asset. Typical inputs and assumptions to pricing models include, but are not limited to, a combination of benchmark yields, reported trades, issuer spreads, liquidity, benchmark securities, bids, offers, reference data and industry and economic events. For mortgage-backed securities, inputs and assumptions may also include characteristics of the issuer, collateral attributes, prepayment speeds and credit rating.

Nearly all of these instruments are valued using recent trades or pricing models. Less than 1% of the fair value of investments classified in Level 2 represents foreign bonds that are valued using a single, unadjusted market-observable input derived by averaging multiple broker-dealer quotes, consistent with local market practice.

Short-term investments are carried at fair value that approximates cost. The Company compares market prices for these securities to recorded amounts on a regular basis to validate that current carrying amounts approximate exit prices. The short-term nature of the investments and corroboration of the reported amounts over the holding period support their classification in Level 2.

Derivative assets and liabilities classified in Level 2 represent over-the-counter instruments such as foreign currency forward and swap contracts. Fair values for these instruments are determined using market observable inputs including forward currency and interest rate curves and widely published market observable indices. Credit risk related to the counterparty and the Company is considered when estimating the fair values of these derivatives. However, the Company is largely protected by collateral arrangements with counterparties and determined that no adjustments for credit risk were required as of December 31, 2020 or 2019. The nature and use of these derivative financial instruments are described in Note 11.

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.

The Company classifies certain newly-issued, privately-placed, complex or illiquid securities in Level 3. Approximately 5% of debt and equity securities are priced using significant unobservable inputs and classified in this category.

Fair values of mortgage and other asset-backed securities, as well as corporate and government debt securities, are primarily determined using pricing models that incorporate the specific characteristics of each asset and related assumptions including the investment type and structure, credit quality, industry and maturity date in comparison to current market indices, spreads and liquidity of assets with similar characteristics. Inputs and assumptions for pricing may also include characteristics of the issuer, collateral attributes and prepayment speeds for mortgage and other asset-backed securities. Recent trades in the subject security or similar securities are assessed when available, and the Company may also review published research in its evaluation, as well as the issuer’s financial statements.

Quantitative Information about Unobservable Inputs

The following table summarizes the fair value and significant unobservable inputs used in pricing the following debt securities that were developed directly by the Company as of December 31, 2020 and 2019. The range and weighted average basis point (“bps”) amounts for liquidity and credit spreads (adjustment to discount rates) reflect the Company’s best estimates of the unobservable adjustments a market participant would make to calculate these fair values. These liquidity and credit spreads have increased over the reported periods, resulting from continued uncertainty over the economic impacts related to COVID-19.

Corporate and government debt securities. The significant unobservable input used to value the following corporate and government debt 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.

Mortgage and other asset-backed securities. The significant unobservable inputs used to value the following mortgage and other asset-backed securities are liquidity and weighting of credit spreads. An adjustment for liquidity is made as of the measurement date that considers current market conditions, issuer circumstances and complexity of the security structure when there is limited trading activity for the security. An adjustment to weight credit spreads is needed to value a more complex bond structure with multiple underlying collateral and no standard market valuation technique. The weighting of credit spreads is primarily based on the underlying collateral’s characteristics and their proportional cash flows supporting the bond obligations.

						Fair Value as of																		Unobservable Adjustment Range (Weighted Average by Quantity) as of
(Fair value in millions )						December 31, 2020						December 31, 2019						Unobservable input December 31, 2020						December 31, 2020						December 31, 2019
Debt securities
Corporate and government debt securities						$	696					$	385					Liquidity						60 - 1370 (470)			bps			70 - 930 (280)			bps
Mortgage and other asset-backed securities						126						138						Liquidity						60 - 380 (80)			bps			60 - 370 (70)			bps
																		Weighting of credit spreads						300 - 670 (480)			bps			240 - 460 (330)			bps
Securities not priced by the Company (1)						1						—
Total Level 3 debt securities						$	823					$	523

*(1)*The fair values for these securities use single, unadjusted non-binding broker quotes not developed directly by the Company.

Significant increases in liquidity or credit spreads would result in lower fair value measurements while decreases in these inputs would result in higher fair value measurements. The unobservable inputs are generally not interrelated and a change in the assumption used for one unobservable input is not accompanied by a change in the other unobservable input.

Changes in Level 3 Financial Assets and Financial Liabilities Carried at Fair Value

The following tables summarize the changes in financial assets and financial liabilities classified in Level 3 for the years ended December 31, 2020 and 2019. Gains and losses reported in these tables may include net changes in fair value that are attributable to both observable and unobservable inputs.

(In millions)																		2020						2019
Balance at beginning of period																		$	555					$	410
Total gains (losses) included in shareholders’ net income																		(7)						(8)
Gains (losses) included in other comprehensive income																		(12)						22
Gains (losses) required to adjust future policy benefits for settlement annuities (1)																		7						2
Purchases, sales and settlements
Purchases																		107						72
Sales (2)																		(121)						—
Settlements																		(89)						(19)
Total purchases, sales and settlements																		$	(103)					$	53
Transfers into/(out of) Level 3
Transfers into Level 3																		774						170
Transfers out of Level 3																		(360)						(94)
Total transfers into/(out of) Level 3																		$	414					$	76
Balance at December 31,																		$	854					$	555
Total gains (losses) included in shareholders’ net income attributable to instruments held at the reporting date																		$	(17)					$	(8)
Change in unrealized gains or losses included in other comprehensive income for assets held at the end of the reporting period																		$	(6)					N/A

*(1)*Amounts do not accrue to shareholders.

*(2)*Sales in 2020 include $108 million of Level 3 debt securities transferred to New York Life Insurance Company on December 31, 2020 as part of the U.S. Group Disability and Life business divestiture. See Note 5 for further details.

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 income 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 judgement that must be applied to the pricing of certain instruments increases, and is typically observed through the widening of liquidity and credit spreads. Transfers between Level 2 and Level 3 during 2020 and 2019 primarily reflected changes in liquidity and credit risk estimates for certain private placement issuers across several sectors. Transfers into and out of Level 3 are higher in 2020 due to fluctuations in liquidity and credit spreads over the reported periods, resulting from continued uncertainty over the economic impacts related to COVID-19. See discussion under Quantitative Information about Unobservable Inputs above for more information.

Separate Accounts

Accounting policy. Separate account assets and liabilities are contractholder funds maintained in accounts with specific investment objectives. The assets of these accounts are legally segregated and are not subject to claims that arise out of any of the Company’s other businesses. These separate account assets are carried at fair value with equal amounts recorded for related separate account liabilities. 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. Fees and charges earned for mortality risks, asset management or administrative services are reported in either Premiums or Fees and other revenues. Investments that are measured using the practical expedient of NAV are excluded from the fair value hierarchy.

Fair values of separate account assets at December 31 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
						2020						2019						2020						2019						2020						2019						2020						2019
Guaranteed separate accounts (See Note 21)						$	226					$	219					$	297					$	271					$	—					$	—					$	523					$	490
Non-guaranteed separate accounts (1)						1,925						1,450						5,600						5,522						355						263						7,880						7,235
Subtotal						$	2,151					$	1,669					$	5,897					$	5,793					$	355					$	263					8,403						7,725
Non-guaranteed separate accounts priced at NAV as a practical expedient (1)																																										683						756
Total																																																8,481
Separate account assets of business classified as held for sale																																																(16)
Separate account assets per Consolidated Balance Sheets																																										$	9,086					$	8,465

*(1)*Non-guaranteed separate accounts included $4.2 billion as of December 31, 2020 and $4.0 billion as of December 31, 2019 in assets supporting the Company’s pension plans, including $0.3 billion classified in Level 3 as of December 31, 2020 and $0.2 billion classified in Level 3 as of December 31, 2019.

Separate account assets classified as Level 1 primarily include exchange-listed equity securities. Level 2 assets primarily include:

• corporate and structured bonds valued using recent trades of similar securities or pricing models that discount future cash flows at estimated market interest rates as described above; and

• actively-traded institutional and retail mutual fund investments.

