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			39
Liquidity and Capital Resources			42
Critical Accounting Estimates			45
Segment Reporting			46
Evernorth Health Services			46
Cigna Healthcare			49
Other Operations			51
Corporate			51
Investment Assets			52

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, 2024, compared with December 31, 2023 and our results of operations for the three and nine months ended September 30, 2024, 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, 2023 ("2023 Form 10-K"). In particular, we encourage you to refer to the "Risk Factors" contained in Part I, Item 1A of our 2023 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 2023 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 (loss) from operations and adjusted revenues to measure the results of our segments.

The Company uses "pre-tax adjusted income (loss) from operations" and "adjusted revenues" as its principal financial measures of segment operating performance because management believes these metrics reflect the underlying results of business operations and facilitate analysis of trends in underlying revenue, expenses and profitability. We define adjusted income (loss) from operations as shareholders' net income (or income (loss) before income taxes less pre-tax income (loss) attributable to noncontrolling interests for the segment metric) excluding net realized investment results, amortization of acquired intangible assets and special items. The Cigna Group's share of certain realized investment results of its joint ventures reported in the Cigna Healthcare 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 The Cigna Group's share of certain realized investment results of its joint ventures reported in the Cigna Healthcare 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 The Cigna Group'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 improve the health and vitality of those we serve; future growth, business strategy, and strategic or operational initiatives; economic, regulatory or competitive environments, particularly with respect to the pace and extent of change in these areas and the impact of developing inflationary and interest rate pressures; capital deployment plans and amounts available for future deployment; our prospects for growth in the coming years; strategic transactions; expectations related to our Medicare Advantage Capitation Rates; and other statements regarding The Cigna Group'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," "project," "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; our ability to compete effectively, differentiate our products and services from those of our competitors and maintain or increase market share; price competition, inflation 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; 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 incidents; risks related to our use of artificial intelligence and machine learning; political, legal, operational, regulatory, economic and other risks that could affect our multinational operations, including currency exchange rates; risks related to an impairment of goodwill, intangible assets and/or investments (including as a result of the failure to realize the expected benefits of strategic transactions, as well as integration or separation difficulties or underperformance of such transactions 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; 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 and 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, the risk of a recession or other economic downturn and resulting impact on employment metrics, stock market or changes in interest rates and 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; credit risk related to our reinsurers; as well as more specific risks and uncertainties discussed in Part I, Item 1A – Risk Factors in our 2023 Form 10-K, Part II, Item 7 – Management's Discussion and Analysis of Financial Condition and Results of Operations in our 2023 Form 10-K, and as described from time to time in our future reports filed with the Securities and Exchange Commission.

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. The Cigna Group 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

The Cigna Group, together with its subsidiaries (either individually or collectively referred to as the "Company," "we," "us" or "our") is a global health company with a mission of helping those we serve improve their health and vitality. Our subsidiaries offer a differentiated set of pharmacy, medical, behavioral, dental and related products and services. For further information on our business and strategy, see Part 1, Item 1. "Business" of our 2023 Form 10-K.

Financial Highlights

See Note 1 to the Consolidated Financial Statements for a description of our segments.

Summarized below are certain key measures of our performance by segment:


Financial highlights by segment
	Three Months Ended September 30,						Nine Months Ended September 30,
(Dollars in millions, except per share amounts)	2024		2023		Change		2024		2023		Change


Revenues
Adjusted revenues by segment
Evernorth Health Services	$	52,637	$	38,596	36	%	$	148,411	$	112,980	31	%
Cigna Healthcare	13,163		12,768		3		39,583		38,200		4
Other Operations	234		147		59		627		462		36
Corporate, net of eliminations	(2,335)		(2,433)		(4)		(7,205)		(7,469)		(4)
Adjusted revenues	63,699		49,078		30		181,416		144,173		26
Net realized investment results from certain equity method investments	177		(30)		N/M		238		(22)		N/M

Special item related to impairment of dividend receivable	(182)		—		N/M		(182)		—		N/M
Total revenues	$	63,694	$	49,048	30	%	$	181,472	$	144,151	26	%
Shareholders' net income	$	739	$	1,408	(48)	%	$	2,010	$	4,135	(51)	%
Adjusted income from operations	$	2,112	$	2,011	5	%	$	5,896	$	5,449	8	%
Earnings per share (diluted)
Shareholders' net income	$	2.63	$	4.74	(45)	%	$	7.05	$	13.89	(49)	%
Adjusted income from operations	$	7.51	$	6.77	11	%	$	20.68	$	18.31	13	%
Pre-tax adjusted income (loss) from operations by segment
Evernorth Health Services	$	1,876	$	1,716	9	%	$	4,855	$	4,552	7	%
Cigna Healthcare	1,174		1,222		(4)		3,718		3,509		6
Other Operations	(6)		26		N/M		(4)		70		N/M
Corporate, net of eliminations	(425)		(435)		(2)		(1,269)		(1,272)		—
Consolidated pre-tax adjusted income from operations	2,619		2,529		4		7,300		6,859		6
Income attributable to noncontrolling interests	99		44		125		271		142		91
Net realized investment (losses) (1)	(744)		(44)		N/M		(2,567)		(66)		N/M
Amortization of acquired intangible assets	(436)		(454)		(4)		(1,279)		(1,368)		(7)
Special items	(346)		(235)		47		(465)		(242)		92
Income before income taxes	$	1,192	$	1,840	(35)	%	$	3,260	$	5,325	(39)	%

*(1)*Includes Net realized investment losses/gains as presented in our Consolidated Statements of Income, as well as the Company's share of certain realized investment results of its joint ventures reported in the Cigna Healthcare segment using the equity method of accounting, which are presented within Fees and other revenues in our Consolidated Statements of Income.

