Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



			PAGE

Executive Overview			37
Liquidity and Capital Resources			44
Critical Accounting Estimates			47
Segment Reporting			48
Evernorth			48
U.S. Medical			50
International Markets			51
Other Operations			52
Corporate			52
Investment Assets			53

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to provide information to assist you in better understanding and evaluating our financial condition as of September 30, 2021 compared with December 31, 2020 and our results of operations for the three and nine months ended September 30, 2021, compared with the same periods last year and is intended to help you understand the ongoing trends in our business. We encourage you to read this MD&A in conjunction with our Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2020 ("Form 10-K"). In particular, we encourage you to refer to the “Risk Factors” contained in Part I, Item 1A of the 2020 Form 10-K.

Unless otherwise indicated, financial information in this MD&A is presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”). See Note 2 to the Consolidated Financial Statements in our 2020 Form 10-K for additional information regarding the Company's significant accounting policies and see Note 2 to the Consolidated Financial Statements in this Form 10-Q for updates to those policies resulting from adopting new accounting guidance, if any. The preparation of interim consolidated financial statements necessarily relies heavily on estimates. This and certain other factors call for caution in estimating full-year results based on interim results of operations. In some of our financial tables in this MD&A, we present either percentage changes or “N/M” when those changes are so large as to become not meaningful. Changes in percentages are expressed in basis points (“bps”).

In this MD&A, our consolidated measures “adjusted income from operations,” earnings per share on that same basis and “adjusted revenues” are not determined in accordance with GAAP and should not be viewed as substitutes for the most directly comparable GAAP measures of “shareholders’ net income,” “earnings per share” and “total revenues.” We also use pre-tax adjusted income from operations and adjusted revenues to measure the results of our segments.

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. We define adjusted income from operations as shareholders’ net income (or income before taxes for the segment metric) excluding net realized investment results, amortization of acquired intangible assets and special items. Cigna’s share of certain realized investment results of its joint ventures reported in the International Markets segment using the equity method of accounting are also excluded. Special items are matters that management believes are not representative of the underlying results of operations due to their nature or size. Adjusted income (loss) from operations is measured on an after-tax basis for consolidated results and on a pre-tax basis for segment results. Consolidated adjusted income (loss) from operations is not determined in accordance with GAAP and should not be viewed as a substitute for the most directly comparable GAAP measure, shareholders’ net income. See the below Financial Highlights section for a reconciliation of consolidated adjusted income from operations to shareholders’ net income.

The Company defines adjusted revenues as total revenues excluding the following adjustments: special items and Cigna's share of certain realized investment results of its joint ventures reported in the International Markets segment using the equity method of accounting. Special items are matters that management believes are not representative of the underlying results of operations due to their nature or size. We exclude these items from this measure because management believes they are not indicative of past or future underlying performance of the business. Adjusted revenues is not determined in accordance with GAAP and should not be viewed as a

substitute for the most directly comparable GAAP measure, total revenues. See the below Financial Highlights section for a reconciliation of consolidated adjusted revenues to total revenues.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on Cigna’s current expectations and projections about future trends, events and uncertainties. These statements are not historical facts. Forward-looking statements may include, among others, statements concerning future financial or operating performance, including our ability to deliver affordable, personalized and innovative solutions for our customers and clients, including in light of the challenges presented by the COVID-19 pandemic; future growth, business strategy, strategic or operational initiatives; economic, regulatory or competitive environments, particularly with respect to the pace and extent of change in these areas; financing or capital deployment plans and amounts available for future deployment; our prospects for growth in the coming years; strategic transactions, including the sale of our international life, accident and supplemental benefits business; and other statements regarding Cigna’s future beliefs, expectations, plans, intentions, liquidity, cash flows, financial condition or performance. You may identify forward-looking statements by the use of words such as “believe,” “expect,” “plan,” “intend,” “anticipate,” “estimate,” “predict,” “potential,” “may,” “should,” “will” or other words or expressions of similar meaning, although not all forward-looking statements contain such terms.

Forward-looking statements are subject to risks and uncertainties, both known and unknown, that could cause actual results to differ materially from those expressed or implied in forward-looking statements. Such risks and uncertainties include, but are not limited to: our ability to achieve our strategic and operational initiatives; our ability to adapt to changes in an evolving and rapidly changing industry; the scale, scope and duration of the COVID-19 pandemic and its potential impact on our business, operating results, cash flows or financial condition; our ability to compete effectively, differentiate our products and services from those of our competitors and maintain or increase market share; price competition and other pressures that could compress our margins or result in premiums that are insufficient to cover the cost of services delivered to our customers; the potential for actual claims to exceed our estimates related to expected medical claims; our ability to develop and maintain satisfactory relationships with physicians, hospitals, other health service providers and with producers and consultants; our ability to maintain relationships with one or more key pharmaceutical manufacturers or if payments made or discounts provided decline; changes in the pharmacy provider marketplace or pharmacy networks; changes in drug pricing or industry pricing benchmarks; political, legal, operational, regulatory, economic and other risks that could affect our multinational operations; risks related to strategic transactions and realization of the expected benefits of such transactions, including with respect to the sale of our international life, accident and supplemental benefits business, as well as integration difficulties or underperformance relative to expectations; dependence on success of relationships with third parties; risk of significant disruption within our operations or among key suppliers or third parties; our ability to invest in and properly maintain our information technology and other business systems; our ability to prevent or contain effects of a potential cyberattack or other privacy or data security incident; potential liability in connection with managing medical practices and operating pharmacies, onsite clinics and other types of medical facilities; the substantial level of government regulation over our business and the potential effects of new laws or regulations or changes in existing laws or regulations; uncertainties surrounding participation in government-sponsored programs such as Medicare; the outcome of litigation, regulatory audits, investigations; compliance with applicable privacy, security and data laws, regulations and standards; potential failure of our prevention, detection and control systems; unfavorable economic and market conditions, stock market or interest rate declines, risks related to a downgrade in financial strength ratings of our insurance subsidiaries; the impact of our significant indebtedness and the potential for further indebtedness in the future; unfavorable industry, economic or political conditions; credit risk related to our reinsurers; as well as more specific risks and uncertainties discussed in Part I, Item 1A – Risk Factors of our 2020 Form 10-K, Part II, Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations of our 2020 Form 10-K, this MD&A and as described from time to time in our future reports filed with the Securities and Exchange Commission (the “SEC”).

You should not place undue reliance on forward-looking statements, which speak only as of the date they are made, are not guarantees of future performance or results and are subject to risks, uncertainties and assumptions that are difficult to predict or quantify. Cigna undertakes no obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise, except as may be required by law.

EXECUTIVE OVERVIEW

Cigna Corporation, together with its subsidiaries (either individually or collectively referred to as “Cigna,” the “Company,” “we,” “our” or “us”) is a global health services organization with a mission of helping those we serve improve their health, well-being and peace of mind by making health care simple, affordable and predictable. Our subsidiaries offer a differentiated set of pharmacy, medical, dental and related products and services. For further information on our business and strategy, see Item 1, "Business" in our 2020 Form 10-K.

Financial Highlights

See Note 1 to the Consolidated Financial Statements for a description of our segments. The commentary provided below describes our results for the three and nine months ended September 30, 2021 compared with the same periods in 2020. Unless specified otherwise, commentary applies to both the three and nine month periods.