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 in 2020 or 2019.

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 December 31, 2020						Redemption Frequency (if currently eligible)						Redemption Notice Period
(In millions)						December 31, 2020						December 31, 2019
Securities partnerships						$	463					$	531					$	272					Not applicable						Not applicable
Real estate funds						215						220						—						Quarterly						30 - 90 days
Hedge funds						5						5						—						Up to annually, varying by fund						30 - 90 days
Total						$	683					$	756					$	272

As of December 31, 2020, 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 each reporting period, but may be measured using fair value only under certain conditions such as when investments become impaired, including investment real estate and commercial mortgage loans and certain equity securities with no readily determinable fair value. For 2020 and 2019, there were no such impairments. Equity securities with no readily determinable fair value are also measured at fair value when there are observable price changes from orderly transactions with the same issuer. There were $75 million in 2020 and $22 million in 2019 of realized investment gains relating to price changes for equity securities with no readily determinable fair value. Carrying values represented less than 1% of total investments as of both 2020 and 2019.

**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 that are subject to fair value disclosure requirements at December 31, 2020 and 2019. 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.

												December 31, 2020												December 31, 2019
(In millions)						Classification in Fair Value Hierarchy						Fair Value						Carrying Value						Fair Value						Carrying Value
Commercial mortgage loans						Level 3						$	1,456					$	1,419					$	1,989					$	1,947
Long-term debt, including current maturities, excluding finance leases						Level 2						$	37,676					$	31,835					$	39,439					$	36,375

Off-balance sheet financial instruments include commitments to purchase debt securities or fund commercial mortgage loans at fixed rates of interest. The fair values of off-balance sheet financial instruments were not material as of December 31, 2020 and 2019.

Note 13 – Variable Interest Entities

When the Company becomes involved with a variable interest entity and when there is a change in the Company’s involvement with an entity, the Company must determine if it is the primary beneficiary and must consolidate the entity. The Company is considered the primary beneficiary if it has the power to direct the entity’s most significant economic activities and has the right to receive benefits or obligation to absorb losses that could be significant to the entity. The Company evaluates the following criteria:

• the structure and purpose of the entity;

• the risks and rewards created by, and shared through, the entity; and

• the Company’s ability to direct its activities, receive its benefits and absorb its losses relative to the other parties involved with the entity including its sponsors, equity holders, guarantors, creditors and servicers.

The Company determined it was not a primary beneficiary in any material variable interest entities as of December 31, 2020 or December 31, 2019. The Company’s involvement in variable interest entities for which it is not the primary beneficiary is described below.

Securities limited partnerships and real estate limited partnerships. The Company owns interests in securities limited partnerships and real estate limited partnerships that are defined as unconsolidated variable interest entities. These partnerships invest in the equity or mezzanine debt of privately-held companies and real estate properties. General partners unaffiliated with the Company control decisions that most significantly impact the partnership’s operations and the limited partners do not have substantive kick-out or participating rights. The Company’s investments in approximately 150 limited partnerships that have a carrying value of $2.1 billion as of December 31, 2020 and are reported in Long-term investments. We have commitments to contribute an additional $1.9 billion to these entities. The Company's maximum exposure to loss from these investments is $4.0 billion, calculated as the sum of our carrying value and the additional funding commitments. Our noncontrolling interest in each of these limited partnerships is generally less than 15% of the partnership ownership interests. See Note 11 for further information on the Company's accounting policy for long-term investments.

Other asset-backed and corporate securities. In the normal course of its investing activities, the Company also makes passive investments in certain asset-backed and corporate securities that are issued by variable interest entities whose sponsors or issuers are unaffiliated with the Company. These investments provide the Company fixed-rate cash flows and are accounted for as debt securities. As of December 31, 2020 the carrying value of these investments is $0.5 billion, which represents the Company's maximum exposure related to these instruments. Our combined ownership interests are insignificant relative to the total principal amounts issued by these entities. See Note 11 for further information on the Company's accounting policy for debt securities.

The Company is involved in other types of variable interest entities, including real estate joint ventures that develop properties for residential and commercial use, independent physician associations (IPAs) that provide care management services and international healthcare joint ventures. The carrying values and maximum exposures for each of these types of unconsolidated variable interest entities was not material as of December 31, 2020.

The Company has not provided, and does not intend to provide, financial support to any of the variable interest entities in excess of its maximum exposure. We perform ongoing qualitative analyses of our involvement with these variable interest entities to determine if consolidation is required.

Note 14 – Accumulated Other Comprehensive Income (Loss) (“AOCI”)

AOCI includes unrealized appreciation 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 net income in the same period that the related pre-tax AOCI reclassifications are recognized. Changes in the components of AOCI were as follows:

												For the Years Ended December 31,
(In millions)																		2020						2019						2018
Securities and Derivatives
Beginning balance																		$	975					$	18					$	328
Reclassification adjustment to retained earnings related to U.S. tax reform legislation																		—						—						65
Reclassification adjustment to retained earnings related to new financial instruments guidance																		—						—						(4)
Reclassification adjustment from retained earnings related to new hedging guidance																		—						—						(6)
Adjusted beginning balance																		975						18						383
Appreciation (depreciation) on securities and derivatives																		776						1,266						(512)
Tax (expense) benefit																		(150)						(270)						100
Net appreciation (depreciation) on securities and derivatives																		626						996						(412)
Reclassification adjustment for (gains) included in shareholders' net income ((gain) loss on sale of business)																		(862)						—						—
Reclassification adjustment for (gains) losses included in shareholders' net income (net realized investment (gains) losses)																		(26)						(49)						60
Reclassification adjustment for tax expense (benefit) included in shareholders’ net income																		187						10						(13)
Net (gains) losses reclassified from AOCI to net income																		(701)						(39)						47
Other comprehensive (loss) income, net of tax																		(75)						957						(365)
Ending balance																		$	900					$	975					$	18
Translation of foreign currencies
Beginning balance																		$	(275)					$	(221)					$	(65)
Reclassification adjustment to retained earnings related to U.S. tax reform legislation																		—						—						(4)
Adjusted beginning balance																		(275)						(221)						(69)
Translation of foreign currencies																		232						(57)						(167)
Tax (expense) benefit																		12						(2)						—
Net translation of foreign currencies																		244						(59)						(167)
Reclassification adjustment for losses included in shareholders' net income ((gain) loss on sale of business)																		11						—						—
Reclassification adjustment for tax expense (benefit) included in shareholders’ net income																		(3)						—						—
Net translation losses reclassified from AOCI to net income																		8						—						—
Other comprehensive income (loss), net of tax																		252						(59)						(167)
Less: Net translation gain (loss) on foreign currencies attributable to noncontrolling interests																		(8)						(5)						(15)
Shareholders' other comprehensive income (loss), net of tax																		260						(54)						(152)
Ending balance																		$	(15)					$	(275)					$	(221)
Postretirement benefits liability
Beginning balance																		$	(1,641)					$	(1,508)					$	(1,345)
Reclassification adjustment to retained earnings related to U.S. tax reform legislation																		—						—						(290)
Adjusted beginning balance																		(1,641)						(1,508)						(1,635)
Reclassification adjustment for amortization of net prior actuarial losses and prior service costs (interest expense and other)																		70						62						69
Reclassification adjustment for settlement (interest expense and other)																		—						10						—
Reclassification adjustment for tax expense (benefit) included in shareholders’ net income																		(17)						(15)						(15)
Net adjustments reclassified from AOCI to net income																		53						57						54
Valuation update																		(206)						(249)						93
Tax (expense) benefit																		48						59						(20)
Net change due to valuation update																		(158)						(190)						73
Other comprehensive (loss) income, net of tax																		(105)						(133)						127
Ending balance																		$	(1,746)					$	(1,641)					$	(1,508)

Note 15 – Pension

**A.**About Our Plans

The Company sponsors U.S. and non-U.S. defined benefit pension plans; future benefit accruals for the domestic plans are frozen.