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)	2024			2023			Change		2024			2023			Change


Pharmacy revenues	$	48,284		$	34,531		40	%	$	135,421		$	100,639		35	%
Premiums	11,436			10,998			4		34,493			33,062			4
Fees and other revenues	3,889			3,198			22		10,862			9,574			13
Net investment income	85			321			(74)		696			876			(21)
Total revenues	63,694			49,048			30		181,472			144,151			26
Pharmacy and other service costs	47,565			33,639			41		133,488			98,540			35
Medical costs and other benefit expenses	9,527			8,927			7		28,482			27,007			5
Selling, general and administrative expenses	3,590			3,788			(5)		10,979			10,760			2
Amortization of acquired intangible assets	436			454			(4)		1,279			1,368			(7)
Total benefits and expenses	61,118			46,808			31		174,228			137,675			27
Income from operations	2,576			2,240			15		7,244			6,476			12
Interest expense and other	(376)			(365)			3		(1,073)			(1,086)			(1)

Loss on sale of businesses	(87)			(21)			N/M		(106)			(21)			N/M
Net realized investment losses	(921)			(14)			N/M		(2,805)			(44)			N/M
Income before income taxes	1,192			1,840			(35)		3,260			5,325			(39)
Total income taxes	367			391			(6)		1,018			1,060			(4)
Net income	825			1,449			(43)		2,242			4,265			(47)
Less: Net income attributable to noncontrolling interests	86			41			110		232			130			78
Shareholders' net income	$	739		$	1,408		(48)	%	$	2,010		$	4,135		(51)	%
Consolidated effective tax rate	30.8		%	21.3		%	950	bps	31.2		%	19.9		%	1,130	bps
Medical customers (in thousands)									19,048			19,607			(3)	%


Reconciliation of Shareholders' Net Income (GAAP) to Adjusted Income from Operations
	Three Months Ended September 30,								Nine Months Ended September 30,

	2024				2023				2024				2023
(In millions)	Pre-tax		After-tax		Pre-tax		After-tax		Pre-tax		After-tax		Pre-tax		After-tax
Shareholders' net income			$	739			$	1,408			$	2,010			$	4,135
Adjustments to reconcile to adjusted income from operations
Net realized investment losses (1)	$	744	740		$	44	41		$	2,567	2,547		$	66	56
Amortization of acquired intangible assets	436		333		454		363		1,279		972		1,368		1,053
Special items
Impairment of dividend receivable	182		138		—		—		182		138		—		—
Integration and transaction-related costs	77		59		13		9		177		135		20		15
Loss on sale of businesses	87		62		21		19		106		19		21		19
Deferred tax expenses, net (2)	—		41		—		—		—		75		—		—
Charges associated with litigation matters	—		—		201		171		—		—		201		171



Total special items	$	346	300		$	235	199		$	465	367		$	242	205
Adjusted income from operations			$	2,112			$	2,011			$	5,896			$	5,449

*(2)*Represents amortization of a foreign tax attribute. See Note 23 to the Consolidated Financial Statements in our 2023 Form 10-K for additional details.


Reconciliation of Shareholders' Net Income (GAAP) to Adjusted Income from Operations
	Three Months Ended September 30,								Nine Months Ended September 30,

	2024				2023				2024				2023
(Diluted Earnings Per Share)	Pre-tax		After-tax		Pre-tax		After-tax		Pre-tax		After-tax		Pre-tax		After-tax
Shareholders' net income			$	2.63			$	4.74			$	7.05			$	13.89
Adjustments to reconcile to adjusted income from operations
Net realized investment losses (1)	$	2.64	2.63		$	0.15	0.14		$	9.00	8.93		$	0.22	0.19
Amortization of acquired intangible assets	1.55		1.18		1.53		1.22		4.49		3.41		4.60		3.54
Special items
Impairment of dividend receivable	0.65		0.49		—		—		0.64		0.48		—		—
Integration and transaction-related costs	0.27		0.21		0.04		0.03		0.62		0.48		0.07		0.05
Loss on sale of businesses	0.31		0.22		0.07		0.06		0.37		0.07		0.07		0.06
Deferred tax expenses, net (2)	—		0.15		—		—		—		0.26		—		—
Charges associated with litigation matters	—		—		0.68		0.58		—		—		0.67		0.58



Total special items	$	1.23	1.07		$	0.79	0.67		$	1.63	1.29		$	0.81	0.69
Adjusted income from operations			$	7.51			$	6.77			$	20.68			$	18.31

*(2)*Represents amortization of a foreign tax attribute. See Note 23 to the Consolidated Financial Statements in our 2023 Form 10-K for additional details.

Commentary: Three and Nine Months Ended September 30, 2024 versus Three and Nine Months Ended September 30, 2023

The commentary presented below, and the segment discussions that follow, compare results for the three and nine months ended September 30, 2024 with results for the three and nine months ended September 30, 2023. Unless specified otherwise, commentary applies to both the three and nine month periods. In addition to the below, see the "Segment Reporting" section of this MD&A for further commentary.

Shareholders' net income decreased 48% and 51%, as higher earnings in Evernorth Health Services in both periods, as well as higher earnings in Cigna Healthcare for the nine months ended were more than offset by the impairment of VillageMD equity securities. See Note 11 to the Consolidated Financial Statements for further discussion of the impairment of VillageMD equity securities.

Adjusted income from operations increased 5% and 8%, reflecting higher earnings in Evernorth Health Services in both periods, as well as higher earnings in Cigna Healthcare for the nine months ended.

Medical customers decreased 3%, primarily reflecting a decrease in Individual and Family Plans customers.

Pharmacy revenues increased 40% and 35%, primarily reflecting higher utilization of prescription drugs from customer growth in Evernorth Health Services.

Premiums increased 4% in both periods, primarily reflecting higher premiums in our U.S. Healthcare operating segment to cover expected increases in underlying medical costs.