Summarized below are certain key measures of our performance by segment for the three and nine months ended September 30, 2021 and 2020:


Financial highlights by segment
	Three Months Ended September 30,						Nine Months Ended September 30,
(Dollars in millions, except per share amounts)	2021		2020		% Change		2021		2020		% Change


Revenues
Adjusted revenues by segment
Evernorth	$	33,614	$	29,827	13	%	$	96,826	$	85,597	13	%
U.S. Medical	10,497		9,629		9		31,315		28,726		9
International Markets	1,588		1,440		10		4,718		4,342		9
Other Operations	140		1,314		(89)		408		3,981		(90)
Corporate, net of eliminations	(1,529)		(1,409)		(9)		(4,865)		(4,248)		(15)
Adjusted revenues	44,310		40,801		9		128,402		118,398		8

Net realized investment results from certain equity method investments	(22)		37		N/M		(12)		87		N/M
Special items	—		117		N/M		—		204		N/M
Total revenues	$	44,288	$	40,955	8	%	$	128,390	$	118,689	8	%
Shareholders’ net income	$	1,621	$	1,388	17	%	$	4,249	$	4,323	(2)	%
Adjusted income from operations	$	1,936	$	1,618	20	%	$	5,408	$	5,528	(2)	%
Earnings per share (diluted)
Shareholders’ net income	$	4.80	$	3.78	27	%	$	12.32	$	11.66	6	%
Adjusted income from operations	$	5.73	$	4.41	30	%	$	15.69	$	14.91	5	%
Pre-tax adjusted income (loss) from operations by segment
Evernorth	$	1,548	$	1,443	7	%	$	4,184	$	3,774	11	%
U.S. Medical	988		757		31		2,992		3,479		(14)
International Markets	250		208		20		746		809		(8)
Other Operations	33		70		(53)		70		279		(75)
Corporate, net of eliminations	(308)		(366)		16		(1,006)		(1,171)		14
Consolidated pre-tax adjusted income from operations	2,511		2,112		19		6,986		7,170		(3)

Income attributable to noncontrolling interests	16		10		60		39		27		44
Net realized investment gains (losses) (1)	46		69		(33)		116		69		68
Amortization of acquired intangible assets	(501)		(493)		(2)		(1,499)		(1,487)		(1)
Special items	(13)		106		N/M		(172)		(289)		40
Income before income taxes	$	2,059	$	1,804	14	%	$	5,470	$	5,490	—	%

*(1)*Includes 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.

For further analysis and explanation of each segment’s results, see the “Segment Reporting” section of this MD&A.


Consolidated Results of Operations (GAAP basis)
	Three Months Ended September 30,								Nine Months Ended September 30,
(Dollars in millions)	2021			2020			% Change		2021			2020			% Change


Pharmacy revenues	$	31,013		$	27,802		12	%	$	89,085		$	79,464		12	%
Premiums	10,275			10,682			(4)		30,812			31,928			(3)
Fees and other revenues	2,532			2,174			16		7,324			6,424			14
Net investment income	468			297			58		1,169			873			34
Total revenues	44,288			40,955			8		128,390			118,689			8
Pharmacy and other service costs	30,070			26,624			13		86,306			76,425			13
Medical costs and other benefit expenses	8,330			8,429			(1)		24,819			23,863			4
Selling, general and administrative expenses	3,093			3,301			(6)		9,368			10,106			(7)
Amortization of acquired intangible assets	501			493			2		1,499			1,487			1
Total benefits and expenses	41,994			38,847			8		121,992			111,881			9
Income from operations	2,294			2,108			9		6,398			6,808			(6)
Interest expense and other	(303)			(336)			10		(915)			(1,101)			17
Debt extinguishment costs	—			—			N/M		(141)			(199)			29


Net realized investment gains (losses)	68			32			113		128			(18)			N/M
Income before income taxes	2,059			1,804			14		5,470			5,490			—
Total income taxes	424			406			4		1,188			1,143			4
Net income	1,635			1,398			17		4,282			4,347			(1)
Less: Net income attributable to noncontrolling interests	14			10			40		33			24			38
Shareholders' net income	$	1,621		$	1,388		17	%	$	4,249		$	4,323		(2)	%
Consolidated effective tax rate	20.6		%	22.5		%	(190)	bps	21.7		%	20.8		%	90	bps
Medical customers (in thousands)
U.S. Medical									15,305			15,314			—	%
International Markets									1,736			1,668			4
Total									17,041			16,982			—	%


Reconciliation of Shareholders’ Net Income (GAAP) to Adjusted Income from Operations
	Dollars in Millions								Diluted Earnings Per Share
	Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,

	2021		2020		2021		2020			2021		2020		2021		2020
Shareholders’ net income	$	1,621	$	1,388	$	4,249	$	4,323		$	4.80	$	3.78	$	12.32	$	11.66
After-tax adjustments required to reconcile to adjusted income from operations
Net realized investment (gains) losses (1)	(42)		(64)		(99)		(75)			(0.12)		(0.17)		(0.29)		(0.20)
Amortization of acquired intangible assets	392		376		1,168		1,061			1.15		1.02		3.40		2.86

Special items
Debt extinguishment costs	—		—		110		151			—		—		0.32		0.41
Integration and transaction-related (benefits) costs	(35)		83		1		256			(0.10)		0.23		—		0.69
(Benefits) charges associated with litigation matters	—		—		(21)		19			—		—		(0.06)		0.05
Charge for organizational efficiency plan	—		—		—		24			—		—		—		0.06
Risk corridors recovery	—		(76)		—		(76)			—		(0.21)		—		(0.20)
Contractual adjustment for a former client	—		(89)		—		(155)			—		(0.24)		—		(0.42)


Total special items	(35)		(82)		90		219			(0.10)		(0.22)		0.26		0.59
Adjusted income from operations	$	1,936	$	1,618	$	5,408	$	5,528		$	5.73	$	4.41	$	15.69	$	14.91

*(1)*Includes 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.

COVID-19 Update

As Cigna closely monitors the evolving dynamics of the COVID-19 pandemic, the Company’s commitment to the health and safety of its employees, customers and clients remains our primary focus. Cigna firmly believes COVID-19 vaccinations help control the spread of the virus, limit the severity of the disease and save lives. The Company continues its work to increase vaccinations by enabling, educating and encouraging vaccine acceptance across all eligible populations. Cigna continues to provide access to care and supportive resources to help everyone it serves knowledgeably navigate the pandemic and take care of their physical and mental health during this time.

For the third quarter of 2021, COVID-19 impacts are most notable in our U.S. Medical segment as net unfavorable COVID-19 related impacts increased as compared with the same period in 2020. The unfavorable COVID-19 related impacts include increased direct costs of COVID-19 testing, treatment and vaccines as well as lower risk adjustment revenues in our Medicare Advantage business. For the nine months ended September 30, 2021 compared with the same period in 2020 the net unfavorable impacts reflect increased direct costs of COVID-19 testing, treatment and vaccines, the significant deferral of care by our customers in 2020, lower risk adjustment revenues in our Medicare Advantage business and increased disenrollment resulting from the economic effects of the pandemic. These impacts were partially offset by the absence of the premium relief programs implemented in the second quarter of 2020.

We continue to execute our business continuity plans over our operations such as optimizing purchasing volume across the pharmaceutical supply chain in order to mitigate risk of disruption with prescription drug supply due to ongoing global supply disruptions.

The situation surrounding COVID-19 remains fluid with continued uncertainty and a wide range of potential outcomes. We continue to actively manage our response and assess impacts to our financial position and operating results, as well as mitigate adverse developments in our business. There continues to be uncertainty surrounding the pace, duration and extent of the COVID-19 pandemic and its related impacts — including the vaccination efforts and new COVID-19 variants — on our results for the remainder of 2021 and beyond. We believe that such financial results may continue to be impacted by, among other things, vaccine related costs, higher medical costs to treat those affected by the virus, lower customer volumes due to a disrupted employment market, lower risk adjustment revenue due to disrupted care impeding appropriate documentation of customer risk profiles in our Medicare Advantage business, the pace at which costs return as well as the severity of costs for those who had previously deferred care, the potential for future deferral of care, or volatility in the economic markets.

For further information regarding the potential impact of COVID-19 on the Company, see “Risk Factors” contained in Part I, Item 1A of our 2020 Form 10-K.

Commentary: Three and Nine Months Ended September 30, 2021 versus Three and Nine Months Ended September 30, 2020

The commentary presented below, and in the segment discussions that follow, compare results for the three and nine months ended September 30, 2021 with results for the three and nine months ended September 30, 2020. Unless otherwise specified, commentary applies to both the three and nine month periods.

Shareholders’ net income increased for the three months ended September 30, 2021 compared with the same period last year, primarily driven by higher adjusted income from operations (see below). For the nine months ended September 30, 2021, shareholders' net income decreased slightly compared with the same period last year, reflecting a decline in adjusted income from operations (see below). For the nine months ended September 30, 2021 shareholders' net income increased on a per-share basis compared with the same period last year due to the favorable effect of the share repurchase program.

