Cigna(CI) - 2024 Q3 - Quarterly Report

Item 1. Financial Statements (Unaudited) The unaudited financial statements show increased total revenues driven by pharmacy, but a substantial decrease in net income due to higher costs and investment losses, alongside shifts in balance sheet and cash flow dynamics Consolidated Statements of Income The Consolidated Statements of Income show a significant increase in total revenues for both the three and nine months ended September 30, 2024, compared to the prior year, primarily driven by pharmacy revenues. However, net income and shareholders' net income decreased substantially due to higher benefits and expenses, particularly pharmacy and other service costs, and significant net realized investment losses Consolidated Statements of Income (in millions, except per share) | Metric (in millions, except per share) | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :------------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Revenues | | | | | | Pharmacy revenues | $48,284 | $34,531 | $135,421 | $100,639 | | Premiums | $11,436 | $10,998 | $34,493 | $33,062 | | Fees and other revenues | $3,889 | $3,198 | $10,862 | $9,574 | | Net investment income | $85 | $321 | $696 | $876 | | TOTAL REVENUES | $63,694 | $49,048 | $181,472 | $144,151 | | Benefits and Expenses | | | | | | Pharmacy and other service costs | $47,565 | $33,639 | $133,488 | $98,540 | | Medical costs and other benefit expenses | $9,527 | $8,927 | $28,482 | $27,007 | | Selling, general and administrative expenses | $3,590 | $3,788 | $10,979 | $10,760 | | Amortization of acquired intangible assets | $436 | $454 | $1,279 | $1,368 | | TOTAL BENEFITS AND EXPENSES | $61,118 | $46,808 | $174,228 | $137,675 | | Income from operations | $2,576 | $2,240 | $7,244 | $6,476 | | Interest expense and other | $(376) | $(365) | $(1,073) | $(1,086) | | Loss on sale of businesses | $(87) | $(21) | $(106) | $(21) | | Net realized investment losses | $(921) | $(14) | $(2,805) | $(44) | | Income before income taxes | $1,192 | $1,840 | $3,260 | $5,325 | | TOTAL INCOME TAXES | $367 | $391 | $1,018 | $1,060 | | Net income | $825 | $1,449 | $2,242 | $4,265 | | Less: Net income attributable to noncontrolling interests | $86 | $41 | $232 | $130 | | SHAREHOLDERS' NET INCOME | $739 | $1,408 | $2,010 | $4,135 | | Shareholders' net income per share: | | | | | | Basic | $2.65 | $4.79 | $7.13 | $14.03 | | Diluted | $2.63 | $4.74 | $7.05 | $13.89 | Consolidated Statements of Comprehensive Income The Consolidated Statements of Comprehensive Income show a decrease in total comprehensive income for both the three and nine months ended September 30, 2024, compared to the prior year. This was primarily influenced by a decrease in net income, despite a positive shift in net unrealized appreciation on securities and derivatives for the three-month period Consolidated Statements of Comprehensive Income (in millions) | Metric (in millions) | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net income | $825 | $1,449 | $2,242 | $4,265 | | Other comprehensive income (loss), net of tax: | | | | | | Net unrealized appreciation (depreciation) on securities and derivatives | $264 | $(192) | $493 | $22 | | Net long-duration insurance and contractholder liabilities measurement adjustments | $(28) | $(28) | $(800) | $(476) | | Net translation gains (losses) on foreign currencies | $39 | $(29) | $8 | $(32) | | Postretirement benefits liability adjustment | $4 | $8 | — | $25 | | Other comprehensive income (loss), net of tax | $279 | $(241) | $(299) | $(461) | | Total comprehensive income | $1,104 | $1,208 | $1,943 | $3,804 | | SHAREHOLDERS' COMPREHENSIVE INCOME | $1,018 | $1,167 | $1,711 | $3,674 | Consolidated Balance Sheets The Consolidated Balance Sheets show an increase in total assets and total liabilities as of September 30, 2024, compared to December 31, 2023. This was primarily driven by a significant increase in accounts receivable and pharmacy and other service costs payable, while total shareholders' equity decreased Consolidated Balance Sheets (in millions) | Metric (in millions) | As of September 30, 2024 | As of December 31, 2023 | | :------------------- | :----------------------- | :---------------------- | | Assets | | | | Cash and cash equivalents | $5,888 | $7,822 | | Accounts receivable, net | $27,846 | $17,722 | | Assets of businesses held for sale | $6,874 | $3,068 | | Total current assets | $49,222 | $37,351 | | Long-term investments | $15,270 | $17,985 | | Goodwill | $44,374 | $44,259 | | Other intangible assets | $29,791 | $30,863 | | TOTAL ASSETS | $157,639 | $152,761 | | Liabilities | | | | Pharmacy and other service costs payable | $28,801 | $19,815 | | Total current liabilities | $57,060 | $48,716 | | Long-term debt | $30,230 | $28,155 | | TOTAL LIABILITIES | $115,341 | $106,410 | | Shareholders' Equity | | | | Total Shareholders' Equity | $42,095 | $46,223 | | Total liabilities and equity | $157,639 | $152,761 | Consolidated Statements of Changes in Total Equity The Consolidated Statements of Changes in Total Equity show a decrease in total equity from December 31, 2023, to September 30, 2024. This was primarily driven by significant share repurchases and common dividends declared, partially offset by net income and effects of issuing stock for employee benefit plans Consolidated Statements of Changes in Total Equity (in millions) | Metric (in millions) | Balance at Dec 31, 2023 | Nine Months Ended Sep 30, 2024 Changes | Balance at Sep 30, 2024 | | :------------------- | :---------------------- | :------------------------------------ | :---------------------- | | Common Stock | $4 | — | $4 | | Additional Paid-in Capital | $30,669 | $517 | $31,186 | | Accumulated Other Comprehensive (Loss) | $(1,864) | $(299) | $(2,163) | | Retained Earnings | $41,652 | $2,010 (Net income) - $1,182 (Dividends) | $42,480 | | Treasury Stock | $(24,238) | $(5,057) (Repurchase) - $117 (Issuance) | $(29,412) | | Shareholders' Equity | $46,223 | $(4,128) | $42,095 | | Other Noncontrolling Interests | $21 | $232 (Net income) - $50 (Other) | $203 | | Redeemable Noncontrolling Interests | $107 | $(107) (Other) | $— | | Total Equity | $46,244 | $(3,946) | $42,298 | - Common dividends declared for the nine months ended September 30, 2024, totaled $1,182 million, compared to $1,093 million for the same period in 2023[15][16] - Repurchase of common stock for the nine months ended September 30, 2024, amounted to $5,057 million, significantly higher than $1,785 million in the prior year period[15][16] Consolidated Statements of Cash Flows The Consolidated Statements of Cash Flows show a substantial decrease in net cash provided by operating activities for the nine months ended September 30, 2024, compared to the prior year. Net cash used in investing activities decreased, while net cash used in financing activities increased significantly, leading to an overall net decrease in cash and cash equivalents Consolidated Statements of Cash Flows (in millions) | Cash Flow Category (in millions) | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $5,151 | $10,346 | | Net cash used in investing activities | $(1,911) | $(4,734) | | Net cash used in financing activities | $(4,399) | $(3,044) | | Effect of foreign currency rate changes on cash, cash equivalents and restricted cash | $6 | $2 | | Net (decrease) increase in cash, cash equivalents and restricted cash | $(1,153) | $2,570 | | Cash, cash equivalents and restricted cash, January 1, | $8,337 | $5,976 | | Cash, cash equivalents and restricted cash, September 30, | $7,184 | $8,546 | | Cash and cash equivalents reclassified to assets of businesses held for sale | $(1,249) | — | | Cash, cash equivalents and restricted cash September 30, per Consolidated Balance Sheets | $5,935 | $8,546 | - Income taxes paid, net of refunds, decreased to $839 million for the nine months ended September 30, 2024, from $1,380 million in the prior year[17] Notes to the Consolidated Financial Statements This section provides detailed explanations and disclosures for the financial statements, covering business description, accounting policies, specific balance sheet and income statement items, and contingencies Note 1 – Description of Business The Cigna Group is a global health company offering pharmacy, medical, behavioral, dental, and related products and services through its Evernorth Health Services and Cigna Healthcare segments. The company is in the process of selling its Medicare Advantage and related businesses to HCSC for approximately $3.3 billion cash, expected to close in Q1 2025 - The Cigna Group operates through two main reportable segments: Evernorth Health Services (Pharmacy Benefit Services, Specialty and Care Services) and Cigna Healthcare (U.S. Healthcare, International Health)[22][23][24] - In January 2024, the Company entered into a definitive agreement to sell its Medicare Advantage, Medicare Stand-Alone Prescription Drug Plans, Medicare and Other Supplemental Benefits and CareAllies