Accounting policy. The Company measures the assets and liabilities of its domestic pension plans as of December 31. Benefit obligations are measured at the present value of estimated future payments based on actuarial assumptions. The Company uses the “corridor” method to account for changes in the benefit obligation when actual results differ from those assumed, or when assumptions change. These changes are called net unrecognized actuarial gains (losses). Under the corridor method, net unrecognized actuarial gains (losses) are initially recorded in accumulated other comprehensive income. When the unrecognized gain (loss) exceeds 10% of the benefit obligation, that excess is amortized to expense over the expected remaining lives of plan participants. The net plan expense is reported in Interest expense and other in the Consolidated Statements of Income.

For balance sheet purposes, we measure plan assets at fair value. When the actual return differs from the expected return, those differences are reflected in the net unrealized actuarial gain (loss) discussed above. However, to measure pension benefit costs, we use a “market-related” asset valuation that differs from the actual fair value for domestic pension plan assets invested in non-fixed income investments. The “market-related” value recognizes the difference between actual and expected long-term returns in the portfolio over five years, a method that reduces the short-term impact of market fluctuations on pension costs. The market-related asset value was approximately $4.4 billion, compared with a fair value of approximately $4.6 billion at December 31, 2020.

**B.**Funded Status and Amounts Included in Accumulated Other Comprehensive Income

The following table summarizes the projected benefit obligations and assets related to our U.S. and non-U.S. pension plans as of, and for the years ended December 31:

						Pension Benefits
(In millions)						2020						2019
Change in benefit obligation
Benefit obligation, January 1						$	5,314					$	4,741
Service cost						2						2
Interest cost						168						194
Litigation settlement						—						142
Actuarial losses, net (1)						416						574
Benefits paid from plan assets						(285)						(325)
Benefits paid — other						(15)						(14)
Benefit obligation, December 31						5,600						5,314
Change in plan assets
Fair value of plan assets, January 1						4,441						4,151
Actual return on plan assets						449						594
Benefits paid						(285)						(325)
Contributions						18						21
Fair value of plan assets, December 31						4,623						4,441
Funded status						$	(977)					$	(873)
Liability in Consolidated Balance Sheets
Accrued expenses and other liabilities						$	(15)					$	(18)
Other non-current liabilities						$	(962)					$	(855)

*(1)*2020 Loss reflects a decrease in the discount rate, partially offset by a favorable change in the mortality assumption; 2019 loss reflects a decrease in the discount rate and an unfavorable change in the mortality assumption.

We fund our qualified pension plans at least at the minimum amount required by the Employee Retirement Income Security Act of 1974 and the Pension Protection Act of 2006. The Company made immaterial contributions to the qualified pension plans in 2020. For 2021, contributions to the qualified pension plans are expected to be immaterial. Future years’ contributions will ultimately be based on a wide range of factors including but not limited to asset returns, discount rates and funding targets. Non-qualified pension and other postretirement benefit plans are generally funded on a pay-as-you-go basis as there are no plan assets for these plans.

Benefit payments. The following benefit payments are expected to be paid in:

(In millions)						Pension Benefits
2021						$	328
2022						$	313
2023						$	316
2024						$	316
2025						$	315
2026-2030						$	1,551

Amounts reflected in the pension liabilities shown above that have not yet been reported in net income and, therefore, have been included in Accumulated other comprehensive loss consisted of the following as of December 31:

						Pension Benefits
(In millions)						2020						2019
Unrecognized net (losses)						$	(2,277)					$	(2,132)
Unrecognized prior service cost						(5)						(5)
Postretirement benefits liability adjustment						$	(2,282)					$	(2,137)

**C.**Cost of Our Plans

Net pension cost was as follows:

						Pension Benefits
(In millions)						2020						2019						2018
Service cost						$	2					$	2					$	3
Interest cost						168						194						169
Expected long-term return on plan assets						(260)						(245)						(257)
Amortization of:
Prior actuarial losses, net						78						59						70
Prior service cost						—						—						—
Litigation settlement - plan amendment						—						142						32
Settlement loss						—						10						—
Net (benefit) cost						$	(12)					$	162					$	17

Old Cigna and the Cigna Pension Plan (the “Plan”) were defendants in a class action lawsuit related to the Plan’s conversion of certain employees from an annuity to a cash balance benefit in 1997. In the fourth quarter of 2018, the Plan was ordered to pay $32 million representing the attorney fee portion of the settlement. This payment was recognized as an expense in 2018. In the first quarter of 2019, the Plan implemented the court order resulting in an increase to the pension liability of $142 million. The Company reversed a litigation reserve for the expenses recognized for this matter in both 2019 and 2018 aggregating to the same amount resulting in no impact on net income.

**D.**Assumptions Used for Pension

						2020						2019
Discount rate:
Pension benefit obligation						2.49			%			3.30			%
Pension benefit cost						3.30			%			4.23			%
Expected long-term return on plan assets:
Pension benefit cost						6.75			%			6.75			%
Mortality table for pension obligations						White Collar mortality table with MP 2020 projection scale						White Collar mortality table with MP 2019 projection scale

The Company develops discount rates by applying actual annualized yields for high quality bonds by duration to the expected pension plan liability cash flows. The bond yields represent a diverse mix of actively traded high quality fixed-income securities that have an above average return at each duration as management believes this approach is representative of the yield achieved through plan asset investment strategy.

The expected long-term return on plan assets was developed considering historical long-term actual returns, expected long-term market conditions, plan asset mix and management's plan asset investment strategy.

**E.**Pension Plan Assets

As of December 31, 2020, pension assets included $4.2 billion invested in the separate accounts of Connecticut General Life Insurance Company, a subsidiary of the Company, as well as an additional $0.4 billion, primarily invested directly in funds offered by an unaffiliated insurance company.

The fair values of pension assets by category are as follows as of December 31, 2020 and 2019.

(In millions)						2020						2019
Debt securities:
Federal government and agency						$	9					$	—
Corporate						1,680						1,906
Asset-backed						53						41
Fund investments						380						460
Total debt securities						2,122						2,407
Equity securities:
Domestic						978						582
International, including funds and pooled separate accounts (1)						471						419
Total equity securities						1,449						1,001
Securities partnerships						463						531
Real estate funds, including pooled separate accounts (1)						219						230
Commercial mortgage loans						95						96
Hedge funds						1						24
Guaranteed deposit account contract						98						100
Cash equivalents and other current assets, net						176						52
Total pension assets at fair value						$	4,623					$	4,441

*(1)*A pooled separate account has several participating benefit plans and each owns a share of the total pool of investments.

The Company’s current target investment allocation percentages (50% fixed income, 33% public equity securities and 17% in other investments, including private equity (securities partnerships) and real estate) are developed by management as guidelines, although the fair values of each asset category are expected to vary as a result of changes in market conditions. The Company will evaluate further allocation changes to equity securities, other investments and fixed income securities as funding levels change.

See Note 12 for further details regarding how fair value is determined, including the level within the fair value hierarchy and the procedures we use to validate fair value measurements. The Company classifies substantially all debt securities in Level 2 for pension plan assets. These assets are valued using recent trades of similar securities or are fund investments priced using their daily net asset value that is the exit price. A substantial portion of domestic equity securities within pension assets are classified as Level 1, while international equity funds within pension assets are predominantly classified in Level 2 using daily net asset value.

Securities partnerships, real estate and hedge funds are valued using NAV as a practical expedient and are excluded from the fair value hierarchy. See Note 12 for additional disclosures related to these assets invested in the separate accounts of the Company’s subsidiaries. Certain securities as described in Note 12, as well as commercial mortgage loans and guaranteed deposit account contracts, are classified in Level 3 because unobservable inputs used in their valuation are significant.