Adjusted income from operations increased for the three months ended September 30, 2021 compared with the same period last year, primarily resulting from higher earnings across our reporting segments, partially offset by the absence of earnings from the sold Group Disability and Life business. The increase in earnings in the Evernorth segment was primarily attributable to effective management of supply chain and business growth; in the U.S. Medical and International segments, earnings growth largely reflected significantly higher net investment income (see net investment income discussion below). For the nine months ended September 30, 2021, adjusted income from operations declined compared with the same period last year, primarily due to lower earnings in U.S. Medical reflecting the unfavorable impacts of COVID-19 and the absence of earnings from the sold Group Disability and Life business. These unfavorable effects were partially offset by increased earnings in the Evernorth segment. For the nine months ended September 30, 2021, adjusted income from operations increased on a per-share basis compared with the same period last year due to the favorable effect of the share repurchase program.

Medical customers were flat, reflecting growth in our Select, Individual, International Markets and Medicare Advantage businesses, offset by a lower customer base in our National Accounts and Middle Markets segments including disenrollment resulting from the economic impacts of the COVID-19 pandemic.

Pharmacy revenues increased, reflecting inflation on branded drugs and higher claim volume, primarily due to our collaboration with Prime Therapeutics. See the "Evernorth segment" section of this MD&A for further discussion of Pharmacy revenues.

Premiums were lower, reflecting the sale of the Group Disability and Life business. This effect was partially offset by an increase in U.S. Medical premiums resulting from increased customers in our insured businesses, higher premium rates due to anticipated underlying medical cost trend and, for the nine months ended September 30,2021 the absence of premium relief programs implemented in the second quarter of 2020 in response to deferred care due to the COVID-19 pandemic.

Fees and other revenues increased, primarily driven by growth in Evernorth's pharmacy services business.

Net investment income increased due to strong returns on our securities limited partnership investments, partially offset by lower average assets due to the sale of the Group Disability and Life business. See the "Investment Assets" section of this MD&A for further discussion.

Pharmacy and other service costs increased, reflecting inflation on branded drugs and higher claim volume, primarily due to our collaboration with Prime Therapeutics.

Medical costs and other benefit expenses decreased slightly for the three months ended September 30, 2021 compared with the same period last year, reflecting the sale of the Group Disability and Life business, largely offset by an increase in U.S. Medical due to higher costs of COVID-19 treatment, testing and vaccines and customer growth in our insured businesses. For the nine months ended September 30, 2021, the increase compared with the same period last year was due to higher medical costs in U.S. Medical for the reasons cited above and a significant reduction in deferred care in 2021 as compared to 2020. Most care was deferred in the second quarter of 2020, with claims returning to more normal levels beginning in the third quarter of 2020. These unfavorable effects were partially offset by the sale of the Group Disability and Life business.

Selling, general and administrative expenses decreased, primarily resulting from the sale of the Group Disability and Life business and the elimination of the health insurance industry tax. These favorable effects were partially offset by expense growth in Evernorth and U.S. Medical reflecting business growth.

Interest expense and other decreased due to lower levels of average outstanding debt resulting from debt repayments.

Debt extinguishment costs were lower for the nine months ended September 30, 2021 compared with the same period last year because the debt repaid in 2021 had lower interest rates than the debt repaid in 2020.

Realized investment results significantly improved, primarily due to favorable market value adjustments on equity securities in 2021 compared with 2020 and lower credit loss reserves on debt securities.

Effective tax rate. The decrease for the three months ended September 30, 2021 compared with the same period last year primarily reflects the repeal of the nondeductible health insurance industry tax in 2021. For the nine months ended September 30, 2021, the effective tax rate was higher than the same period last year, driven by recognition of certain incremental federal and state tax benefits in the first quarter of 2020, partially offset by the repeal of the nondeductible health insurance industry tax in 2021.

Developments

Medicare Star Quality Ratings (“Star Ratings”)

The Centers for Medicare & Medicaid Services ("CMS") uses a Star Rating system to measure how well Medicare Advantage (“MA”) plans perform, scoring how well plans perform in several categories, including quality of care and customer service. Star Ratings range from one to five stars. CMS recognizes plans with Star Ratings of four stars or greater with quality bonus payments and the ability to offer enhanced benefits. Approximately 87% of our MA customers were in four star or greater plans for bonus payments received in 2021 and approximately 88% were in four star or greater plans for bonus payments to be received in 2022; we expect this percentage to increase to 89% for bonus payments to be received in 2023.

Agreement to sell International Markets life, accident and supplemental benefits businesses

Cigna entered into a definitive agreement in October 2021 to sell its life, accident and supplemental benefits businesses in seven countries to Chubb INA Holdings, Inc. ("Chubb") for $5.75 billion cash. Subject to applicable regulatory approvals and customary closing conditions, we expect to complete the sale of our life, accident and supplemental benefits businesses in Hong Kong, Indonesia, New Zealand, South Korea, Taiwan, Thailand and our interest in a joint venture in Turkey in 2022. The “Liquidity and Capital Resources” section of this MD&A provides discussion of the expected impact of this transaction to liquidity.

Purchase of MDLIVE

As discussed in Note 4 to the Consolidated Financial Statements, on April 19, 2021 Cigna's Evernorth segment completed the acquisition of MDLIVE, Inc., a 24/7 virtual care platform. The acquisition of MDLIVE will enable Evernorth to continue expanding access to virtual care and delivering a more affordable, convenient and connected care experience for consumers. The “Liquidity and Capital Resources” section of this MD&A provides discussion of the impact of this transaction on liquidity.

Sale of Group Disability and Life Business

As discussed in Note 4 to the Consolidated Financial Statements, Cigna sold its U.S. Group Disability and Life business to New York Life Insurance Company for $6.2 billion on December 31, 2020. The “Liquidity and Capital Resources” section of this MD&A provides discussion of the use of proceeds from this divestiture.

Regulation

The "Business - Regulation" section of our 2020 Form 10-K provides a detailed description of The Patient Protection and Affordable Care Act (“ACA”) provisions and other legislative initiatives that impact our businesses, including regulations issued by the Centers for Medicare & Medicaid Services (“CMS”) and the Departments of the Treasury and Health and Human Services. Our businesses continue to operate in a dynamic environment, and the laws and regulations applicable to us, including the ACA, continue to be subject to legislative, regulatory and judicial challenges.

The Patient Protection and Affordable Care Act ("ACA")

ACA Litigation: As described in the “Business - Regulation” section of our 2020 Form 10-K, a federal district court ruled that the “individual mandate” in the ACA is unconstitutional and that the entire law must be struck down. On appeal, the Court of Appeals for the Fifth Circuit agreed that the “individual mandate” is unconstitutional but ordered the district court to reexamine whether the other provisions of the ACA can remain in effect, thereby leaving in doubt whether the entire ACA is unconstitutional until there is a final judicial determination on appeal. The California-led states and the U.S. House of Representatives filed petitions seeking to appeal the Fifth Circuit's ruling to the U.S. Supreme Court. The case was argued before the Supreme Court on November 10, 2020. On June 17, 2021, the Supreme Court issued its decision, upholding the ACA in its entirety. There are no changes to our business as a result of the decision.

Cost-Sharing Reduction Subsidies: The ACA provides for cost-sharing reductions that offset the amount that qualifying customers pay for deductibles, copays and coinsurance. The federal government stopped funding insurers for the cost-sharing reduction ("CSR”) subsidies in 2017. Certain insurers have sued the federal government for failure to pay cost-sharing reduction subsidies. In the first set of consolidated appeals, the Court of Appeals for the Federal Circuit issued a decision on August 14, 2020, finding that (i) the CSR reimbursement provision of the ACA imposes an obligation on the government to pay, but (ii) the insurers' damages must be reduced by the amount of additional premium tax credit payments that each insurer received as a result of the government’s termination of CSR payments. On February 19, 2021 two insurers filed a petition seeking Supreme Court review. On June 21, 2021, the Supreme Court declined the insurers’ petitions, which means the decision from the Court of Appeals for the Federal Circuit stands and will not

be modified further. As described in Note 15 to the Consolidated Financial Statements, we filed a lawsuit in May 2020 against the federal government seeking payment of these subsidies. Our case remains pending. Our premium rates for the 2018, 2019, 2020 and 2021 plan years reflected a lack of government funding for cost-sharing reduction subsidies.

Corporate Tax Reform. Recent proposals related to corporate tax reform propose raising corporate taxes, among other things. Some proposed reforms could have a material impact on our future results of operations. We will continue to monitor developments.