businesses to Health Care Service Corporation (HCSC) for approximately $3.3 billion cash. The transaction is expected to close in the first quarter of 2025[25][38] Note 2 – Summary of Significant Accounting Policies The Consolidated Financial Statements are prepared in conformity with GAAP, relying on management's estimates and assumptions. No significant updates on accounting pronouncements have occurred since the 2023 Form 10-K filing - Interim Consolidated Financial Statements are unaudited and include all necessary adjustments for a fair statement of financial position and results of operations[30] - No updates on significant accounting pronouncements recently adopted or issued and not yet adopted have occurred since the Company filed its 2023 Form 10-K[31] Note 3 – Accounts Receivable, Net Net accounts receivable increased significantly to $27.8 billion as of September 30, 2024, from $17.7 billion at December 31, 2023, primarily due to higher receivables from pharmaceutical manufacturers and noninsurance customers. The company also utilized an expanded factoring facility, selling $4.5 billion in receivables for the nine months ended September 30, 2024 Accounts Receivable, Net (in millions) | Accounts Receivable Category (in millions) | September 30, 2024 | December 31, 2023 | | :--------------------------------------- | :----------------- | :---------------- | | Pharmaceutical manufacturers receivables | $13,708 | $8,169 | | Noninsurance customer receivables | $12,615 | $8,044 | | Insurance customer receivables | $2,732 | $2,359 | | Other receivables | $323 | $272 | | Total | $29,378 | $18,844 | | Accounts receivable, net classified as assets of businesses held for sale | $(1,532) | $(1,122) | | Total Accounts receivable, net | $27,846 | $17,722 | - The Company's factoring facility was amended to $1.5 billion during Q2 2024. Accounts receivable sold under this facility were $1.3 billion for the three months and $4.5 billion for the nine months ended September 30, 2024[34][35] Note 4 – Supplier Finance Program The Company facilitates a voluntary supplier finance program, allowing suppliers to sell their receivables to a financial institution for earlier payment. As of September 30, 2024, $1.6 billion of payment obligations were confirmed within the program, with $534 million voluntarily sold by suppliers - As of September 30, 2024, $1.6 billion of the Company's outstanding payment obligations were confirmed as valid within the Program, predominantly associated with one supplier[37] - Suppliers voluntarily elected to sell $534 million of outstanding payment obligations to the financial institution under the Program as of September 30, 2024[37] Note 5 – Assets and Liabilities of Businesses Held for Sale In January 2024, the Company agreed to sell its Medicare Advantage and related businesses to HCSC for approximately $3.3 billion cash, with the transaction expected to close in Q1 2025. Assets held for sale increased to $6.87 billion, and liabilities held for sale increased to $2.77 billion as of September 30, 2024 - The HCSC transaction, valued at approximately $3.3 billion cash, is expected to close in the first quarter of 2025[38] Assets and Liabilities of Businesses Held for Sale (in millions) | Metric (in millions) | September 30, 2024 | December 31, 2023 | | :------------------- | :----------------- | :---------------- | | Cash and cash equivalents | $1,249 | $467 | | Investments | $1,614 | $1,438 | | Accounts receivable, net | $1,532 | $1,122 | | Other assets, including Goodwill | $2,479 | $2,963 | | Total assets of businesses held for sale | $6,874 | $5,990 | | Insurance and contractholder liabilities | $1,568 | $1,636 | | All other liabilities | $1,207 | $1,059 | | Total liabilities of businesses held for sale | $2,775 | $2,695 | - Transaction-related costs for the HCSC transaction and Chubb transaction totaled $77 million pre-tax for the three months and $177 million pre-tax for the nine months ended September 30, 2024[40] Note 6 – Earnings Per Share Diluted earnings per share decreased to $2.63 for the three months and $7.05 for the nine months ended September 30, 2024, from $4.74 and $13.89 respectively in the prior year. This decline is primarily due to lower shareholders' net income, despite a reduction in weighted average shares outstanding due to share repurchases Earnings Per Share (in millions, except per share) | Metric (in millions, except per share) | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :------------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Shareholders' net