**F.**401(k) Plans

The Company sponsors a 401(k) plan in which the Company matches a portion of employees’ pre-tax contributions. Participants in the plan may invest in various funds that invest in the Company’s common stock, several diversified stock funds, a bond fund or a fixed-income fund.

The Company may elect to increase its matching contributions if the Company’s annual performance meets certain targets. The Company’s annual expense for these plans was as follows:

(In millions)						2020						2019						2018
Expense						$	243					$	256					$	196

Note 16 – Employee Incentive Plans

**A.**About Our Plans

The People Resources Committee (the “Committee”) of the Board of Directors awards stock options, restricted stock grants, restricted stock units, deferred stock and strategic performance shares to certain employees.

Prior to the acquisition of Express Scripts, the Company issued shares from Treasury stock for these awards. Following the acquisition, original issue shares were used.

Awards of Express Scripts options and restricted stock units were rolled over to Cigna stock options and restricted stock units in connection with the Express Scripts acquisition on December 20, 2018. Information in this footnote includes the effect of the Express Scripts rollover awards unless otherwise indicated.

The Company records compensation expense for stock and option awards over their vesting periods primarily based on the estimated fair value at the grant date. Fair value is determined differently for each type of award as discussed below.

Shares of common stock available for award at December 31, were as follows:

(In millions)						2020						2019						2018
Common shares available for award						20.6						23.2						25.7

**B.**Stock Options

Accounting policy. The Company awards options to purchase Cigna common stock at the market price of the stock on the grant date except for rollover option awards issued to Express Scripts employees in connection with the acquisition. Options vest over periods ranging from one year to three years and expire no later than 10 years from grant date. Fair value is estimated using the Black-Scholes option-pricing model by applying the assumptions presented below. That fair value is reduced by options expected to be forfeited during the vesting period. The Company estimates forfeitures at the grant date based on our experience and adjusts the expense to reflect actual forfeitures over the vesting period. The fair value of options, net of forfeitures, is recognized in Selling, general and administrative expenses on a straight-line basis over the vesting period.

Black-Scholes option-pricing model assumptions and the resulting fair value of options are presented in the following table. The average fair value of options and the expected option life exclude the rollover options granted to Express Scripts employees in connection with the acquisition.

						2020						2019						2018
Dividend yield						—			%			—			%			—			%
Expected volatility						30.0			%			30.0			%			35.0			%
Risk-free interest rate						1.4			%			2.5			%			2.5			%
Expected option life						4.5 years						4.4 years						4.4 years
Weighted average fair value of options						$	52.42					$	53.10					$	64.18

The expected volatility reflects the past daily stock price volatility of Cigna stock. The Company does not consider volatility implied in the market prices of traded options to be a good indicator of future volatility because remaining traded options will expire within one year. The risk-free interest rate is derived using the four-year U.S. Treasury bond yield rate as of the award date for the primary annual grant. Expected option life reflects the Company’s historical experience.

The following table shows the status of, and changes in, common stock options during the last three years.

(Options in thousands)						2020												2019												2018
						Options						Weighted Average Exercise Price						Options						Weighted Average Exercise Price						Options						Weighted Average Exercise Price
Outstanding - January 1						11,438						$	136.19					12,370						$	125.46					6,156						$	100.79
Granted						1,851						$	191.86					1,569						$	183.41					7,080						$	143.62
Exercised						(3,289)						$	115.38					(2,297)						$	106.75					(771)						$	88.35
Expired or canceled						(258)						$	188.79					(204)						$	180.08					(95)						$	165.04
Outstanding - December 31						9,742						$	152.40					11,438						$	136.19					12,370						$	125.46
Options exercisable at year-end						6,837						$	137.08					8,874						$	123.87					9,446						$	114.22

Compensation expense of $66 million related to unvested stock options at December 31, 2020 will be recognized over the next two years (weighted average period).

The table below summarizes information for stock options exercised during the last three years:

(In millions)						2020						2019						2018
Intrinsic value of options exercised						$	304					$	180					$	86
Cash received for options exercised						$	376					$	224					$	68
Tax benefit from options exercised						$	57					$	34					$	8

The following table summarizes information for outstanding common stock options at December 31, 2020:

						Options Outstanding						Options Exercisable
Number (in thousands)						9,742						6,837
Total intrinsic value (in millions)						$	543					$	486
Weighted average exercise price						$	152.40					$	137.08
Weighted average remaining contractual life						5.8 years						4.6 years

**C.**Restricted Stock

The Company awards restricted stock (grants and units) to the Company’s employees that vest over periods ranging from one to three years. Recipients of restricted stock awards accumulate dividends during the vesting period, but forfeit their awards and accumulated dividends if their employment terminates before the vesting date.

Accounting policy. Fair value of restricted stock awards is equal to the market price of Cigna’s common stock on the date of grant. This fair value is reduced by awards that are expected to forfeit. At the grant date, the Company estimates forfeitures based on experience and adjusts the expense to reflect actual forfeitures over the vesting period. This fair value, net of forfeitures, is recognized in Selling, general and administrative expenses over the vesting period on a straight-line basis.

The following table shows the status of, and changes in, restricted stock awards during the last three years.

(Awards in thousands)						2020												2019												2018
						Grants/Units						Weighted Average Fair Value at Award Date						Grants/Units						Weighted Average Fair Value at Award Date						Grants/Units						Weighted Average Fair Value at Award Date
Outstanding - January 1						1,945						$	178.78					2,138						$	168.12					1,295						$	126.44
Awarded						791						$	191.22					870						$	183.86					1,451						$	183.29
Vested						(1,026)						$	161.58					(964)						$	160.74					(560)						$	112.53
Forfeited						(110)						$	186.63					(99)						$	168.68					(48)						$	150.84
Outstanding - December 31						1,600						$	186.12					1,945						$	178.78					2,138						$	168.12

The fair value of vested restricted stock at the vesting date for the years ended December 31 was as follows:

(In millions)						2020						2019						2018
Fair value of vested restricted stock						$	190					$	171					$	107

Approximately 10,300 employees held 1.6 million restricted stock awards at the end of 2020 with $152 million of related compensation expense to be recognized over the next two years (weighted average period).

**D.**Strategic Performance Shares (“SPS”)

The Company awards SPSs to executives and certain other key employees generally with a performance period of three years. Half of these shares are subject to a market condition (total shareholder return relative to industry peer companies) and half are subject to a performance condition (cumulative adjusted net income). These targets are set by the Committee at the beginning of the performance period. Holders of these awards receive shares of Cigna common stock at the end of the performance period ranging anywhere from 0 to 200% of the original awards.

Accounting policy. Compensation expense for SPSs is recorded over the performance period. Fair value is determined at the grant date for “market condition” SPSs using a Monte Carlo simulation model and not subsequently adjusted regardless of the final outcome. Expense is initially accrued for “performance condition” SPSs based on the most likely outcome, but evaluated for adjustment each period for updates in the expected outcome. Expense is adjusted to the actual outcome (number of shares awarded times the share price at the grant date) at the end of the performance period.

The following table shows the status of, and changes in, SPSs during the last three years:

						2020												2019												2018
(Awards in thousands)						Shares						Weighted Average Fair Value at Award Date						Shares						Weighted Average Fair Value at Award Date						Shares						Weighted Average Fair Value at Award Date
Outstanding - January 1						818						$	177.94					707						$	160.74					778						$	136.57
Awarded						362						$	191.52					389						$	184.72					221						$	197.51
Vested						(309)						$	159.67					(244)						$	139.27					(269)						$	121.57
Forfeited						(63)						$	187.76					(34)						$	178.98					(23)						$	158.16
Outstanding - December 31						808						$	190.02					818						$	177.94					707						$	160.74

The fair value of vested SPSs at the vesting date for the years ended December 31 was as follows:

						2020												2019												2018
(Shares in thousands; $ in millions)						Shares						Fair Value						Shares						Fair Value						Shares						Fair Value
Shares of Cigna common stock distributed upon SPS vesting						306						$	55					254						$	45					380						$	73

Approximately 1,500 employees held 808,000 SPSs at the end of 2020 and $63 million of related compensation expense is expected to be recognized over the next two years. The amount of expense for “performance condition” SPSs will vary based on actual performance in 2021 and 2022.