Fees and other revenues increased 22% and 13%, primarily reflecting growth in affordability services within our Pharmacy Benefit Services operating segment.

Net investment income decreased 74% and 21%, primarily due to establishing a $182 million impairment of dividend receivable in the third quarter of 2024 related to VillageMD accrued dividends.

Pharmacy and other service costs increased 41% and 35%, primarily reflecting higher utilization of prescription drugs from customer growth in Evernorth Health Services.

Medical costs and other benefit expenses increased 7% and 5%, primarily reflecting higher medical costs in our U.S. Healthcare operating segment.

Selling, general and administrative expenses decreased 5% for the three months ended September 30, 2024, primarily driven by the absence of litigation settlements that occurred during the three months ended September 30, 2023 and increased 2% for the nine

months ended September 30, 2024, primarily driven by strategic investments to support both business growth and continued advancement of our digital capabilities and solutions.

Realized investment results for the three months and nine months ended September 30, 2024 primarily reflect the impairment of VillageMD equity securities. See Note 11 to the Consolidated Financial Statements for further discussion of the impairment of VillageMD equity securities.

The effective tax rate increased for the three and nine months ended September 30, 2024, primarily driven by a valuation allowance related to the impairment of VillageMD equity securities.

Developments

Sale of Medicare Advantage and Related Businesses

In January 2024, the Company entered into a definitive agreement to sell the Medicare Advantage, Medicare Stand-Alone Prescription Drug Plans, Medicare and Other Supplemental Benefits and CareAllies businesses within the U.S. Healthcare operating segment to Health Care Service Corporation ("HCSC"), subject to applicable regulatory approvals and other customary closing conditions. The transaction is expected to close in the first quarter of 2025 and provide approximately $3.7 billion in transaction value, which consists primarily of the purchase price cash subject to adjustments to align with the final balance sheet of the divested businesses. See Note 5 to the Consolidated Financial Statements for further information.

Medicare Star Quality Ratings ("Star Ratings")

The Centers for Medicare and Medicaid Services ("CMS") uses a Star Rating system to measure how well Medicare Advantage ("MA") plans perform. Categories of measurement include 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. On October 10, 2024, CMS announced Medicare Star Ratings for bonus payments to be received in 2026. We estimate 69% of our MA customers to be in four star or greater plans for bonus payments to be received in 2025 and 2026. See Part I, Item I. "Business - Regulation" section of our 2023 Form 10-K for further discussion of Star Ratings.

Medicare Advantage Rates

On April 1, 2024, CMS released the final Calendar Year 2025 Medicare Advantage Program and Part D Payment Policies (the "2025 Final Notice"). The Final Notice reflects no change from the January 31, 2024 advance notice. We do not expect the final rates to have a material impact on our consolidated results of operations in 2025.

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 22 to the Consolidated Financial Statements in our 2023 Form 10-K for additional information regarding these restrictions. Most of the Evernorth Health Services segment operations are not subject to regulatory restrictions regarding dividends and therefore provide significant financial flexibility to The Cigna Group.

With respect to our investment portfolio, we support the liquidity needs of our businesses by managing the duration of assets to be consistent with the duration of liabilities. We manage the portfolio to both optimize returns in the current economic environment and meet our liquidity needs.

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


	Nine Months Ended September 30,
(In millions)	2024		2023
Operating activities	$	5,151	$	10,346
Investing activities	$	(1,911)	$	(4,734)
Financing activities	$	(4,399)	$	(3,044)

The following discussion explains variances in the various categories of cash flows for the nine months ended September 30, 2024 compared with the same period in 2023.

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.

Operating cash flows decreased for the nine months ended September 30, 2024 due to higher accounts receivable as a result of timing and organic business growth, higher insurance claims and related payments, as well as the absence of an early CMS payment received in September 2023. This decrease is partially offset by the favorable net cash flow impacts of new clients in Evernorth Health Services.

Investing activities

The decrease in cash used in investing activities during the nine months ended September 30, 2024 was due to lower purchases of equity securities.

Financing activities

The Company had higher share repurchases, including the completed ASR Agreements (described below), partially offset by net cash provided by debt financing activities in 2024.

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 flows from operations, some of which is subject to regulatory restrictions relative to the amount and timing of dividend payments to the parent company. Dividends received from U.S. regulated subsidiaries were $1.7 billion for the nine months ended September 30, 2024 and $0.8 billion for the nine months ended

September 30, 2023. Non-regulated subsidiaries also generate significant cash flows 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 clients and 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 and investments that are strategically and economically advantageous; and
return capital to shareholders through share repurchases.

Funds Available

Commercial Paper Program**.** The Cigna Group 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 $6.5 billion. The net proceeds of issuances have been and are expected to be used for general corporate purposes. The commercial paper program had approximately $1.6 billion outstanding at September 30, 2024.

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.

As of September 30, 2024, The Cigna Group's revolving credit agreements include: a $5.0 billion five-year revolving credit and letter of credit agreement that expires in April 2029; and a $1.5 billion 364-day revolving credit agreement that expires in April 2025.

As of September 30, 2024, we had $6.5 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), $4.9 billion of remaining capacity under our commercial paper program and $6.0 billion in cash and short-term investments, approximately $0.5 billion of which was held by the parent company or certain non-regulated subsidiaries.

See Note 7 to the Consolidated Financial Statements for further information on our credit agreements and commercial paper program.

Our debt-to-capitalization ratio was 43.8% at September 30, 2024 and 43.6% at June 30, 2024.

We actively monitor our debt obligations and engage in issuance or redemption activities as needed in accordance with our capital management strategy.

Subsidiary Borrowings. In addition to the sources of liquidity discussed above, the parent company can borrow an additional $1.4 billion from its subsidiaries without further approvals as of September 30, 2024.