Medicare Part D Rebate Rule**.** As disclosed in the “Regulation” section of our 2020 Form 10-K, the United States Department of Health and Human Services (“HHS”) and the HHS Office of Inspector General (“HHS-OIG”) released a final rule in November 2020 which eliminated an anti-kickback regulatory safe harbor protection for price concessions, including rebates, that are offered by pharmaceutical manufacturers to plan sponsors or pharmacy benefit managers under the Medicare Part D program and created two new safe harbors. The two new safe harbors cover (i) price reductions by manufacturers to plan sponsors under Medicare Part D and Medicaid managed care organizations that are reflected at the time of dispense and (ii) fixed-fee service arrangements between manufacturers and pharmacy benefit managers. HHS previously delayed the elimination of the aforementioned regulatory safe harbor to January 1, 2023 and, in March 2021, HHS-OIG delayed the effective date for the two new safe harbors to January 1, 2023.

Transparency in Coverage. As previously disclosed in our 2020 Form 10-K, in October 2020, the Departments of Health and Human Services, Labor and the Treasury issued a final rule that requires most group health plans and health insurance issuers in the individual and group markets to disclose price and cost-sharing information for all items and services to participants and enrollees (the “Rule”). On August 20, 2021, the agencies jointly released guidance regarding the implementation of the Rule. Importantly, the guidance announced that the agencies will (i) indefinitely defer enforcement of the Rule’s requirement that plans and issuers publish machine-readable files relating to prescription drug pricing pending further rulemaking and (ii) defer enforcement of the Rule’s requirement to publish the remaining machine-readable files until July 1, 2022.

Risk Adjustment. As discussed in the “Regulation” and “Risk Factors” sections of our 2020 Form 10-K, our MA business is subject to reviews, including risk adjustment data validation (“RADV”) audits by CMS and the Office of the Inspector General (“OIG”). We expect that CMS, OIG and other federal agencies will continue to closely scrutinize components of the Medicare program.

The “Regulation” section of our 2020 Form 10-K also discusses a proposed rule issued by CMS in 2018 for RADV audits of contract year 2011 and all subsequent years that included, among other things, extrapolation of the error rate related to RADV audit findings without applying the adjustment for underlying fee-for-service data errors as currently contemplated by CMS’ RADV audit methodology. RADV audits for our contract years 2011 through 2015 are currently in process. CMS has announced its intent to use third-party auditors to audit all MA contracts by either a comprehensive or a targeted RADV review for each contract year. If the proposed rule is adopted in its current form, it could result in some combination of degraded plan benefits, higher monthly premiums and reduced choice for the population served by all MA insurers. The Company, along with other MA organizations and additional interested parties, submitted comments to CMS on the proposed rule as part of the notice-and-comment rulemaking process. The comment period concluded on August 28, 2019 and CMS issued guidance on October 20, 2021 extending the timeline to finalize the proposed rule until November 2022. If CMS adopts the rule as proposed, there could be a material impact on the Company’s future results of operations, though we expect the rule would be subject to legal challenges. In addition, the Company is subject to OIG RADV audits that are in process.

Also, as described in Note 15 to the Consolidated Financial Statements, the U.S. Department of Justice is currently conducting an industry-wide investigation of risk adjustment data submission practices and business processes, which in the case of certain other MA organizations has resulted in litigation.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity

We maintain liquidity at two levels: the subsidiary level and the parent company level.

Cash requirements at the subsidiary level generally consist of:

pharmacy, medical costs and other benefit payments;
expense requirements, primarily for employee compensation and benefits, information technology and facilities costs;
income taxes; and
debt service.

Our subsidiaries normally meet their liquidity requirements by:

maintaining appropriate levels of cash, cash equivalents and short-term investments;
using cash flows from operating activities;
matching investment durations to those estimated for the related insurance and contractholder liabilities;
selling investments; and
borrowing from affiliates, subject to applicable regulatory limits.

Cash requirements at the parent company level generally consist of:

debt service;
payment of declared dividends to shareholders;
lending to subsidiaries as needed; and
pension plan funding.

The parent company normally meets its liquidity requirements by:

maintaining appropriate levels of cash and various types of marketable investments;
collecting dividends from its subsidiaries;
using proceeds from issuing debt and common stock; and
borrowing from its subsidiaries, subject to applicable regulatory limits.

Dividends from our insurance, Health Maintenance Organization (“HMO”) and certain foreign subsidiaries are subject to regulatory restrictions. See Note 19 to the Consolidated Financial Statements in our 2020 Form 10-K for additional information regarding these restrictions. Most of Evernorth's subsidiaries are not subject to regulatory restrictions regarding dividends and therefore provide significant financial flexibility to Cigna.

Cash flows for the nine months ended September 30 were as follows:


	Nine Months Ended September 30,
(In millions)	2021		2020
Operating activities	$	2,916	$	6,056
Investing activities	$	(3,734)	$	(1,444)
Financing activities	$	(5,841)	$	(3,812)

The following discussion explains variances in the various categories of cash flows for the nine months ended September 30, 2021 compared with the same period in 2020.

Operating activities

Cash flows from operating activities consist principally of cash receipts and disbursements for pharmacy revenues and costs, premiums, fees, investment income, taxes, benefit costs and other expenses.

Cash flows from operating activities decreased, driven by increases in accounts receivable due to higher pharmacy claim volume and business growth, the timing of accounts payable and accrued liabilities, and approximately $800 million of tax payments related to the gain on sale of the Group Disability and Life business, partially offset by absence of the health insurance industry tax payment.

Investing and Financing activities

Cash flows used in investing activities increased, primarily due to the acquisition of MDLIVE and lower investment sale activity.

Cash used in financing activities increased, primarily due to higher stock repurchases including shares purchased pursuant to the ASR agreements (described below) and an increase in dividends paid, partially offset by lower debt repayments.

We maintain a share repurchase program authorized by our Board of Directors, under which we may repurchase shares of our common stock from time to time. The timing and actual number of shares repurchased will depend on a variety of factors including price, general business and market conditions and alternate uses of capital. The share repurchase program may be effected through open market purchases in compliance with Rule 10b-18 under the Securities Exchange Act of 1934, as amended, including through Rule 10b5-1 trading plans or privately negotiated transactions. The program may be suspended or discontinued at any time.

On August 23, 2021, as part of our existing share repurchase program, we entered into separate accelerated share repurchase agreements (“ASR agreements”) with Morgan Stanley & Co. LLC and JP Morgan Chase Bank, N.A. (collectively, the “Counterparties”) to repurchase $2.0 billion of common stock in aggregate. On August 24, 2021, in accordance with the ASR agreements we remitted $2.0 billion to the Counterparties and received an initial delivery of 7.7 million shares of our common stock. The final number of shares to be received under the ASR agreements will be determined based on the daily volume-weighted average share price of our common stock over the term of the agreements, less a discount and subject to adjustments pursuant to the terms and conditions of the ASR agreements. We expect final settlement under the ASR agreements to occur in the fourth quarter of 2021. At final settlement, we may be entitled to receive additional shares of our common stock from the Counterparties or we may be required to make a payment. If we are obligated to make a payment, we may elect to satisfy such obligation in cash or shares of our common stock.

For the nine months ended September 30, 2021, we repurchased 26.5 million shares for approximately $6.3 billion including the $2.0 billion paid under the ASR agreements. Share repurchase authority was $6.6 billion as of November 3, 2021.

Capital Resources

Our capital resources consist primarily of cash, cash equivalents and investments maintained at regulated subsidiaries required to underwrite insurance risks, cash flows from operating activities, our commercial paper program, credit agreements and the issuance of long-term debt and equity securities. Our businesses generate significant cash flow from operations, some of which is subject to regulatory restrictions relative to the amount and timing of dividend payments to the parent company. Dividends from U.S. regulated subsidiaries were $2.1 billion and $1.6 billion for the nine months ended September 30, 2021 and 2020, respectively. Non-regulated subsidiaries also generate significant cash flow from operating activities, which is typically available immediately to the parent company for general corporate purposes.

We prioritize our use of capital resources to:

Invest in capital expenditures, primarily related to technology to support innovative solutions for our customers, provide the capital necessary to maintain or improve the financial strength ratings of subsidiaries and to repay debt and fund pension obligations if necessary;
pay dividends to shareholders;
consider acquisitions that are strategically and economically advantageous; and
return capital to shareholders through share repurchases.

At September 30, 2021, our debt-to-capitalization ratio was 42.0%, an increase from 39.5% at December 31, 2020, reflecting an increase in short term debt levels in conjunction with the execution of the ASR agreements.