**E.**Compensation Cost and Tax Effects of Share-based Compensation

The Company records tax benefits in shareholders’ net income during the vesting period based on the amount of expense being recognized. The difference between tax benefits based on the expense and the actual tax benefit realized are also recorded in net income when stock options are exercised, or when restricted stock and SPSs vest.

(In millions)						2020						2019						2018
Total compensation cost for shared-based awards						$	289					$	299					$	180
Tax benefits recognized						$	63					$	59					$	36

Note 17 – Goodwill, Other Intangibles and Property and Equipment

**A.**Goodwill

Accounting policy. Goodwill represents the excess of the cost of businesses acquired over the fair value of their net assets. The resulting goodwill is assigned to those reporting units expected to realize cash flows from the acquisition, based on those reporting units’ relative fair values. As a result, goodwill is primarily reported in the Evernorth segment ($33.8 billion), the U.S. Medical segment ($10.4 billion) and, to a lesser extent, the International Markets segment ($0.4 billion).

The Company conducts its annual quantitative evaluation for goodwill impairment during the third quarter at the reporting unit level and writes it down through shareholders’ net income if impaired. On a quarterly basis, the Company performs a qualitative impairment assessment to determine if events or changes in circumstances indicate that it is more likely than not that the carrying value of a reporting unit exceeds its estimated fair value. Fair value of a reporting unit is generally estimated based on either a market approach or a discounted cash flow analysis using assumptions that the Company believes a hypothetical market participant would use to determine a current transaction price. The significant assumptions and estimates used in determining fair value include the discount rate and future cash flows. A discount rate is selected to correspond with each reporting unit’s weighted average cost of capital, consistent with that used for investment decisions considering the specific and detailed operating plans and strategies within that reporting unit. Projections of future cash flows for each reporting unit are consistent with our annual planning process for revenues, pharmacy costs, benefits expenses, operating expenses, taxes, capital levels and long-term growth rates.

Goodwill activity. Goodwill activity during 2020 and 2019 was as follows:

(In millions)						2020						2019
Balance at January 1,						$	44,602					$	44,505
Goodwill acquired, net						29						103
Impact of foreign currency translation						17						(6)
Balance at December 31,						$	44,648					$	44,602

**B.**Other Intangibles

Accounting policy. The Company’s other intangible assets primarily include purchased customer and producer relationships, provider networks and trademarks. The fair value of purchased customer relationships and the amortization method were determined as of the dates of purchase using an income approach that relies on projected future net cash flows including key assumptions for customer attrition and discount rates. The Company’s definite-lived intangible assets are amortized on an accelerated or straight-line basis, reflecting their pattern of economic benefits, over periods from three to 39 years. Management revises amortization periods if it believes there has been a change in the length of time that an intangible asset will continue to have value. Costs incurred to renew or extend the terms of these intangible assets are generally expensed as incurred.

The Company’s amortized intangible assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the total of the expected future undiscounted cash flows generated by the underlying asset group is less than the carrying amount of the asset group, the Company recognizes an impairment charge equal to the difference between the carrying value of the asset group and its estimated fair value. The Company’s indefinite-lived intangible assets are each reviewed for impairment at least annually by comparing their fair value with their carrying value. If the carrying value exceeds fair value, that excess is recognized as an impairment loss.

There were no material impairments in the years ended December 31, 2020, 2019 or 2018.

Components of other assets, including other intangibles. Other intangible assets were comprised of the following at December 31:

(In millions)						Cost						Accumulated Amortization						Net Carrying Value
2020
Customer relationships						$	29,432					3,024						26,408
Trade Name - Express Scripts						8,400												8,400
Other						475						104						371
Other intangible assets						38,307						3,128						35,179
Value of business acquired (reported in Deferred policy acquisition costs)						670						152						518
Total						$	38,977					3,280						35,697
2019
Customer relationships						$	31,184					3,319						27,865
Trade Name - Express Scripts						8,400												8,400
Other						383						86						297
Other intangible assets						39,967						3,405						36,562
Value of business acquired (reported in Deferred policy acquisition costs)						643						122						521
Total						$	40,610					3,527						37,083

The Company has indefinite-lived intangible assets totaling $8.5 billion at December 31, 2020 and $8.4 billion at December 31, 2019, largely consisting of trade names and licenses.

**C.**Property and Equipment

Accounting policy. Property and equipment is carried at cost less accumulated depreciation. Cost includes interest, real estate taxes and other costs incurred during construction when applicable. Internal-use software that is acquired, developed or modified solely to meet the Company’s internal needs, with no plan to market externally, is also included in this category. Costs directly related to acquiring, developing or modifying internal-use software are capitalized.

The Company calculates depreciation and amortization principally using the straight-line method generally based on the estimated useful life of each asset as follows: buildings and improvements, 10 to 40 years; purchased software, three to five years; internally developed software, three to seven years and furniture and equipment (including computer equipment), three to 10 years. Improvements to leased facilities are depreciated over the lesser of the remaining lease term or the estimated life of the improvement. The Company considers events and circumstances that would indicate the carrying value of property, equipment or capitalized software might not be recoverable. An impairment charge is recorded if the Company determines the carrying value of any of these assets is not recoverable. The Company also reviews and shortens the estimated useful lives of these assets, if necessary.

Components of property and equipment. Property and equipment was comprised of the following as of December 31:

(In millions)						Cost						Accumulated Amortization						Net Carrying Value
2020
Internal-use software						$	7,061					$	4,048					$	3,013
Other property and equipment						2,719						1,527						1,192
Total property and equipment						$	9,780					$	5,575					$	4,205
2019
Internal-use software						$	6,578					$	3,282					$	3,296
Other property and equipment						2,569						1,353						1,216
Total property and equipment						9,147						4,635						4,512
Property and equipment classified as Assets held for sale						(226)						(131)						(95)
Total property and equipment per Consolidated Balance Sheet						$	8,921					$	4,504					$	4,417

Components of depreciation and amortization. Depreciation and amortization expense was comprised of the following for the years ended December 31:

(In millions)						2020						2019						2018
Internal-use software						$	971					$	850					$	323
Other property and equipment						276						284						146
Value of business acquired (reported in deferred policy acquisition costs)						28						34						16
Other intangibles						1,527						2,483						210
Total depreciation and amortization						$	2,802					$	3,651					$	695

The Company estimates annual pre-tax amortization for intangible assets, including internal-use software, over the next five calendar years to be as follows:

(In millions)						Pre-tax Amortization
2021						$	2,719
2022						$	2,236
2023						$	2,014
2024						$	1,821
2025						$	1,760

Note 18 – Leases

Cigna adopted ASU 2016-2, Leases, as of January 1, 2019. As permitted by the standard, the Company did not restate its Consolidated Financial Statements for periods prior to the adoption date and the required disclosures presented below are prospective from the date of adoption. The Company’s leases are primarily for office space and certain computer and other equipment, and have terms of up to 34 years.

Accounting policy. The Company determines if an arrangement is a lease and its lease classification (operating or finance) at inception. Beginning in the first quarter of 2019, both operating and finance leases result in (1) a right-of-use (“ROU”) asset that represents our right to use the underlying asset for the lease term and (2) a lease liability that represents our obligation to make lease payments arising from the lease. ROU assets and lease liabilities are reflected in the following lines in the Company’s Consolidated Balance Sheet:

						ROU Asset						Current Lease Liability						Non-Current Lease Liability
Operating lease						Other assets						Accrued expenses and other liabilities (current)						Other liabilities (non-current)
Finance lease						Property and equipment						Short-term debt						Long-term debt

These lease assets and liabilities are recognized at the lease commencement date based on the present value of the lease payments over the lease term. Most of the Company’s leases do not provide an implicit rate, so the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The ROU asset also includes any lease pre-payments made and excludes lease incentives for operating leases. The Company’s expected life of a lease may consider options to extend or terminate a lease when it is reasonably certain that the Company will exercise that option.