Use of Capital Resources

Debt Issuance and Debt Tender Offers. In February 2024, we issued $4.5 billion of new senior notes. The proceeds from this debt were used to complete the repurchase of a total of $1.8 billion in aggregate principal amount of existing senior notes tendered to the Company pursuant to cash tender offers. We used the remaining net proceeds to fund the repayment of our senior notes which matured in March 2024 and for general corporate purposes, which includes repayment of indebtedness and repurchases of shares of our common stock.

Capital Expenditures**.** Capital expenditures for property, equipment and computer software were $1.1 billion in the nine months ended September 30, 2024 compared to $1.2 billion in the nine months ended September 30, 2023. Anticipated capital expenditures will be funded primarily from operating cash flows.

Dividends**.** The Cigna Group declared and paid quarterly cash dividends of $1.40 per share of its common stock during the first nine months of 2024, compared to quarterly cash dividends of $1.23 per share during the first nine months of 2023. See Note 8 to the Consolidated Financial Statements for further information on our dividend payments. On October 23, 2024, the Board of Directors declared the fourth quarter cash dividend of $1.40 per share of The Cigna Group common stock to be paid on December 19, 2024 to shareholders of record on December 4, 2024. The Cigna Group 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 the Company 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 may deem relevant.

Share Repurchases**.** 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 (the "Exchange Act"), including through Rule 10b5-1 trading plans or privately negotiated transactions. The program may be suspended or discontinued at any time.

In February 2024, as part of our share repurchase program, we entered into separate Accelerated Share Repurchase ("ASR") agreements to repurchase $3.2 billion of common stock in aggregate. The total number of shares of our common stock repurchased under the agreements was approximately 9.3 million. See Note 8 to the Consolidated Financial Statements for further information on our ASR agreements.

Including the ASR agreements, we repurchased 14.7 million shares for approximately $5.0 billion during the nine months ended September 30, 2024, compared to 6.1 million shares for approximately $1.8 billion during the nine months ended September 30, 2023. From October 1, 2024 through October 30, 2024, we repurchased 2.2 million shares for approximately $715 million. Share repurchase authority was $5.6 billion as of October 30, 2024.

Other Sources of Funds and Uses of Capital Resources

Divestiture. In January 2024, we entered into a definitive agreement to sell the Medicare Advantage, Medicare Stand-Alone Prescription Drug Plans, Medicare and Other Supplemental Benefits and CareAllies businesses within the U.S. Healthcare operating segment to HCSC, subject to applicable regulatory approvals and other customary closing conditions. The transaction is expected to close in the first quarter of 2025 and provide approximately $3.7 billion in transaction value, which consists primarily of the purchase price cash subject to adjustments to align with the final balance sheet of the divested businesses. Following the completion of the sale, we anticipate use of the proceeds in alignment with our capital deployment priorities, with the majority allocated to share repurchases.

Risks to Liquidity and Capital Resources

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 2023 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.

Guarantees and Contractual Obligations

We are contingently liable for various contractual obligations and financial and other guarantees entered into in the ordinary course of business. See Note 16 to the Consolidated Financial Statements for discussion of various guarantees.

Due to the issuance and repurchase of certain senior notes in the three months ended March 31, 2024, we have updated long-term debt obligations as of September 30, 2024 compared to those previously provided in our 2023 Form 10-K. See Note 7 to the Consolidated Financial Statements for discussion of these debt activities. There have been no material changes to other information presented in our guarantees and contractual obligations set forth in our 2023 Form 10-K.

On balance sheet**:**

Long-term debt**

◦Total scheduled payments on long-term debt are $48.8 billion through February 2054, which include scheduled interest payments and maturities of long-term debt.

◦We expect $0.3 billion of long-term debt payments (including scheduled interest payments) to be paid for the remainder of 2024.

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 our 2023 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 our 2023 Form 10-K. As of September 30, 2024, there were no significant changes to the critical accounting estimates from what was reported in our 2023 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 2024. 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 substantial 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 further description of our segments.

In segment discussions, we present "adjusted revenues" and "pre-tax adjusted income (loss) from operations," defined as income (loss) before income taxes excluding pre-tax income (loss) attributable to noncontrolling interests, net realized investment results, amortization of acquired intangible assets and special items. The Company uses "pre-tax adjusted income (loss) from operations" and "adjusted revenues" as its principal financial measures of segment operating performance because management believes these metrics reflect the underlying results of business operations and facilitate analysis of trends in underlying revenue, expenses and profitability. The Cigna Group's share of certain realized investment results of its joint ventures reported in the Cigna Healthcare 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. Ratios presented in this segment discussion exclude the same items as adjusted revenues and pre-tax adjusted income (loss) from operations. See Note 17 to the Consolidated Financial Statements for additional discussion of these metrics and a reconciliation of income (loss) before income taxes to pre-tax adjusted income (loss) from operations, as well as a reconciliation of Total revenues to adjusted revenues. Note 17 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 (loss) from operations divided by adjusted revenues.

Evernorth Health Services Segment

Evernorth Health Services includes a broad range of coordinated and point solution health services and capabilities, as well as those from partners across the health care system, within our Pharmacy Benefit Services and Specialty and Care Services operating segments. See Note 1 to the Consolidated Financial Statements for further discussion of these two operating segments. As described in the introduction to Segment Reporting, Evernorth Health Services' performance is measured using adjusted revenues and pre-tax adjusted income (loss) from operations.

Key Factors Affecting Segment Performance

The key factors that impact Evernorth Health Services' Pharmacy Benefit Services and Specialty and Care Services revenues and income from operations are volume, mix of claims, price and contract affordability services. Specialty and Care Services revenue is also impacted by specialty distribution customer growth and client growth. These key factors are discussed further below. Certain of the key factors impact both operating segments as services are offered through an integrated client contract. See Note 2 to the

Consolidated Financial Statements included in our 2023 Form 10-K for additional information on revenue and cost recognition policies for this segment.