Sale of life, accident and supplemental benefits businesses in seven countries. Cigna entered into a definitive agreement in October 2021 to sell its life, accident and supplemental benefits businesses in seven countries to Chubb INA Holdings, Inc. ("Chubb") for $5.75 billion cash. Subject to applicable regulatory approvals and customary closing conditions, we expect to complete the sale of our life, accident and supplemental benefits businesses in Hong Kong, Indonesia, New Zealand, South Korea, Taiwan, Thailand and our interest in a joint venture in Turkey in 2022. Cigna estimates it will receive approximately $5.4 billion of net after-tax proceeds from this transaction and expects to utilize the after-tax proceeds from the transaction primarily for share repurchases.

MDLIVE Acquisition. In April 2021, Cigna completed its acquisition of MDLIVE, Inc. We funded this acquisition with cash on hand and commercial paper borrowings.

Group Disability and Life Sale. In connection with the sale of this business that closed on December 31, 2020, we deployed approximately $3.0 billion to debt repayment by: (i) repaying in full our $1.4 billion 364-Day Term Loan Credit Agreement entered into on April 1, 2020, on December 31, 2020; (ii) redeeming in full the $1.0 billion aggregate principal amount of Cigna’s Senior Floating Rate Notes due 2021 on January 15, 2021 at a redemption price calculated in accordance with the terms and conditions of the indenture governing the Notes; and (iii) repaying certain balances of our outstanding commercial paper in January 2021.

Commercial Paper Program. Cigna maintains a commercial paper program and may issue short-term, unsecured commercial paper notes privately placed on a discount basis through certain broker dealers at any time not to exceed an aggregate amount of $5.0 billion. The net proceeds of issuances have been and are expected to be used for general corporate purposes.

Revolving Credit Agreements. Our revolving credit agreements provide us with the ability to borrow amounts for general corporate purposes, including for the purpose of providing liquidity support if necessary under our commercial paper program discussed above.

Cigna's revolving credit agreements include a $3.0 billion five-year revolving credit and letter of credit agreement that expires in April 2026; a $1.0 billion three-year revolving credit agreement that expires in April 2024; and a $1.0 billion 364-day revolving credit agreement that will expire in April 2022.

See Note 6 to the Consolidated Financial Statements for further information on our credit agreements and commercial paper program.

Our capital management strategy to support the liquidity and regulatory capital requirements of our foreign operations and certain international growth initiatives is to retain overseas a significant portion of the earnings generated by our foreign operations. This strategy does not materially limit our ability to meet our liquidity and capital needs in the United States.

Liquidity and Capital Resources Outlook

We maintain sufficient liquidity to meet our cash needs through our cash and cash equivalents balances, cash flows from operations, commercial paper program, credit agreements and the issuance of long-term debt and equity securities. As of September 30, 2021, we had $5.0 billion of undrawn committed capacity under our revolving credit agreements (these amounts are available for general corporate purposes, including providing liquidity support for our commercial paper program), $2.3 billion of remaining capacity under our commercial paper program and $3.9 billion in cash and short-term investments, approximately $810 million of which was held by the parent company or certain non-regulated subsidiaries. We actively monitor our debt obligations and engage in issuance or redemption activities as needed in accordance with our capital management strategy. A description of our outstanding debt can be found in Note 6 to the Consolidated Financial Statements.

For the first nine months of 2021, Cigna declared and paid quarterly cash dividends of $1.00 per share of Cigna common stock. On October 27, 2021 the Board of Directors declared a quarterly cash dividend of $1.00 per share of Cigna common stock to be paid on December 22, 2021 to shareholders of record on December 7, 2021. Cigna currently intends to pay regular quarterly dividends, with future declarations subject to approval by its Board of Directors and the Board's determination that the declaration of dividends remains in the best interests of Cigna and its shareholders. The decision of whether to pay future dividends and the amount of any such dividends will be based on the Company's financial position, results of operations, cash flows, capital requirements, the requirements of applicable law and any other factors the Board of Directors may deem relevant.

Risks to our liquidity and capital resources outlook include cash projections that may not be realized and the demand for funds could exceed available cash if our ongoing businesses experience unexpected shortfalls in earnings or we experience material adverse effects from one or more risks or uncertainties described more fully in the "Risk Factors" section of our 2020 Form 10-K. Though we believe we have adequate sources of liquidity, significant disruption or volatility in the capital and credit markets could affect our ability to access those markets for additional borrowings or increase costs. In addition to the sources of liquidity discussed above, the parent company can borrow an additional $875 million from its subsidiaries without further approvals as of September 30, 2021.

Guarantees and Contractual Obligations

We are contingently liable for various contractual obligations entered into in the ordinary course of business. See Note 15 to the Consolidated Financial Statements for discussion of various guarantees.

We have updated long-term debt obligations and purchase obligations as of September 30, 2021 which were previously provided in our 2020 Form 10-K. Investment commitments are described in Note 9 to the Consolidated Financial Statements. There have been no material changes to other information presented in our table of guarantees and contractual obligations set forth in our 2020 Form 10-K.


(In millions, on an undiscounted basis)	Total		2021		2022 to 2023		2024 to 2025		Thereafter
On-Balance Sheet






Long-term debt (1)	$	48,499	$	319	$	5,876	$	6,735	$	35,569


Off-Balance Sheet
Purchase Obligations	$	3,428	$	918	$	1,628	$	563	$	319

*(1)*Amounts include scheduled interest payments, current maturities of long-term debt and finance leases.

CRITICAL ACCOUNTING ESTIMATES

The preparation of Consolidated Financial Statements in accordance with GAAP requires management to make estimates and assumptions that affect reported amounts and related disclosures in the Consolidated Financial Statements. Management considers an accounting estimate to be critical if:

it requires assumptions to be made that were uncertain at the time the estimate was made; and
changes in the estimate or different estimates that could have been selected could have a material effect on our consolidated results of operations or financial condition.

Management has discussed how critical accounting estimates are developed and selected with the Audit Committee of our Board of Directors and the Audit Committee has reviewed the disclosures presented in the 2020 Form 10-K. We regularly evaluate items that may impact critical accounting estimates.

Our most critical accounting estimates, as well as the effect of hypothetical changes in material assumptions used to develop each estimate, are described in the 2020 Form 10-K. As of September 30, 2021, there were no significant changes to the critical accounting estimates from what was reported in our 2020 Form 10-K.

Goodwill and Other Intangible Assets

Our annual evaluations of goodwill and other intangible assets for impairments were completed during the third quarter of 2021. These evaluations were performed at the reporting unit level, based on discounted cash flow analyses or market data. The estimated fair value of each of our reporting units exceeded their carrying values by significant margins.

Management believes the current assumptions used to estimate amounts reflected in our Consolidated Financial Statements are appropriate. However, if actual experience significantly differs from the assumptions used in estimating amounts reflected in our Consolidated Financial Statements, the resulting changes could have a material adverse effect on our consolidated results of operations and in certain situations, could have a material adverse effect on liquidity and our financial condition.

SEGMENT REPORTING

The following section of this MD&A discusses the results of each of our segments. See Note 1 to the Consolidated Financial Statements for a description of our segments.

In segment discussions, we present adjusted revenues and “pre-tax adjusted income from operations,” defined as income before taxes excluding realized investment gains (losses), amortization of acquired intangible assets and special items. Ratios presented in this segment discussion exclude the same items as pre-tax adjusted income from operations. See Note 16 to the Consolidated Financial Statements for additional discussion of these metrics and a reconciliation of income before income taxes to pre-tax adjusted income from operations, as well as a reconciliation of total revenues to adjusted revenues. Note 16 to the Consolidated Financial Statements also explains that segment revenues include both external revenues and sales between segments that are eliminated in Corporate.

In these segment discussions, we also present “pre-tax adjusted margin,” defined as pre-tax adjusted income from operations divided by adjusted revenues.

Evernorth Segment

Evernorth includes a broad range of coordinated and point solution health services, including pharmacy solutions, benefits management solutions, care solutions and intelligence solutions. As described in the introduction to Segment Reporting, Evernorth performance is measured using the below metrics:

Adjusted gross profit and pre-tax adjusted income from operations, which exclude the impact of special items.
Adjusted pharmacy script volume is calculated by multiplying the total non-specialty network scripts filled through 90-day programs and home delivery scripts by three and counting all other network and specialty scripts as one script.
Generic fill rate is defined as the total number of generic scripts divided by the total overall scripts filled. Generally, higher generic fill rates reduce revenues, as generic drugs are typically priced lower than the branded drugs they replace. However, as ingredient cost paid to pharmacies on generic drugs is incrementally lower than the price charged to our clients, higher generic fill rates generally have a favorable impact on our gross profit. The home delivery generic fill rate is currently lower than the network generic fill rate as fewer generic substitutions are available among maintenance medications (such as therapies for chronic conditions) commonly dispensed from home delivery pharmacies as compared to acute medications that are primarily dispensed by pharmacies in our retail networks.