The Company has lease agreements with lease and non-lease components that are accounted for as a single lease component. Variable lease payments are expensed as incurred and represent amounts that are neither fixed in nature, such as maintenance and other services provided by the lessor, nor tied to an index or rate.

The components of lease expense were as follows:

						For the Years Ended December 31,
(In millions)						2020						2019
Operating lease cost						$	190					$	188
Finance lease cost:
Amortization of ROU assets						28						28
Interest on lease liabilities						3						3
Total finance lease cost						31						31
Variable lease cost						48						50
Total lease cost						$	269					$	269

Rental expense under operating lease agreements was $162 million for the year ended December 31, 2018.

Supplemental cash flow information related to leases was as follows:

						For the Years Ended December 31,
(In millions)						2020						2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash outflows from operating leases						$	189					$	173
Operating cash outflows from finance leases						$	3					$	3
Financing cash outflows from finance leases						$	26					$	25
ROU assets obtained in exchange for lease obligations:
Operating leases						$	189					$	89
Finance leases						$	9					$	68

The non-cash impact of adopting the new lease guidance in 2019 was an increase of Other assets of $615 million and an increase to Accrued expenses and other liabilities of $630 million.

Operating and finance lease ROU assets and lease liabilities were as follows:

(In millions)						December 31, 2020						December 31, 2019
Operating leases:
Operating lease ROU assets						$	552					$	536
Accrued expenses and other liabilities						$	152					$	166
Other non-current liabilities						491						465
Total operating lease liabilities						$	643					$	631
Finance leases:
Property and equipment, gross						$	98					$	110
Accumulated depreciation						(46)						(23)
Property and equipment, net						$	52					$	87
Short-term debt						$	18					$	27
Long-term debt						36						61
Total finance lease liabilities						$	54					$	88

As of December 31, 2020, the weighted average remaining lease term was five years for operating leases and four years for finance leases, and the weighted average discount rate was 3.51% for operating leases and 3.95% for finance leases.

Maturities of lease liabilities as of December 31, 2020 were as follows:

(In millions)						Operating Leases						Finance Leases
2021						$	150					$	20
2022						170						18
2023						118						6
2024						89						3
2025						57						3
Thereafter						121						10
Total lease payments						705						60
Less: imputed interest						62						6
Total						$	643					$	54

Note 19 – Shareholders' Equity and Dividend Restrictions

State insurance departments and foreign jurisdictions that regulate certain of the Company’s subsidiaries prescribe accounting practices (differing in some respects from GAAP) to determine statutory net income and surplus. The Company’s life, accident and health insurance and Health Maintenance Organization (“HMO”) subsidiaries are regulated by such statutory requirements. The statutory net income of the Company’s life, accident and health insurance and HMO subsidiaries for the years ended, and their statutory surplus as of December 31, were as follows:

(In billions)						2020						2019						2018
Net income						$	4.0					$	3.8					$	3.4
Surplus						$	12.9					$	13.8					$	12.2

The Company’s HMO and life, accident and health insurance subsidiaries are also subject to minimum statutory surplus requirements and may be required to maintain investments on deposit with state departments of insurance or other regulatory bodies. Additionally, these subsidiaries may be subject to regulatory restrictions on the amount of annual dividends or other distributions (such as loans or cash advances) that insurance companies may extend to their parent companies without prior approval. As of December 31, 2020, these amounts, including restricted GAAP net assets of the Company’s subsidiaries, were as follows:

(In billions)						2020
Minimum statutory surplus required by regulators						$	4.9
Investments on deposit with regulatory bodies						$	0.4
Maximum dividend distributions permitted in 2021 without regulatory approval						$	2.5
Maximum loans to the parent company permitted without regulatory approval						$	0.8
Restricted GAAP net assets of Cigna Corporation's subsidiaries						$	13.5

Permitted practices used by the Company’s insurance subsidiaries in 2020 that differed from prescribed regulatory accounting had an immaterial impact on statutory surplus.

Note 20 – Income Taxes

Accounting policy. Deferred income taxes are reflected in the Consolidated Balance Sheets for differences between the financial and income tax reporting bases of the Company’s underlying assets and liabilities, and established based upon enacted tax rates and laws. Deferred income tax assets are recognized when available evidence indicates that realization is more likely than not, and a valuation allowance is established to the extent this standard is not met. The deferred income tax provision generally represents the net change in deferred income tax assets and liabilities during the reporting period excluding adjustments to accumulated other comprehensive income or amounts recorded in connection with a business combination. The current income tax provision generally represents estimated amounts due on income tax returns for the year reported to various jurisdictions plus the effect of any uncertain tax positions. The Company recognizes a liability for uncertain tax positions if management believes the probability that the positions will be sustained is 50% or less. For uncertain positions that management believes are more likely than not to be sustained, the Company recognizes a liability based upon management's estimate of the most likely settlement outcome with the taxing authority. The

liabilities for uncertain tax positions are classified as current when the position is expected to be settled within 12 months or the statute of limitation expires within 12 months.

Income taxes attributable to the Company’s foreign operations are generally provided using the respective foreign jurisdictions’ tax rate.

The liquidity and regulatory capital requirements of our foreign operations and certain international growth initiatives are supported by retaining overseas a significant portion of the earnings generated by our foreign operations. This strategy does not materially limit Cigna's ability to meet the Company's liquidity and capital needs in the United States. The Company generally does not intend to repatriate these earnings.

**A.**Income Tax Expense

The components of income taxes for the years ended December 31 were as follows:

(In millions)						2020						2019						2018
Current taxes
U.S. income taxes						$	2,128					$	1,476					$	804
Foreign income taxes						334						173						185
State income taxes						303						114						47
Total current taxes						2,765						1,763						1,036
Deferred taxes (benefits)
U.S. income taxes (benefits)						(217)						(236)						(75)
Foreign income taxes						11						16						8
State income tax (benefits)						(180)						(93)						(34)
Total deferred taxes (benefits)						(386)						(313)						(101)
Total income taxes						$	2,379					$	1,450					$	935

Total income taxes for the years ended December 31 were different from the amount computed using the nominal federal income tax rate for the following reasons:

						2020												2019												2018
(In millions)						$						%						$						%						$						%
Tax expense at nominal rate						$	2,282					21.0			%			$	1,380					21.0			%			$	752					21.0			%
Effect of U.S. tax reform legislation						—						—						—						—						(4)						(0.1)
Impact of sale of business						104						1.0						—						—						—						—
Effect of foreign earnings						(61)						(0.6)						24						0.4						74						2.1
Health insurance industry tax						93						0.9						—						—						78						2.2
State income tax (net of federal income tax benefit)						24						0.2						32						0.5						10						0.3
Other						(63)						(0.6)						14						0.2						25						0.6
Total income taxes						$	2,379					21.9			%			$	1,450					22.1			%			$	935					26.1			%

Consolidated pre-tax income from the Company’s foreign operations was approximately 14% of the Company’s pre-tax income in 2020, 12% in 2019 and 15% in 2018.

**B.**Deferred Income Taxes

Deferred income tax assets and liabilities as of December 31, were as follows:

(In millions)						2020						2019
Deferred tax assets
Employee and retiree benefit plans						$	477					$	511
Other insurance and contractholder liabilities						278						282
Loss carryforwards						177						260
Other accrued liabilities						358						183
Other						209						218
Deferred tax assets before valuation allowance						1,499						1,454
Valuation allowance for deferred tax assets						(207)						(196)
Deferred tax assets, net of valuation allowance						1,292						1,258
Deferred tax liabilities
Depreciation and amortization						660						630
Acquisition-related basis differences						8,989						9,386
Policy acquisition expenses						289						113
Unrealized appreciation on investments and foreign currency translation						171						223
Other						122						293
Total deferred tax liabilities						10,231						10,645
Net deferred income tax (liabilities) assets						$	(8,939)					$	(9,387)

Management believes that future results will be sufficient to realize a majority of the Company’s gross deferred tax assets. Valuation allowances are established against deferred tax assets when it is determined that it is more likely than not that the asset will not be recognized. Valuation allowances have been established against certain federal, state and foreign tax attributes. There are multiple expiration dates associated with these tax attributes.