income | $739 | $1,408 | $2,010 | $4,135 | | Weighted average shares outstanding (thousands) | 278,457 | 294,058 | 282,005 | 294,752 | | Common stock equivalents (thousands) | 2,939 | 3,073 | 3,037 | 2,911 | | Total shares (thousands) | 281,396 | 297,131 | 285,042 | 297,663 | | Basic EPS | $2.65 | $4.79 | $7.13 | $14.03 | | Diluted EPS | $2.63 | $4.74 | $7.05 | $13.89 | - The Company held approximately 122.5 million shares of common stock in treasury at September 30, 2024, an increase from 107.4 million shares at December 31, 2023[43] - The reduction in weighted average shares outstanding for the three and nine months ended September 30, 2024, was partly due to the repurchase of 9.3 million shares under accelerated share repurchase agreements[44] Note 7 – Debt Total short-term debt decreased to $2.57 billion as of September 30, 2024, while total long-term debt increased to $30.23 billion. The company issued $4.5 billion in new senior notes in February 2024, using proceeds for debt repayment and share repurchases. The commercial paper program was increased to $6.5 billion, with $1.6 billion outstanding Debt (in millions) | Debt Category (in millions) | September 30, 2024 | December 31, 2023 | | :-------------------------- | :----------------- | :---------------- | | Short-term debt | | | | Commercial paper | $1,635 | $1,237 | | Other, including finance leases | $44 | $42 | | Total short-term debt | $2,572 | $2,775 | | Long-term debt | | | | Total long-term debt | $30,230 | $28,155 | - In February 2024, the Company issued $4.5 billion of new senior notes, with proceeds used for debt tender offers, repayment of maturing senior notes, and general corporate purposes including share repurchases[55] - The commercial paper program size was increased from $5.0 billion to $6.5 billion during Q3 2024, with a weighted average interest rate of 5.33% at September 30, 2024[54] - The Company replaced its previous revolving credit agreements in April 2024, now including a $5.0 billion five-year agreement and a $1.5 billion 364-day agreement, with $6.5 billion of undrawn committed capacity as of September 30, 2024[50][51][204][205] Note 8 – Common and Preferred Stock The Company declared quarterly cash dividends of $1.40 per share in 2024, an increase from $1.23 per share in 2023. As part of its share repurchase program, the Company entered into accelerated share repurchase agreements in February 2024 to repurchase $3.2 billion of common stock, totaling approximately 9.3 million shares Common Dividends Declared (in millions, except per share) | Dividend Record Date | Payment Date | Amount per Share | Total Amount Paid (in millions) | | :------------------- | :----------- | :--------------- | :------------------------------ | | 2024 | | | | | March 6, 2024 | March 21, 2024 | $1.40 | $401 | | June 4, 2024 | June 20, 2024 | $1.40 | $392 | | September 4, 2024 | September 19, 2024 | $1.40 | $390 | | 2023 | | | | | March 8, 2023 | March 23, 2023 | $1.23 | $368 | | June 7, 2023 | June 22, 2023 | $1.23 | $362 | | September 6, 2023 | September 21, 2023 | $1.23 | $362 | - In February 2024, the Company repurchased approximately 9.3 million shares of common stock for $3.2 billion through accelerated share repurchase agreements[60] Note 9 – Insurance and Contractholder Liabilities Total insurance and contractholder liabilities decreased slightly to $16.05 billion as of September 30, 2024, from $16.42 billion at December 31, 2023. Unpaid claims and claim expenses for Cigna Healthcare remained stable, while future policy benefits and contractholder deposit funds saw minor changes. Market risk benefits decreased to $944 million Insurance and Contractholder Liabilities (in millions) | Liability Category (in millions) | September 30, 2024 (Total) | December 31, 2023 (Total) | | :------------------------------- | :------------------------- | :------------------------ | | Unpaid claims and claim expenses | $5,088 | $5,092 | | Future policy benefits | $4,057 | $4,153 | | Contractholder deposit funds | $6,476 | $6,685 | | Market risk benefits | $944 | $1,003 | | Unearned premiums | $741 | $868 | | Total insurance and contractholder liabilities (before held for sale) | $17,618 | $18,054 | | Insurance and contractholder liabilities classified as liabilities of businesses held for sale | $(1,568) | $(1,636) | | Total insurance and contractholder liabilities | $16,050 | $16,418 | - Favorable prior year development in unpaid