Key Factors that impact both Pharmacy Benefit Services and Specialty and Care Services:

Pharmacy claim volume (also referred to as utilization) relates to processing prescription claims filled by retail pharmacies in our network and from dispensing prescription claims from our home delivery and specialty pharmacies and other claims. As pharmacy prescription claim volumes increase or decrease due to customer utilization, organic customer growth through the expansion of existing clients or new clients, our gross profit and income from operations correspondingly increase or decrease.
The mix of claims generally considers the type of drug and distribution method used for dispensing and fulfilling. In addition to the types of drugs, the mix of generic or biosimilar claims also impacts our results. Generally, a higher mix of generic and biosimilar drugs reduces revenues, as generic and biosimilar drugs are typically priced lower than the branded drugs they replace. However, as ingredient cost paid to pharmacies on generic and biosimilar drugs is incrementally lower than the price charged to our clients, a higher mix of generic and biosimilar drugs generally has a favorable impact on our gross profit and income from operations.
Pharmaceutical manufacturer 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 continues to be a significant driver of our revenues and cost of revenues in the current environment.
Our client contract pricing is impacted by our ongoing ability to negotiate favorable contracts for pharmacy network, pharmaceutical and wholesaler purchasing and manufacturer rebates on our clients' behalf (also referred to as affordability improvements). Through these affordability services, we seek to improve the effectiveness of our integrated and fee-for-service solutions, for the benefit of our new and existing clients, by continuously innovating, improving affordability and implementing drug purchasing contract initiatives. Our continued affordability improvements further reduce drug costs for the benefit of our consumers and clients and we share in the value delivered, which generally results in a favorable impact on our gross profit and income from operations.

Key factors that impact Specialty and Care Services:

Customer growth generally results in increased revenues and income from operations. This generally includes both organic customer growth through the expansion of existing business and new business, as well as higher volume in our specialty distribution services where we deliver pharmaceuticals and medical supplies directly to health care providers, clinics and hospitals, primarily to physicians who regularly order costly specialty pharmaceuticals. This business provides competitive pricing on pharmaceuticals and medical supplies and leverages our distribution platform to improve our results.
Client growth, both organic and new business, in our Care Delivery and Management Solutions business generally results in increased revenues and income from operations. This includes client movement in our virtual care, in-home care, physical primary care, benefits management, and behavioral health services, as we expand our businesses and build upon our cross-enterprise leverage.

In this MD&A, we present our segment performance measures adjusted revenues and pre-tax adjusted income from operations. We also present adjusted gross profit, which is calculated as adjusted revenues less Pharmacy and other service costs (which is inclusive of all costs of revenue). We utilize adjusted revenues in this calculation, consistent with our reporting measure that excludes special items, as this reflects the underlying results of business operations.

Results of Operations


Financial Summary
	Three Months Ended September 30,								Nine Months Ended September 30,
(Dollars in millions)	2024			2023			Change		2024			2023			Change


Total revenues	$	52,455		$	38,596		36	%	$	148,229		$	112,980		31	%

Adjusted revenues (1)	$	52,637		$	38,596		36	%	$	148,411		$	112,980		31	%
Pharmacy and other service costs	$	49,768		$	36,000		38	%	$	140,458		$	105,819		33	%
Gross profit (2)	$	2,687		$	2,596		4	%	$	7,771		$	7,161		9	%
Adjusted gross profit (1),(2)	$	2,869		$	2,596		11	%	$	7,953		$	7,161		11	%
Pre-tax adjusted income from operations	$	1,876		$	1,716		9	%	$	4,855		$	4,552		7	%
Pre-tax adjusted margin (3)	3.6		%	4.4		%	(80)	bps	3.3		%	4.0		%	(70)	bps
SG&A expense ratio (4)	1.7		%	2.3		%	(60)	bps	1.9		%	2.2		%	(30)	bps
Adjusted SG&A expense ratio (4)	1.7		%	2.2		%	(50)	bps	1.9		%	2.2		%	(30)	bps

*(1)*Adjusted revenues and adjusted gross profit each exclude $182 million of the Special item related to impairment of dividend receivable for each of the three and nine months ended September 30, 2024. There were no special items in the comparable prior periods.

*(2)*Gross profit and adjusted gross profit are calculated as total revenues and adjusted revenues, respectively, less pharmacy and other service costs.

*(3)*Pre-tax adjusted margin is calculated as pre-tax adjusted income from operations divided by adjusted revenues. See Note 17 to the Consolidated Financial Statements for reconciliation of pre-tax adjusted income from operations and adjusted revenues to Income before income taxes and Total revenues, respectively.

*(4)*SG&A expense ratio is calculated as selling, general and administrative expenses including special items ($894 million and $881 million for the three months ended September 30, 2024 and 2023, respectively, and $2,825 million and $2,512 million, for the nine months ended September 30, 2024 and 2023, respectively) divided by total revenues. Adjusted SG&A expense ratio is calculated as selling, general and administrative expenses excluding special items ($894 million and $837 million for the three months ended September 30, 2024 and 2023, respectively, and $2,825 million and $2,468 million for the nine months ended September 30, 2024 and 2023, respectively) as a percentage of adjusted revenues. There were no special items for the three and nine months ended September 30, 2024; special items were $44 million for the three and nine months ended September 30, 2023.

In this selected financial information, we present adjusted revenues and pre-tax income from operations by our two operating segments, Pharmacy Benefit Services and Specialty and Care Services.