**C.**Uncertain Tax Positions and Other Tax Matters

Reconciliations of unrecognized tax benefits for the years ended December 31 follow:

(In millions)						2020						2019						2018
Balance at January 1,						$	1,018					$	928					$	35
Increase due to prior year positions						128						68						40
Increase due to business combinations						—						—						860
Increase due to current year positions						88						29						6
Reduction related to settlements with taxing authorities						—						—						(1)
Reduction related to lapse of applicable statute of limitations						(24)						(7)						(12)
Balance at December 31,						$	1,210					$	1,018					$	928

Substantially all unrecognized tax benefits would impact shareholders’ net income if recognized.

The Company classifies net interest expense on uncertain tax positions as a component of income tax expense and in Accrued expenses and other liabilities on the balance sheet. In addition to the amounts in the table above, the liability for net interest expense on uncertain tax positions was approximately $127 million as of December 31, 2020, $100 million as of December 31, 2019 and immaterial for 2018.

**D.**Other Tax Matters

The statute of limitations for Cigna's consolidated federal income tax returns through 2015 have closed. However, Cigna filed an amended return for the 2015 tax year, and it is being reviewed by the Internal Revenue Service (IRS). Additionally, the IRS has opened an examination of Cigna's 2017 return. It is expected that the IRS will add tax years 2016 and 2018 to the existing Cigna cycle. The IRS has examined Express Scripts’ tax returns for 2010 through 2012, for which there is a significant disputed tax matter, and is currently examining returns for 2013 through 2017. In addition, the Company has pending refund claims for various years.

The Company conducts business in a number of state and foreign jurisdictions and may be engaged in multiple audit proceedings at any given time. Generally, no further state or foreign audit activity is expected for tax years prior to 2012 for Cigna’s entities and 2006 for Express Scripts’ entities.

Note 21 – 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 December 31, 2020, employers maintained assets that generally exceeded the benefit obligations under these arrangements of approximately $450 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 December 31, 2020. 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 December 31, 2020 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 December 31, 2020.

**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 effects for existing or new guaranty fund assessments for the year ended December 31, 2020.

**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 service 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. See Note 20 for additional information on income tax matters.

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

Risk Corridors and CSR Litigation with the Federal Government. As a result of a Supreme Court decision in April 2020, the Company filed suit in early May 2020 against the United States in the U.S. Court of Federal Claims seeking to recover two types of payments the Federal Government owes Cigna under the risk corridors and cost-sharing reduction (“CSR”) programs of The Patient Protection and Affordable Care Act. In aggregate, the complaint seeks to recover more than $315 million: $120 million in risk corridors payments and more than $195 million in CSR payments. We received $120 million in payments in September 2020, which resolved our risk corridors claim. Our claim seeking recovery for CSR payments is stayed until either the Federal Circuit’s judgments in the CSR appeals become final and non-appealable or the Supreme Court resolves any petition for writ of certiorari.

Cigna Litigation with Anthem. In February 2017, the Company filed suit against Anthem, Inc. in the Delaware Court of Chancery (the “Chancery Court”) seeking, among other relief, payment of the $1.85 billion reverse termination fee under the parties’ 2015 merger agreement and damages. Anthem countersued, alleging its own claims for damages. A trial was held during the first quarter of 2019. In August 2020, the Chancery Court issued an opinion finding that, although Cigna breached its contractual obligation to use reasonable best efforts to support the Anthem/Cigna merger, its actions did not cause the merger to fail. The Court denied claims by both parties for damages and further denied Cigna’s claim for the reverse termination fee. The Company filed a Notice of Appeal with the Delaware Supreme Court on October 30, 2020, and seeks reversal of the portion of the Chancery Court’s decision denying Cigna the reverse termination fee. Briefing on the appeal was completed on January 29, 2021 and oral arguments are scheduled for April 14, 2021.

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. The current scheduling order runs through the completion of summary judgment briefing in August 2021. There is no tentative trial date.

Regulatory Matters

Civil Investigative Demand. The U.S. Department of Justice (“DOJ”) is conducting an industry-wide investigation of Medicare Advantage organizations’ risk adjustment practices under Medicare Parts C and D including medical chart reviews and health exams. For certain other Medicare Advantage organizations, the investigation has resulted in litigation. The Company is currently responding to information requests (civil investigative demands) received from the DOJ (U.S. Attorney’s Offices for the Eastern District of Pennsylvania and the Southern District of New York ("SDNY")). We will continue to cooperate with the DOJ’s investigation. Additionally, in relation to the SDNY’s pending investigation, a qui tam action that was filed by a relator 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 Cigna’s Medicare Advantage business. The DOJ has not intervened in the case at this time.

Note 22 – Segment Information

See Note 1 for a description of our segments. A description of our basis for reporting segment operating results is outlined below. Intersegment revenues primarily reflect pharmacy related transactions between the Evernorth and U.S. Medical segments. Effective with the first quarter of 2019, the Company began allocating compensation cost for stock options to segments. Prior year segment information was not restated for this change. A description of our basis for reporting segment operating results is outlined below.

The Company uses “pre-tax adjusted income from operations” and “adjusted revenues” as its principal financial measures of segment operating performance because management believes they best reflect the underlying results of business operations and permit

analysis of trends in underlying revenue, expenses and profitability. Pre-tax adjusted income from operations is defined as income before taxes excluding realized investment results, amortization of acquired intangible assets, special items and, for periods prior to 2020, earnings contribution from transitioning clients Anthem Inc. and Coventry Health Care, Inc. (the “transitioning clients”). As of December 31, 2019, the transition of these clients was substantially complete; therefore, beginning in 2020, we no longer exclude results of transitioning clients from our adjusted revenues and adjusted income from operations. Income or expense amounts that are excluded from adjusted income from operations because they are not indicative of underlying performance or the responsibility of operating segment management include:

• Realized investment gains (losses) including changes in market values of certain financial instruments between balance sheet dates, as well as gains and losses associated with invested asset sales.

• Amortization of acquired intangible assets because these relate to costs incurred for acquisitions.

• Results of transitioning clients, for periods prior to 2020, because those results were not indicative of ongoing results.

• Special items, if any, that management believes are not representative of the underlying results of operations due to the nature or size of these matters.

The Company does not report total assets by segment because this is not a metric used to allocate resources or evaluate segment performance.

Adjusted revenues is defined as revenues excluding: 1) revenue contribution from transitioning clients for periods prior to 2020; 2) the Company’s share of certain realized investment results of its joint ventures reported in the International Markets segment using the equity method of accounting; and 3) special items, if any.

The following tables present the special items recorded by the Company in 2020, 2019 and 2018.