The key factors that impact Evernorth revenues and costs of revenues are volume, mix of claims and price. These key factors are discussed further below. See Note 3 to the Consolidated Financial Statements included in our 2020 Form 10-K for additional information on revenue and cost recognition policies for this segment.

As our clients’ claim volumes increase or decrease, our resulting revenues and cost of revenues correspondingly increase or decrease. Our gross profit could also increase or decrease as a result of changes in purchasing discounts.
The mix of claims generally considers the type of drug and distribution method used for dispensing and fulfilling. Types of drugs can have an impact on our pharmacy revenues, pharmacy and other service costs and gross profit, including amounts payable under certain financial and performance guarantees with our clients. In addition to the types of drugs, the mix of generic claims (i.e., generic fill rate) also impacts our gross profit. Furthermore, our gross profit differs among network, home delivery and specialty distribution methods and can impact our profitability.
Our client contract pricing is impacted by our ongoing ability to negotiate supply chain contracts for pharmacy network, pharmaceutical and wholesaler purchasing and manufacturer rebates. As we seek to improve the effectiveness of our integrated solutions for the benefit of our clients, we are continuously innovating and optimizing the supply chain. Our gross profit could also increase or decrease as a result of supply chain initiatives implemented. Inflation also impacts our pricing because most of our contracts provide that we bill clients and pay pharmacies based on a generally recognized price index for pharmaceuticals. Therefore, the rate of inflation for prescription drugs and our efforts to manage this inflation for our clients can affect our revenues and cost of revenues.

In this MD&A, we present revenues and gross profit, as well as adjusted revenues and adjusted gross profit, consistent with our segment reporting metrics, which exclude special items.

Results of Operations


Financial Summary	Three Months Ended September 30,						Change Favorable (Unfavorable)		Nine Months Ended September 30,						Change Favorable (Unfavorable)
(Dollars in millions)	2021			2020			2021		2020


Total revenues	$	33,614		$	29,944		12	%	$	96,826		$	85,801		13	%

Less: Contractual adjustment for a former client	—			(117)			N/M		—			(204)			N/M
Adjusted revenues(1)	$	33,614		$	29,827		13	%	$	96,826		$	85,597		13	%
Gross profit	$	2,161		$	2,107		3	%	$	6,079		$	5,589		9	%
Adjusted gross profit(1)	$	2,161		$	1,990		9	%	$	6,079		$	5,385		13	%
Pre-tax adjusted income from operations	$	1,548		$	1,443		7	%	$	4,184		$	3,774		11	%
Pre-tax adjusted margin	4.6		%	4.8		%	(20)	bps	4.3		%	4.4		%	(10)	bps


	Three Months Ended September 30,						Change Favorable (Unfavorable)		Nine Months Ended September 30,						Change Favorable (Unfavorable)
(Dollars and adjusted scripts in millions)	2021			2020			2021		2020
Selected Financial Information(1)
Pharmacy revenue by distribution channel
Adjusted network revenues	$	16,488		$	14,522		14	%	$	47,792		$	41,179		16	%
Adjusted home delivery and specialty revenues	13,796			12,699			9		39,911			37,111			8
Other revenues	1,701			1,412			20		4,708			3,946			19
Total adjusted pharmacy revenues	$	31,985		$	28,633		12	%	$	92,411		$	82,236		12	%
Pharmacy script volume
Adjusted network scripts(2)	340			309			10	%	1,002			890			13	%
Adjusted home delivery and specialty scripts(2)	71			72			(1)		212			215			(1)
Total adjusted scripts(2)	411			381			8	%	1,214			1,105			10	%
Generic fill rate
Network	86.3		%	87.0		%	(70)	bps	86.3		%	87.9		%	(160)	bps
Home delivery	85.9		%	85.3		%	60	bps	85.8		%	85.1		%	70	bps
Overall generic fill rate	86.3		%	86.9		%	(60)	bps	86.3		%	87.6		%	(130)	bps

*(1)*Amounts exclude special items.

*(2)*Non-specialty network scripts filled through 90-day programs and home delivery scripts are multiplied by three. All other network and specialty scripts are counted as one script.

Three and Nine Months Ended September 30, 2021 versus Three and Nine Months Ended September 30, 2020

Adjusted network revenues. The increases reflected increased prices, primarily due to inflation on branded drugs and higher claims volume, primarily due to our collaboration with Prime Therapeutics. These increases were partially offset by claims mix, primarily due to an increase in the generic fill rate when excluding the impact of COVID-19 vaccines.

Adjusted home delivery and specialty revenues. The increases reflected increased prices, primarily due to inflation on branded drugs, as well as higher specialty claims volume due in part to our collaboration with Prime Therapeutics. These increases were partially offset by lower home delivery claims volume and claims mix due to an increase in the generic fill rate.

Other revenues. The increases reflected higher volume from our CuraScript Specialty Distribution business.

Adjusted gross profit. For the three and nine months ended September 30, 2021, the increase reflected benefits from the effective management of supply chain, customer growth and higher adjusted pharmacy script volumes, primarily due to our collaboration with Prime Therapeutics. For the nine months ended September 30, 2021, the increase also reflected an increase in specialty pharmacy services.

Pre-tax adjusted income from operations. For the three and nine months ended September 30, 2021, the increase reflected benefits from the effective management of supply chain, customer growth and higher adjusted pharmacy script volumes, primarily due to our collaboration with Prime Therapeutics, partially offset by strategic investments. For the nine months ended September 30, 2021, the increase also reflected an increase in specialty pharmacy services.

U.S. Medical Segment

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 to support whole-person health needs. U.S. Commercial products and services include medical, pharmacy, behavioral health, dental, vision, health advocacy programs and other products and services for insured and administrative services only ("ASO") 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. As described in the introduction to Segment Reporting, performance of the U.S. Medical segment is measured using pre-tax adjusted income from operations. Key factors affecting profitability for this segment include:

customer growth;
revenues from integrated specialty products, including pharmacy services sold to clients and customers across all funding solutions;
percentage of Medicare Advantage customers in plans eligible for quality bonus payments;
benefit expenses as a percentage of premiums (medical care ratio or “MCR”) for our insured commercial and government businesses; and
selling, general and administrative expense as a percentage of adjusted revenues (expense ratio).

Results of Operations


Financial Summary	Three Months Ended September 30,						Change Favorable (Unfavorable)		Nine Months Ended September 30,						Change Favorable (Unfavorable)
(Dollars in millions)	2021			2020				2021	2020


Adjusted revenues	$	10,497		$	9,629		9	%	$	31,315		$	28,726		9	%
Pre-tax adjusted income from operations	$	988		$	757		31	%	$	2,992		$	3,479		(14)	%
Pre-tax adjusted margin	9.4		%	7.9		%	150	bps	9.6		%	12.1		%	(250)	bps
Medical care ratio	84.4		%	82.6		%	(180)	bps	83.9		%	77.2		%	(670)	bps
Expense ratio	20.1		%	21.8		%	170	bps	20.0		%	22.2		%	220	bps

Three and Nine Months Ended September 30, 2021 versus Three and Nine Months Ended September 30, 2020

Adjusted revenues increased for the three months and nine months ended September 30, 2021 compared with the same periods in 2020 reflecting customer growth in our Medicare Advantage and Individual businesses, higher premium rates due to anticipated underlying medical cost trend and higher net investment income. The nine months ended increase also reflects the absence of the premium relief programs for clients implemented in the second quarter of 2020 in response to significantly lower than historical utilization as individuals deferred care due to the COVID-19 pandemic.