Selected Financial Information
	Three Months Ended September 30,				Change		Nine Months Ended September 30,				Change
(Dollars and adjusted scripts in millions)	2024		2023		2024		2023


Total adjusted revenues
Pharmacy Benefit Services	$	28,785	$	19,158	50	%	$	81,492	$	56,186	45	%
Specialty and Care Services	23,812		19,375		23		66,755		56,619		18
Net investment income (1)	40		63		(37)		164		175		(6)
Total adjusted revenues	$	52,637	$	38,596	36	%	$	148,411	$	112,980	31	%
Pre-tax adjusted income from operations
Pharmacy Benefit Services	$	1,011	$	981	3	%	$	2,322	$	2,270	2	%
Specialty and Care Services	825		672		23		2,369		2,107		12
Net investment income (1)	40		63		(37)		164		175		(6)
Total pre-tax adjusted income from operations	$	1,876	$	1,716	9	%	$	4,855	$	4,552	7	%
Pharmacy claim volume (2)	531		394		35	%	1,577		1,171		35	%

*(1)*Net investment income excludes the Special item related to impairment of dividend receivable for certain accrued dividends of $182 million for each of the three and nine months ended September 30, 2024.

(2) Non-specialty network prescriptions filled through 90-day programs and home delivery prescriptions are counted as three claims. All other network and specialty prescriptions are counted as one claim.

Three and Nine Months Ended September 30, 2024 versus Three and Nine Months Ended September 30, 2023

Commentary in parentheses regarding percentage changes represents the driver's impact on the overall category.

Adjusted revenues increased 36% and 31%, primarily reflecting higher utilization of prescription drugs from customer growth in both Pharmacy Benefit Services and Specialty and Care Services.

Adjusted gross profit increased 11% for both periods, primarily reflecting relatively equal contributions from customer growth in Specialty and Care Services and continued affordability improvements in Pharmacy Benefit Services.

Pre-tax adjusted income from operations increased 9% and 7%, primarily reflecting customer growth in Specialty and Care Services (+11% and +10%) and continued affordability improvements in Pharmacy Benefit Services (+3% in both periods). This increase was partially offset by strategic investments to support business growth and continued advancement of our capabilities and solutions (-2% and -4% in Specialty and Care Services and -2% in both periods in Pharmacy Benefit Services).

The adjusted SG&A expense ratio decreased 50 bps and 30 bps, primarily reflecting higher adjusted revenues as discussed above.

Cigna Healthcare Segment

Cigna Healthcare includes the U.S. Healthcare and International Health businesses, which provide comprehensive medical and coordinated solutions to clients and customers. As described in the introduction to Segment Reporting, performance of the Cigna Healthcare segment is measured using adjusted revenues and pre-tax adjusted income from operations.

In January 2024, we entered into a definitive agreement to sell the Medicare Advantage, Medicare Stand-Alone Prescription Drug Plans, Medicare and Other Supplemental Benefits and CareAllies businesses within the U.S. Healthcare operating segment to HCSC, subject to applicable regulatory approvals and other customary closing conditions. See Note 5 to the Consolidated Financial Statements for further information.

Key Factors Affecting Segment Performance

Key factors affecting results for this segment include:

customer growth;
revenue growth, including increases to premium rates in consideration of anticipated medical costs (also referred to as premium rate increases);
medical cost trend (also referred to as higher medical costs), which is impacted by utilization (the quantity of medical services consumed by our customers), unit costs (the cost per medical service) and mix of services;
percentage of Medicare Advantage customers in plans eligible for quality bonus payments;
medical costs as a percentage of premiums (medical care ratio or "MCR") for our insured businesses, which includes affordability initiatives that serve to mitigate medical cost inflation; and
selling, general and administrative expenses excluding special items as a percentage of adjusted revenues (which we refer to as adjusted SG&A expense ratio).

Results of Operations


Financial Summary
	Three Months Ended September 30,						Change		Nine Months Ended September 30,						Change
(Dollars in millions)	2024			2023			2024		2023


Adjusted revenues	$	13,163		$	12,768		3	%	$	39,583		$	38,200		4	%
Pre-tax adjusted income from operations	$	1,174		$	1,222		(4)	%	$	3,718		$	3,509		6	%
Pre-tax adjusted margin (1)(2)	8.9		%	9.6		%	(70)	bps	9.4		%	9.2		%	20	bps
Medical care ratio	82.8		%	80.5		%	230	bps	81.7		%	81.0		%	70	bps
SG&A expense ratio (2)(3)	19.8		%	22.9		%	(310)	bps	20.1		%	21.7		%	(160)	bps
Adjusted SG&A expense ratio (2)(3)	20.0		%	21.6		%	(160)	bps	20.2		%	21.3		%	(110)	bps

*(1)*Pre-tax adjusted margin is calculated as pre-tax adjusted income from operations divided by adjusted revenues.

*(2)*See Note 17 to the Consolidated Financial Statements for reconciliation of pre-tax adjusted income from operations and adjusted revenues to Income before income taxes and Total revenues, respectively.

*(3)*SG&A expense ratio is calculated as selling, general and administrative expenses including special items ($2,637 million and $2,920 million for the three months ended September 30, 2024 and 2023, respectively, and $7,986 million and $8,298 million for the nine months ended September 30, 2024 and 2023, respectively) divided by Total revenues. Adjusted SG&A expense ratio is calculated as selling, general and administrative expenses excluding special items ($2,637 million and $2,763 million for the three months ended September 30, 2024 and 2023, respectively, and $7,986 million and $8,141 million for the nine months ended September 30, 2024 and 2023, respectively) as a percentage of adjusted revenues. There were no special items for the three and nine months ended September 30, 2024; special items were $157 million for the three and nine months ended September 30, 2023.

Three and Nine Months Ended September 30, 2024 versus Three and Nine Months Ended September 30, 2023

Commentary regarding percentage changes (or bps) and dollar variances represents the driver's impact on overall category.