						Three Months Ended

(In millions)						2020												2019												2018
Description of Special Item Charges (Benefits) and Financial Statement Line Item(s)						After-tax						Before-tax						After-tax						Before-tax						After-tax						Before-tax
Integration and transaction-related costs:
- Selling, general and administrative expenses						$	404					$	527					$	427					$	552					$	587					$	748
- Interest expense and other						—						—						—						—						179						227
- Net investment income						—						—						—						—						(97)						(123)
Integration and transaction-related costs						$	404					$	527					$	427					$	552					$	669					$	852
Debt extinguishment costs						$	151					$	199					$	—					$	—					$	—					$	—
Charge for organizational efficiency plan (Selling, general and administrative expenses)						24						31						162						207						—						—
Charges associated with litigation matters (Selling, general and administrative expenses)						19						25						41						51						19						25
Risk corridors recovery (Selling, general and administrative expenses)						(76)						(101)						—						—						—						—
Contractual adjustment for a former client (Pharmacy revenues)						(155)						(204)						—						—						—						—
(Gain) on sale of business						(3,217)						(4,203)						—						—						—						—
Charges (benefits) associated with tax reform:
- Selling, general and administrative expenses						$	—					$	—					$	—					$	—					$	1					$	2
- Tax (benefit)						—						—						—						—						(3)						—
Charges (benefits) associated with tax reform						$	—					$	—					$	—					$	—					$	(2)					$	2
Total impact from special items						$	(2,850)					$	(3,726)					$	630					$	810					$	686					$	879

Summarized segment financial information for the years ended December 31 was as follows:

(In millions)						Evernorth						U.S. Medical						International Markets						Group Disability and Other						Corporate and Eliminations						Total
2020
Revenues from external customers						$	112,647					$	36,027					$	5,853					$	4,630					$	—					$	159,157
Inter-segment revenues						3,655						1,977						—						23						(5,655)
Net investment income						32						447						154						611						—						1,244
Total revenues						$	116,334					$	38,451					$	6,007					$	5,264					$	(5,655)					$	160,401
Net realized investment results from certain equity method investments						—						—						(130)						—						—						(130)
Special item related to contractual adjustment for a former client						(204)						—						—						—						—						(204)
Adjusted revenues						$	116,130					$	38,451					$	5,877					$	5,264					$	(5,655)					$	160,067
Depreciation and amortization						$	2,248					$	426					$	68					$	35					$	25					$	2,802
Income (loss) before taxes						$	3,684					$	3,956					$	1,048					$	4,514					$	(2,334)					$	10,868
Pre-tax adjustments to reconcile to adjusted income from operations
(Income) attributable to noncontrolling interests						(17)						—						(20)						—						—						(37)
Net realized investment (gains) losses (1)						(17)						(77)						(161)						(24)						—						(279)
Amortization of acquired intangible assets						1,917						29						33						3						—						1,982
Special items
Integration and transaction-related costs						—						—						—						—						527						527
Debt extinguishment costs						—						—						—						—						199						199
Charge for organizational efficiency plan						—						—						—						—						31						31
Charges associated with litigation matters						—						—						—						—						25						25
Risk corridors recovery						—						(101)						—						—						—						(101)
Contractual adjustment for a former client						(204)						—						—						—						—						(204)
(Gain) on sale of business						—						—						—						(4,203)						—						(4,203)
Pre-tax adjusted income (loss) from operations						$	5,363					$	3,807					$	900					$	290					$	(1,552)					$	8,808
(In millions)						Evernorth						U.S. Medical						International Markets						Group Disability and Other						Corporate and Eliminations						Total
2019
Revenues from external customers						$	107,354					$	34,861					$	5,500					$	4,461					$	—					$	152,176
Inter-segment revenues						2,380						1,180						—						26						(3,586)
Net investment income (loss)						60						478						159						695						(2)						1,390
Total revenues						$	109,794					$	36,519					$	5,659					$	5,182					$	(3,588)					$	153,566
Revenue contribution from transitioning clients						(13,347)						—						—						—						—						(13,347)
Net realized investment results from certain equity method investments						—						—						(44)						—						—						(44)
Adjusted revenues						$	96,447					$	36,519					$	5,615					$	5,182					$	(3,588)					$	140,175
Depreciation and amortization						$	3,071					$	449					$	87					$	41					$	3					$	3,651
Income (loss) before taxes						$	3,983					$	3,904					$	785					$	562					$	(2,664)					$	6,570
Pre-tax adjustments to reconcile to adjusted income from operations
Adjustment for transitioning clients						(1,726)						—						—						—						—						(1,726)
(Income) attributable to noncontrolling interests						(4)						—						(16)						—						—						(20)
Net realized investment (gains) losses (1)						—						(112)						(43)						(66)						—						(221)
Amortization of acquired intangible assets						2,839						69						36						5						—						2,949
Special items
Integration and transaction-related costs						—						—						—						—						552						552
Charge for organizational efficiency plan						—						—						—						—						207						207
Charges associated with litigation matters						—						(30)						—						—						81						51
Pre-tax adjusted income (loss) from operations						$	5,092					$	3,831					$	762					$	501					$	(1,824)					$	8,362

*(1)*Includes the Company's share of certain realized investment gains (losses) of its joint ventures reported using the equity method of accounting.

(In millions)						Evernorth						U.S. Medical						International Markets						Group Disability and Other						Corporate and Eliminations						Total
2018
Revenues from external customers						$	5,902					$	31,759					$	5,174					$	4,335					$	—					$	47,170
Inter-segment revenues						1,154						573						—						14						(1,741)
Net investment income (loss)						9						459						149						712						151						1,480
Total revenues						$	7,065					$	32,791					$	5,323					$	5,061					$	(1,590)					$	48,650
Revenue contributions from transitioning clients						(459)						—						—						—						—						(459)
Net realized investment results from certain equity method investments						—						—						43						—						—						43
Special items reported in integration and transaction-related costs						—						—						—						—						(123)						(123)
Adjusted revenues						$	6,606					$	32,791					$	5,366					$	5,061					$	(1,713)					$	48,111
Depreciation and amortization						$	120					$	466					$	55					$	53					$	1					$	695
Income (loss) before taxes						$	329					$	3,342					$	670					$	497					$	(1,257)					$	3,581
Pre-tax adjustments to reconcile to adjusted income from operations
Adjustment for transitioning clients						(62)						—						—						—						—						(62)
(Income) attributable to noncontrolling interests						—						—						(14)						—						—						(14)
Net realized investment (gains) losses (1)						—						36						61						25						2						124
Amortization of acquired intangible assets						113						99						18						5						—						235
Special items
Integration and transaction-related costs						—						—						—						—						852						852
Charges associated with litigation matters						—						25						—						—						—						25
Charges (benefits) associated with tax reform						—						—						—						2						—						2
Pre-tax adjusted income (loss) from operations						$	380					$	3,502					$	735					$	529					$	(403)					$	4,743

*(1)*Includes the Company's share of certain realized investment gains (losses) of its joint ventures reported 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 years ended December 31:

(In millions)																		2020						2019						2018
Products (Pharmacy revenues) (ASC 606)
Network revenues																		$	53,574					$	50,431					$	1,415
Home delivery and specialty revenues																		48,792						47,768						3,997
Other																		5,403						4,900						67
Total pharmacy revenues																		$	107,769					$	103,099					$	5,479
Insurance premiums (ASC 944)
U.S. Medical premiums
U.S. Commercial
Health Insurance																		13,389						12,523						10,710
Stop loss																		4,614						4,328						4,008
Other																		1,135						1,040						1,038
U.S. Government
Medicare Advantage																		7,565						6,314						5,832
Medicare Part D																		1,593						1,699						764
Other																		4,301						4,185						4,496
Total U.S. Medical premiums																		32,597						30,089						26,848
International Markets premiums																		5,511						5,266						5,043
Domestic disability, life and accident premiums																		4,423						4,225						4,000
Other premiums																		96						134						222
Total premiums																		42,627						39,714						36,113
Services (ASC 606)
Fees																		8,532						9,229						5,558
Other external revenues																		229						134						20
Total services																		8,761						9,363						5,578
Total revenues from external customers																		$	159,157					$	152,176					$	47,170

Foreign and U.S. revenues from external customers for the three years ended December 31 are shown below. The Company’s foreign revenues are generated by its foreign operating entities. In the periods shown, no foreign country contributed more than 5% of consolidated revenues from external customers.

(In millions)						2020						2019						2018
United States						$	154,042					$	147,332					$	42,773
South Korea						2,123						2,022						2,093
All other foreign countries						2,992						2,822						2,304
Total						$	159,157					$	152,176					$	47,170

Revenues from U.S. Federal Government agencies, under a number of contracts, were 15% of consolidated revenues in 2020, 14% in 2019 and 16% in 2018.