Pre-tax adjusted income from operations increased for the three months ended September 30, 2021 compared with the same period in 2020. The increase is due to higher net investment income, increased specialty contributions and the repeal of the health insurance industry tax; partially offset by net unfavorable COVID-19 related impacts. The unfavorable COVID-19 related impacts include increased direct costs of COVID-19 testing, treatment and vaccines as well as lower risk adjustment revenues in our Medicare Advantage business. Pre-tax adjusted income from operations decreased for the nine months ended September 30, 2021 compared with the same period in 2020. The decrease is due to net unfavorable COVID-19 related impacts; partially offset by higher net investment income, increased specialty contributions and the repeal of the health insurance industry tax. The unfavorable COVID-19 related impacts include increased direct costs of COVID-19 testing, treatment and vaccines, the significant deferral of care by our customers in 2020, lower risk adjustment revenues in our Medicare Advantage business and increased disenrollment resulting from the economic effects of the pandemic. These impacts were partially offset by the absence of the premium relief programs implemented in the second quarter of 2020. COVID-19 impacts for the remainder of 2021 and beyond may vary as discussed in the "COVID-19 Update" section of this MD&A.

The medical care ratio increased for the three months and nine months ended September 30, 2021 compared with the same periods in 2020, reflecting COVID-19 related impacts and the repeal of the health insurance industry tax. The unfavorable COVID-19 related impacts primarily reflect higher direct COVID-19 testing, treatment and vaccine costs. The nine months ended September 30, 2021 increase also reflects the impact of the COVID-19 related deferred utilization experienced in the second quarter of 2020; partially offset by the absence of the premium relief programs.

The expense ratio decreased for the three months and nine months ended September 30, 2021 compared with the same periods in 2020, reflecting the repeal of the health insurance industry tax and increased revenue.

Medical Customers


	As of September 30,
(In thousands)	2021	2020	% Change



U.S. Commercial	2,135	2,120	1	%
U.S. Government	1,517	1,413	7	%
Insured	3,652	3,533	3	%
Service	11,653	11,781	(1)	%
Total	15,305	15,314	—	%

Our medical customer base was flat at September 30, 2021 compared with the same period in 2020, reflecting a lower customer base in our National Accounts and Middle Markets segments including disenrollment resulting from the economic impacts of the COVID-19 pandemic; partially offset by growth in our Select segment as well as our Individual and Medicare Advantage businesses.

A medical customer is defined as a person meeting any one of the following criteria:

is covered under a medical insurance policy, managed care arrangement or service agreement issued by us;
has access to our provider network for covered services under their medical plan; or
has medical claims that are administered by us.

Unpaid Claims and Claim Expenses


(In millions)	As of September 30, 2021		As of December 31, 2020		% Change


Unpaid claims and claim expenses – U.S. Medical	$	3,846	$	3,184	21	%

Our unpaid claims and claim expenses liability was higher as of September 30, 2021 compared with December 31, 2020, primarily due to stop loss seasonality, Medicare Part D invoice cycle timing and customer growth in our Individual business.

International Markets Segment

As described in the introduction to Segment Reporting, performance of the International Markets segment is measured using pre-tax adjusted income from operations. Key factors affecting pre-tax adjusted income from operations for this segment are:

premium growth, including new business and customer retention;
benefit expenses as a percentage of premiums (loss ratio);
selling, general and administrative expense as a percentage of revenues (expense ratio and acquisition cost ratio); and
the impact of foreign currency movements.

Results of Operations


Financial Summary	Three Months Ended September 30,						Change Favorable (Unfavorable)		Nine Months Ended September 30,						Change Favorable (Unfavorable)
(Dollars in millions)	2021			2020				2021	2020


Adjusted revenues	$	1,588		$	1,440		10	%	$	4,718		$	4,342		9	%
Pre-tax adjusted income from operations	$	250		$	208		20	%	$	746		$	809		(8)	%
Pre-tax adjusted margin	15.7		%	14.4		%	130	bps	15.8		%	18.6		%	(280)	bps
Loss ratio	60.9		%	57.4		%	(350)	bps	60.0		%	55.1		%	(490)	bps
Acquisition cost ratio	11.2		%	11.8		%	60	bps	11.1		%	10.9		%	(20)	bps
Expense ratio (excluding acquisition costs)	17.4		%	19.5		%	210	bps	17.8		%	18.7		%	90	bps

Three and Nine Months Ended September 30, 2021 versus Three and Nine Months Ended September 30, 2020

Adjusted revenues increased primarily due to business growth, higher net investment income, and the absence of COVID-19 related premium relief programs for the three months ended September 30, 2021. For the nine months ended September 30, 2021, adjusted revenues increased primarily due to favorable foreign currency movements, business growth, higher net investment income, and the absence of COVID-19 related premium relief programs.

Pre-tax adjusted income from operations increased reflecting higher net investment income and lower expense ratios, partially offset by higher loss ratios for the three months ended September 30, 2021. For the nine months ended September 30, 2021, pre-tax adjusted income from operations decreased reflecting higher loss and acquisition ratios, partially offset by higher net investment income, favorable foreign currency movements, lower expense ratios, and business growth. The loss, acquisition and expense ratios for both the three and nine months ended September 30, 2020 reflected the unfavorable impact of COVID-19 related premium relief programs.

The segment’s loss ratio increased reflecting higher claims largely due to the impact of the COVID-19 pandemic, including the absence of the favorable impact of lower medical utilization in 2020 and the direct costs of COVID-19 testing and treatment.

The acquisition cost ratio decreased reflecting lower amortization expenses in Asia and the absence of the unfavorable impact of COVID-19 related premium relief programs for the three months ended September 30, 2021. For the nine months ended September 30, 2021, the acquisition cost ratio increased reflecting the absence of the favorable impact from a refinement to the accounting for acquisition costs, largely offset by lower amortization expenses in Asia.

The expense ratio (excluding acquisition costs) decreased mainly driven by lower spend across markets.

Other Items Related to International Markets Results

South Korea is the single largest geographic market for our International Markets segment. For the nine months ended September 30, 2021, South Korea generated 38% of the segment’s adjusted revenues and 63% of the segment’s pre-tax adjusted income from operations.

Other Operations

Prior to the sale of the Group Disability and Life business on December 31, 2020, Other Operations included Cigna’s Group Disability and Life business which offered group long-term and short-term disability and group life, accident, voluntary and specialty insurance products and services. Additionally, for 2021 and 2020, this segment includes Corporate Owned Life Insurance (“COLI”) and the Company’s run-off operations. As described in the introduction of Segment Reporting, performance of Other Operations is measured using pre-tax adjusted income from operations. Key factors affecting pre-tax adjusted income from operations are:

premiums;
net investment income;
benefit expenses as a percentage of premiums (loss ratio); and
selling, general and administrative expense as a percentage of revenues excluding net investment income (expense ratio).

Results of Operations


Financial Summary	Three Months Ended September 30,						Change Favorable (Unfavorable)		Nine Months Ended September 30,						Change Favorable (Unfavorable)
(Dollars in millions)	2021			2020				2021	2020


Adjusted revenues	$	140		$	1,314		(89)	%	$	408		$	3,981		(90)	%
Pre-tax adjusted income from operations	$	33		$	70		(53)	%	$	70		$	279		(75)	%
Pre-tax adjusted margin	23.6		%	5.3		%	1830	bps	17.2		%	7.0		%	1,020	bps

Three and Nine Months Ended September 30, 2021 versus Three and Nine Months Ended September 30, 2020

Adjusted revenues and pre-tax adjusted income from operations decreased due to the sale of the Group Disability and Life business on December 31, 2020. Because the sold business constituted the vast majority of the segment's operations, we experienced a substantial decline in adjusted revenues and adjusted income from operations in this segment in 2021 as compared to 2020.

Corporate

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.


Financial Summary	Three Months Ended September 30,				Change Favorable (Unfavorable)		Nine Months Ended September 30,				Change Favorable (Unfavorable)
(In millions)	2021		2020			2021	2020



Pre-tax adjusted (loss) from operations	$	(308)	$	(366)	16	%	$	(1,006)	$	(1,171)	14	%

Three and Nine Months Ended September 30, 2021 versus Three and Nine Months Ended September 30, 2020

Pre-tax adjusted loss from operations was lower, reflecting lower interest expense.

INVESTMENT ASSETS

The following table presents our investment asset portfolio excluding separate account assets as of September 30, 2021 and December 31, 2020. Additional information regarding our investment assets is included in Notes 9, 10, 11 and 12 to the Consolidated Financial Statements.