Adjusted revenues increased 3% and 4%, primarily due to higher premiums within employer insured (+$238 million and +$810 million), Medicare Part D (+$202 million and +$410 million) and stop loss (+$141 million and +$457 million), in each case reflecting premium rate increases to cover expected increases in underlying medical costs, partially offset by lower premiums within Individual and Family Plans (-$268 million and -$754 million), reflecting a decrease in customers.

Pre-tax adjusted income from operations decreased 4% for the three months ended September 30, 2024, primarily due to higher medical costs (-$569 million), partially offset by higher adjusted revenues (+$395 million) and lower selling, general and administrative expenses excluding special items (+$126 million), primarily reflecting ongoing efficiencies. Pre-tax adjusted income from operations increased 6% for the nine months ended September 30, 2024, primarily due to higher adjusted revenues (+$1.4 billion) and lower selling, general and administrative expenses excluding special items (+$155 million), primarily reflecting ongoing efficiencies, partially offset by higher medical costs (-$1.3 billion). The impact of higher premiums in adjusted revenues and medical costs are reflected in the medical care ratio calculation.

The medical care ratio increased 230 bps for the three months ended September 30, 2024, primarily due to a higher U.S. Healthcare medical care ratio, reflecting relatively equal contributions from business mix and one additional business day in the third quarter of 2024. The medical care ratio increased 70 bps for the nine months ended September 30, 2024, primarily due to a higher U.S. Healthcare medical care ratio driven by business mix.

The adjusted SG&A expense ratio decreased 160 bps and 110 bps, primarily due to revenue growth outpacing volume-related expenses (-80 bps and -60 bps) and ongoing efficiencies (-60 bps and -30 bps).

Medical Customers

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 administrative services 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.



Cigna Healthcare Medical Customers
	As of September 30,
(In thousands)	2024	2023	Change


U.S. Healthcare	3,833	4,189	(8)
International Health (1)	1,209	1,198	1
Insured	5,042	5,387	(6)	%
U.S. Healthcare	13,573	13,790	(2)
International Health (1)	433	430	1
Administrative services only	14,006	14,220	(2)
Total	19,048	19,607	(3)	%

*(1)*International Health excludes medical customers served by less than 100% owned subsidiaries, as well as certain customers served by our third-party administrator.

Total medical customers decreased 3%, primarily due to a decrease in Individual and Family Plans customers.

See Part I, Item 1 of our 2023 Form 10-K for definitions of Cigna Healthcare's market segments. During the fourth quarter of 2023, the U.S. Commercial and U.S. Government operating segments merged to form the U.S. Healthcare operating segment. Medical Customer information presented as of September 30, 2023 has been restated to conform to the new operating segment presentation.

Unpaid Claims and Claim Expenses


	As of September 30,		As of December 31,
(In millions)	2024		2023		Change


Unpaid claims and claim expenses	$	5,088	$	5,092	—	%

Our unpaid claims and claim expenses liability was flat, driven by a decrease in Individual and Family Plans customers (-$290 million), mostly offset by stop loss seasonality (+$175 million) and Medicare Advantage (+$80 million).

Other Operations

Other Operations includes corporate owned life insurance ("COLI"), the Company's run-off operations and other non-strategic businesses. See Note 1 to the Consolidated Financial Statements for additional information regarding these operations. As described in the introduction of Segment Reporting, performance of Other Operations is measured using adjusted revenues and pre-tax adjusted income from operations.

Results of Operations


Financial Summary
	Three Months Ended September 30,						Change		Nine Months Ended September 30,						Change
(Dollars in millions)	2024			2023			2024		2023



Adjusted revenues	$	234		$	147		59	%	$	627		$	462		36	%
Pre-tax adjusted (loss) income from operations	$	(6)		$	26		N/M	%	$	(4)		$	70		N/M	%
Pre-tax adjusted margin	(2.6)		%	17.7		%	(2,030)	bps	(0.6)		%	15.2		%	(1,580)	bps

Three and Nine Months Ended September 30, 2024 versus Three and Nine Months Ended September 30, 2023

Adjusted revenues for both periods primarily reflect premiums and net investment income associated with COLI, our run-off operations and other non-strategic businesses.

Pre-tax adjusted (loss) income from operations decreased for both periods primarily driven by unfavorable margins in our non-strategic businesses.

Corporate

Corporate reflects amounts not allocated to operating segments, including net interest expense (defined as interest on corporate financing less net investment income on investments not supporting segment and other operations), certain litigation matters, expense associated with our frozen pension plans, charitable contributions, operating severance, certain overhead and enterprise-wide project costs and eliminations for products and services sold between segments.


Financial Summary
	Three Months Ended September 30,				Change		Nine Months Ended September 30,				Change
(In millions)	2024		2023			2024	2023



Pre-tax adjusted loss from operations	$	(425)	$	(435)	(2)	%	$	(1,269)	$	(1,272)	—	%

Three and Nine Months Ended September 30, 2024 versus Three and Nine Months Ended September 30, 2023

Commentary regarding bps represents the driver's impact on overall category.

Pre-tax adjusted loss from operations decreased for both periods primarily due to lower operating and pension costs (-800 bps for both periods), partially offset by higher interest rates on our indebtedness (+600 bps for both periods).

INVESTMENT ASSETS

The following table presents our investment asset portfolio excluding separate account assets. Additional information regarding our investment assets is included in Notes 11, 12, 13 and 14 to the Consolidated Financial Statements.


(In millions)	September 30, 2024		December 31, 2023
Debt securities	$	9,881	$	9,855
Equity securities	517		3,362
Commercial mortgage loans	1,460		1,533
Policy loans	1,163		1,211
Other long-term investments	4,545		4,181
Short-term investments	182		206
Total	$	17,748	$	20,348
Investments classified as assets of businesses held for sale (1)	(1,614)		(1,438)
Investments per Consolidated Balance Sheets	$	16,134	$	18,910

(1) Investments related to the HCSC transaction that were held for sale as of September 30, 2024 and December 31, 2023. These investments were primarily comprised of debt securities and commercial mortgage loans, and to a lesser extent, other long-term investments.