claims for Cigna Healthcare was $422 million for the nine months ended September 30, 2024, primarily due to lower than expected utilization of medical services[67][68] - Contractholder deposit fund liabilities within Other Operations were $6.3 billion as of September 30, 2024, with approximately 38% reinsured externally. The net year-to-date decrease is mainly due to withdrawals and benefit payments[75] - Market risk benefits, primarily from variable annuity reinsurance contracts, decreased to $944 million as of September 30, 2024, from $934 million in the prior year, influenced by capital markets and policyholder behavior[77][78] Note 10 – Reinsurance The Company's reinsurance recoverables totaled $4.94 billion as of September 30, 2024, with a significant portion related to acquisition, disposition, or run-off activities. The variable annuity reinsurance business, effectively exited in 2013 through an agreement with Berkshire, has an overall limit with approximately $3.0 billion remaining Reinsurance Recoverables (in millions) | Reinsurance Recoverables (in millions) | September 30, 2024 | | :------------------------------------- | :----------------- | | Total recoverables related to ongoing operations | $461 | | Total recoverables related to acquisition, disposition or run-off activities | $3,500 | | Total reinsurance recoverables before market risk benefits | $3,961 | | Allowance for uncollectible reinsurance | $(30) | | Market risk benefits | $1,008 | | Total reinsurance recoverables | $4,939 | - The Company's variable annuity reinsurance business was effectively exited in 2013 through an agreement with Berkshire, which has an overall limit with approximately $3.0 billion remaining at September 30, 2024[85] Note 11 – Investments The Company's investment portfolio, excluding separate account assets, decreased to $17.75 billion as of September 30, 2024, from $20.35 billion at December 31, 2023. This was largely due to a significant impairment of equity securities, particularly a $2.7 billion loss on the investment in VillageMD. Debt securities remained relatively stable, while commercial mortgage loans and other long-term investments saw minor changes Investments (in millions) | Investment Category (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 | $(1,614) | $(1,438) | | Investments per Consolidated Balance Sheets | $16,134 | $18,910 | - The Company recorded a $2.7 billion loss in Net realized investment losses for the nine months ended September 30, 2024, due to the full impairment of its equity investment in VillageMD[94][103][123] - The debt securities portfolio remains in a net unrealized depreciation position due to generally increasing interest rates, with 86% of the portfolio being investment grade as of September 30, 2024[264][265] - The commercial mortgage loan portfolio, diversified by property type and location, maintained strong overall credit quality in the second quarter of 2024, with less than 25% exposure to office properties[96][97][271] Note 12 – Fair Value Measurements The Company classifies financial instruments at fair value using a three-level hierarchy. As of September 30, 2024, total debt securities at fair value were $9.88 billion, with $423 million classified as Level 3. Separate account assets, primarily supporting pension plans, totaled $7.65 billion, with $227 million in Level 3 Financial Assets at Fair Value (in millions) | Financial Assets at Fair Value (in millions) | September 30, 2024 (Level 1) | September 30, 2024 (Level 2) | September 30, 2024 (Level 3) | September 30, 2024 (Total) | | :------------------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :------------------------- | | Debt securities | $168 | $9,290 | $423 | $9,881 | | Equity securities | $1 | $48 | — | $49 | | Short-term investments | — | $182 | — | $182 | | Derivative assets | — | $129 | — | $129 | Separate Account Assets at Fair Value (in millions) | Separate Account Assets at Fair Value (in millions) | September 30, 2024 (Level 1) | September 30, 2024 (Level 2) | September 30, 2024 (Level 3) | September 30, 2024 (Total) | | :-------------------------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :------------------------- | | Guaranteed separate accounts | $247 | $353 | — | $600 | | Non-guaranteed separate accounts | $166 | $6,007 | $227 | $6,400 | | Non-guaranteed separate accounts priced at NAV | — | — | — | $651 | | Total | $413 | $6,360 | $227 | $7,651 | - The significant unobservable input for Level 3 debt