(In millions)	September 30, 2021		December 31, 2020
Debt securities	$	17,857	$	18,131
Equity securities	551		501
Commercial mortgage loans	1,525		1,419
Policy loans	1,329		1,351
Other long-term investments	3,429		2,832
Short-term investments	439		359
Total	$	25,130	$	24,593

Investment Assets related to the international life, accident and supplemental benefits businesses subject to the recently announced divestiture (described in the Developments section of this MD&A) were approximately $4.9 billion as of September 30, 2021.

Debt Securities

Investments in debt securities include publicly-traded and privately-placed bonds, mortgage and other asset-backed securities and preferred stocks redeemable by the investor. These investments are classified as available for sale and are carried at fair value on our balance sheet. Additional information regarding valuation methodologies, key inputs and controls is included in Note 10 to the Consolidated Financial Statements. More detailed information about debt securities by type of issuer and maturity dates is included in Note 9 to the Consolidated Financial Statements.

The following table reflects our portfolio of debt securities by type of issuer as of September 30, 2021 and December 31, 2020:


(In millions)	September 30, 2021		December 31, 2020
Federal government and agency	$	382	$	456
State and local government	169		167
Foreign government	2,519		2,511
Corporate	14,313		14,562
Mortgage and other asset-backed	474		435
Total	$	17,857	$	18,131

Our debt securities portfolio decreased slightly during the first nine months of 2021 reflecting a decrease in valuations due to increasing yields, offset by net purchase activity.

As of September 30, 2021, $15.3 billion, or 86% of the debt securities in our investment portfolio were investment grade (Baa and above, or equivalent) and the remaining $2.6 billion were below investment grade. The majority of the bonds that are below investment grade are rated at the higher end of the non-investment grade spectrum. These quality characteristics have not materially changed since the prior year and remain consistent with our investment strategy.

Investments in debt securities are diversified by issuer, geography and industry. On an aggregate basis, the debt securities portfolio continues to perform according to original investment expectations. However, due to the economic impacts of the COVID-19 pandemic, there are certain issuers, particularly within the aviation, energy and hospitality sectors, that are showing signs of distress, primarily in the form of requests for temporary covenant relief. There were no material unrealized losses in any of these sectors as of the reporting date. We continue to monitor the economic environment and its effect on our portfolio and consider the impact of various

factors in determining the allowance for credit losses on debt securities, which is discussed in Note 9 to the Consolidated Financial Statements.

Foreign government obligations are concentrated in Asia, primarily South Korea and Taiwan, consistent with our risk management practice and local regulatory requirements of our international business operations. We expect the amount of these foreign government obligations to decrease significantly during 2022 upon the close of our sale of certain International Markets businesses as discussed in the "Developments" section of this MD&A. Debt securities include private placement assets of $6.0 billion. These investments are generally less marketable than publicly-traded bonds; however, yields on these investments tend to be higher than yields on publicly-traded bonds with comparable credit risk. We perform a credit analysis of each issuer and require financial and other covenants that allow us to monitor issuers for deteriorating financial strength and pursue remedial actions, if warranted.

Commercial Mortgage Loans

As of September 30, 2021, the $1.5 billion commercial mortgage loan portfolio consisted of approximately 50 loans that are in good standing. Our commercial mortgage loans are fixed rate loans, diversified by property type, location and borrower. Given the quality and diversity of the underlying real estate, positive debt service coverage and significant borrower cash invested in the property generally ranging between 30 and 40%, we remain confident that the vast majority of borrowers will continue to perform as expected under their contract terms. For further discussion of the results and changes in key loan metrics, see Note 9 to the Consolidated Financial Statements.

Loans are secured by high quality commercial properties, located in strong institutional markets and are generally made at less than 65% of the property’s value at origination of the loan. Property value, debt service coverage, quality, building tenancy and stability of cash flows are all important financial underwriting considerations. We hold no direct residential mortgage loans and do not originate or service securitized mortgage loans.

Our annual in-depth review of our commercial mortgage loan investments is the primary mechanism for monitoring the overall quality rating of the mortgage portfolio. We completed the annual in-depth review in the second quarter of 2021 that included an analysis of each underlying property’s most recent annual financial statements, rent rolls, operating plans, a physical inspection of the property and a review of applicable market reports. The results of this annual review confirmed that the overall credit quality of our portfolio remains strong and was generally in line with the previous year’s results.

COVID-19 has negatively impacted commercial real estate fundamentals and capital market activity with concentrated weakness in hotels and regional malls. Our mortgage loan portfolio is well diversified by property type and geography with no material exposure to hotels and no exposure to regional shopping malls. We continue to monitor the long-term impacts on the office sector due to growing headwinds: expanded remote working flexibility, shorter term leases and corporate migration to lower cost states. Our mortgage loans secured by office properties are in good standing.

Other Long-term Investments

Other long-term investments of $3.4 billion as of September 30, 2021 included investments in securities limited partnerships and real estate limited partnerships, direct investments in real estate joint ventures and other deposit activity that is required to support various insurance and health services businesses. The increase in other long-term investments is primarily driven by net additional funding activity and value creation in the underlying funds. These limited partnership entities typically invest in mezzanine debt or equity of privately-held companies and equity real estate. Given our subordinate position in the capital structure of these underlying entities, we assume a higher level of risk for higher expected returns. To mitigate risk, these investments are diversified across approximately 200 separate partnerships and approximately 100 general partners who manage one or more of these partnerships. Also, the underlying investments are diversified by industry sector or property type and geographic region. No single partnership investment exceeded 4% of our securities and real estate limited partnership portfolio.

Income from our limited partnership investments is generally 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. Our net investment income increased significantly versus the first nine months of 2020 driven by the strong performance of assets underlying our limited partnership investments. The broad recovery has resulted in strong corporate earnings and higher public and private asset valuations and valuation recovery through the second quarter of 2021 is generally reflected in third quarter results consistent with the financial information reporting lag. We expect volatility in private equity and real estate fund performance going forward as fair market valuations are adjusted to reflect market and portfolio transactions.

We participate in an insurance joint venture in China with a 50% ownership interest. We account for this joint venture on the equity method of accounting and report our share of the net assets of $0.9 billion in Other assets. Our 50% share of the investment portfolio supporting the joint venture's business is approximately $7.4 billion, primarily invested in Chinese corporate and government debt

securities diversified by issuer, industry and geography, as appropriate. To a lesser extent and consistent with its investment strategy, the joint venture is invested in Chinese equity investments comprised of approximately 50% equity mutual funds, with the remainder invested in equity securities and private equity partnerships. We participate in the approval of the joint venture's investment strategy and continuously review its execution. There were no investments with a material unrealized loss as of September 30, 2021.

Investment Outlook

The general optimism globally fueled by business re-opening combined with unprecedented monetary and fiscal support from the U.S. government supports expectations for continued economic growth. U.S. treasury rates have increased from their historic lows during 2020, but they remain well below long-term historical averages. In addition, the wider market credit spreads experienced during 2020 have narrowed meaningfully, resulting in yields for investment grade assets that also remain well below historical averages. While this continues to pressure the income we earn on our fixed income investments, it has been more than offset by our limited partnership results, which are reflecting improved growth prospects. We continue to actively monitor the economic impact of the pandemic, including supply chain, labor market and inflation dynamics, as well as fiscal and monetary responses and their potential impact on the portfolio. Over the balance of 2021, we expect net investment income and investment valuations will reflect the optimism within public and private markets for the continued economic recovery, along with the potential for increasing market volatility with resulting net investment income and asset valuation impacts. Future realized and unrealized investment results will be driven largely by market conditions that exist when a transaction occurs or at the reporting date. These future conditions are not reasonably predictable; however, we believe that the vast majority of our investments will continue to perform under their contractual terms. Based on our strategy to match the duration of invested assets to the duration of insurance and contractholder liabilities, we expect to hold a significant portion of these assets for the long-term. Although future declines in investment fair values resulting from interest rate movements and credit deterioration due to both investment-specific and the global economic uncertainties discussed above remain possible, we do not expect these losses to have a material adverse effect on our financial condition or liquidity.

MARKET RISK

Financial Instruments

Our assets and liabilities include financial instruments subject to the risk of potential losses from adverse changes in market rates and prices. Our primary market risk exposures are interest rate risk and foreign currency exchange rate risk. We encourage you to read this in conjunction with “Market Risk – Financial Instruments” included in the MD&A section of our 2020 Form 10-K. As of September 30, 2021 there were no material changes in our risk exposures from those reported in our 2020 Form 10-K.

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