Investment Outlook

Although impacts to our core insurance and operating business portfolios have been limited to date, we continue to actively monitor geopolitical events and economic conditions and their potential impact on the investment portfolio, including expectations for inflation and interest rates, the potential for a recession, and ongoing conflict in Europe and the Middle East. Future realized and unrealized investment results will be driven largely by market conditions and these future conditions are not reasonably predictable. We believe that the vast majority of our investments will continue to perform under their contractual terms. We manage the portfolio for long-term economics and therefore we expect to hold a significant portion of these assets for the long term. Although future declines in investment fair values remain possible due to interest rate movements and credit deterioration due to both investment-specific uncertainties and global economic uncertainties as discussed below, we do not expect these losses to have a material unfavorable effect on our financial condition or liquidity. The following discussion addresses the strategies and risks associated with our various classes of investment assets.

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 in our Consolidated Balance Sheets. Additional information regarding valuation methodologies, key inputs and controls is included in Note 12 to the Consolidated Financial Statements.

The following table reflects our portfolio of debt securities by type of issuer:


(In millions)	September 30, 2024		December 31, 2023
Federal government and agency	$	289	$	267
State and local government	38		38
Foreign government	376		352
Corporate	8,825		8,833
Mortgage and other asset-backed	353		365
Total	$	9,881	$	9,855

The carrying value of our debt securities portfolio slightly increased during the nine months ended September 30, 2024, reflecting a valuation increase due to a decline of market interest rates, offset by net sales activity. Our portfolio remains in a net unrealized depreciation position due to generally increasing interest rates over the past few years. More detailed information about debt securities by type of issuer, maturity dates and net unrealized position is included in Note 11 to the Consolidated Financial Statements.

As of September 30, 2024, $8.6 billion, or 86%, of the debt securities in our investment portfolio were investment grade (Baa and above, or equivalent) and the remaining $1.3 billion were below investment grade. The majority of the bonds that are below investment grade were 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.

Debt securities include private placement assets of $3.9 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.

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 expectations, which includes a long-term economic investment strategy. Primary risks facing many of the issuers in our portfolio include on-going geopolitical events and economic conditions, including expectations for a longer period of higher inflation and interest rates. To date, most issuers have been successful in managing these issues without a meaningful change in credit quality. 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 11 to the Consolidated Financial Statements.

Commercial Mortgage Loans

As of September 30, 2024, our $1.5 billion commercial mortgage loan portfolio consisted of approximately 45 fixed-rate loans, diversified by property type, location and borrower. These loans are carried in our Consolidated Balance Sheets at their unpaid principal balance, net of an allowance for expected credit losses. As a result of increasing market interest rates since the majority of these loans were made, the carrying value exceeds the market value of these loans as of September 30, 2024. See Note 12 to the Consolidated Financial Statements for further details. 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 11 to the Consolidated Financial Statements.

Loans are secured by high quality commercial properties, located in strong institutional markets and are generally made at approximately 60% 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.

We assess the credit quality of our commercial mortgage loan portfolio annually, generally in the second quarter by reviewing each holding's most recent financial statements, rent rolls, budgets and relevant market reports. The review performed in the second quarter of 2024 confirmed ongoing strong overall credit quality in line with the previous year's results. See Note 11 to the Consolidated Financial Statements for further information regarding our key credit quality indicators for commercial mortgage loans.

Office sector fundamentals have been and continue to be weak and values are experiencing stress due to multiple headwinds: expanded work from home flexibility, shorter term leases, elevated tenant improvement allowances and corporate migration to lower cost states. Additionally, the current macroeconomic headwinds are impacting capital markets and reducing investor appetite for capital intensive assets (e.g., offices and regional shopping malls). Our commercial mortgage loan portfolio has no exposure to regional shopping malls and less than 25% exposure to office properties. Although future losses remain possible due to further credit deterioration, we do not expect these losses to have a material unfavorable effect on our financial condition or liquidity.

Other Long-term Investments

Other long-term investments of $4.5 billion as of September 30, 2024 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. Accounting policies for these investments are discussed in Note 11 to the Consolidated Financial Statements. 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 220 separate partnerships and 110 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 3% 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. We expect continued volatility in private equity and real estate fund performance going forward as fair market valuations are adjusted to reflect market and portfolio transactions. Less than 4% of our other long-term investments are exposed to real estate in the office sector.

We participate in an insurance joint venture in China with a 50% ownership interest. We account for this joint venture under the equity method of accounting. Our 50% share of the investment portfolio supporting the joint venture's liabilities is approximately $15.1

billion as of September 30, 2024. These investments were comprised of approximately 75% debt securities, including government and corporate debt diversified by issuer, industry and geography; 15% equities, including mutual funds, equity securities and private equity partnerships; and 10% long-term deposits and policy loans. We continuously review the joint venture's investment strategy and its execution. There were no investments with a material unrealized loss as of September 30, 2024.

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 equity price risk. We encourage you to read this in conjunction with "Market Risk – Financial Instruments" included in the MD&A section of our 2023 Form 10-K.

As of September 30, 2024, there was an increase in our interest rate risk due to an increase in the fair value of our long-term debt since December 31, 2023. In the event of a 100 basis point increase in interest rates, the fair value of the Company's long-term debt would decrease approximately $2.1 billion at September 30, 2024 compared to approximately $1.8 billion at December 31, 2023.

If the market price for all equity securities declined by 10%, the fair value of the Company's equity securities would decrease by approximately $0.1 billion as of September 30, 2024, compared to approximately $0.3 billion at December 31, 2023. This decline in our equity price risk exposure is driven by the impairment of equity securities. See Note 11 to the Consolidated Financial Statements for more information regarding the impairment in equity securities.

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