securities is an adjustment for liquidity, reflecting current market conditions and issuer circumstances with limited trading activity[112][113] Note 13 – Variable Interest Entities The Company determined it was not a primary beneficiary in any material variable interest entity as of September 30, 2024, and its involvement has not materially changed from December 31, 2023 - The Company performs ongoing qualitative analyses of its involvement with variable interest entities and has not provided, nor intends to provide, financial support in excess of its maximum exposure[126] Note 14 – Accumulated Other Comprehensive Income (Loss) Accumulated Other Comprehensive Loss (AOCI) increased to $(2.16) billion as of September 30, 2024, from $(1.86) billion at December 31, 2023. This change was primarily driven by net long-duration insurance and contractholder liabilities measurement adjustments, and net unrealized appreciation on securities and derivatives Accumulated Other Comprehensive Income (Loss) (in millions) | AOCI Component (in millions) | Three Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2024 | | :--------------------------- | :------------------------------ | :----------------------------- | | Securities and Derivatives | $264 | $493 | | Net long-duration insurance and contractholder liabilities measurement adjustments | $(28) | $(800) | | Translation of foreign currencies | $39 | $8 | | Postretirement benefits liability | $4 | — | | Shareholders' other comprehensive income (loss), net of tax | $279 | $(299) | | Total Accumulated other comprehensive loss (Ending balance) | $(2,163) | $(2,163) | - Shareholders' other comprehensive loss, net of tax, for both periods is primarily attributable to changes in discount rates for certain long-duration liabilities and unrealized changes in market values of securities and derivatives[128] Note 15 – Income Taxes The effective tax rates for the three and nine months ended September 30, 2024, increased significantly to 30.8% and 31.2% respectively, compared to 21.3% and 19.9% in the prior year. This increase was primarily due to the establishment of a $635 million valuation allowance on deferred tax assets related to the impairment of equity securities - The effective tax rates for the three and nine months ended September 30, 2024, were 30.8% and 31.2%, respectively, higher than 21.3% and 19.9% for the same periods in 2023[134] - A valuation allowance of $635 million was established in the nine months ended September 30, 2024, almost entirely related to the impairment of equity securities, driving the higher effective tax rate[135] Note 16 – Contingencies and Other Matters The Company is contingently liable for various guarantees and is routinely involved in legal and regulatory matters. The Elevance litigation, concerning breach of contract claims against Express Scripts, is ongoing, with an appeal filed by Elevance regarding pricing-related claims previously dismissed - The Company guarantees that separate account assets will be sufficient to pay certain life insurance or retiree benefits, with employers primarily responsible for asset sufficiency[137] - The Elevance litigation against Express Scripts involves breach of contract claims, with Elevance appealing the dismissal of its $14.8 billion pricing-related claims[145] - The Company does not believe it is possible to determine the maximum potential amount due under certain indemnification obligations due to unspecified limitations[139] Note 17 – Segment Information The Company uses 'pre-tax adjusted income (loss) from operations' and 'adjusted revenues' as principal financial measures for segment operating performance. For the three months ended September 30, 2024, Evernorth Health Services reported $52.64 billion in adjusted revenues and $1.88 billion in pre-tax adjusted income, while Cigna Healthcare reported $13.16 billion and $1.17 billion, respectively - Segment operating performance is measured using 'pre-tax adjusted income (loss) from operations' and 'adjusted revenues', which exclude net realized investment results, amortization of acquired intangible assets, and special items[147][166][224] Segment Performance (Three Months Ended Sep 30, 2024, in millions) | Segment (in millions) | Three Months Ended Sep 30, 2024 (Adjusted Revenues) | Three Months Ended Sep 30, 2024 (Pre-tax Adjusted Income from Operations) | | :-------------------- | :-------------------------------------------------- | :------------------------------------------------------------------------ | | Evernorth Health Services | $52,637 | $1,876 | | Cigna Healthcare | $13,163 | $1,174 | | Other Operations | $234 | $(6) | | Corporate and Eliminations | $(2,335) | $(425) | | Consolidated Total | $63,699 | $2,619 | Segment Performance (Nine Months Ended Sep 30, 2024, in millions) | Segment (in millions) | Nine Months Ended Sep 30, 2024 (Adjusted Revenues) | Nine Months Ended Sep 30, 2024 (Pre-tax Adjusted Income from Operations) | | :-------------------- | :------------------------------------------------- | :----------------------------------------------------------------------- | | Evernorth Health Services | $148,411 | $4,855 | | Cigna Healthcare | $39,583 | $3,718 | | Other Operations | $627 | $(4) | | Corporate and Eliminations | $(7,205) | $(1,269) | | Consolidated Total | $181,416 | $7,300 | - Revenues from a single pharmacy benefit client were approximately 16% of consolidated revenues for both the three and nine months ended September 30, 2024, reported in the Evernorth Health Services segment[161] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section analyzes the Company's financial performance, liquidity, and capital resources, highlighting revenue growth, net income decline due to impairment, and strategic capital allocation Executive Overview The Cigna Group reported a 30% increase in total revenues for the three months and 26% for the nine months ended September 30, 2024, driven by Evernorth Health Services. However, shareholders' net income decreased by 48% and 51% respectively, primarily due to the impairment of VillageMD equity securities. Adjusted income from operations saw modest growth Executive Overview Financial Highlights (in millions, except per share) | Metric (in millions, except per share) | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :------------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Total revenues | $63,694 | $49,048 | $181,472 | $144,151 | | Shareholders' net income | $739 | $1,408 | $2,010 | $4,135 | | Adjusted income from operations | $2,112 | $2,011 | $5,896 | $5,449 | | Diluted EPS (Shareholders' net income) | $2.63 | $4.74 | $7.05 | $13.89 | | Diluted EPS (Adjusted income from operations) | $7.51 | $6.77 | $20.68 | $18.31 | - Shareholders' net income decreased 48% and 51% for the three and nine months ended September 30, 2024, respectively, primarily due to the impairment of VillageMD equity securities[181] - Adjusted income from operations increased 5% and 8% for the three and nine months ended September 30, 2024, reflecting higher earnings in Evernorth Health Services and Cigna Healthcare[182] - Medical customers decreased 3% for the nine months ended September 30, 2024, mainly due to a decrease in Individual and Family Plans customers[176][182] - The effective tax rate increased for both periods in 2024, primarily driven by a valuation allowance related to the impairment of VillageMD equity securities[187] - The sale of Medicare Advantage and related businesses to HCSC for approximately $3.3 billion cash is expected to close in Q1 2025, providing approximately $3.7 billion in transaction value[188] Liquidity and Capital Resources The Company maintains liquidity at both subsidiary and parent company levels, with operating cash flows decreasing for the nine months ended September 30, 2024, due to higher accounts receivable and insurance claims. Capital resources are prioritized for investments, dividends, acquisitions, and share repurchases. The commercial paper program was increased to $6.5 billion, and $3.2 billion in common stock was repurchased via ASR agreements Cash Flow Summary (in millions) | Cash Flow Category (in millions) | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :------------------------------- | :----------------------------- | :----------------------------- | | Operating activities | $5,151 | $10,346 | | Investing activities | $(1,911) | $(4,734) | | Financing activities | $(4,399) | $(3,044) | - Operating cash flows decreased due to higher accounts receivable from timing and organic business growth, higher insurance claims, and the absence of an early CMS payment in 2023[197] - The commercial paper program was increased to $6.5 billion, with $1.6 billion outstanding at September 30, 2024. The Company also has $6.5 billion of undrawn committed capacity under its revolving credit agreements[202][205] - The Company repurchased 14.7 million shares for approximately $5.0 billion during the nine months ended September 30, 2024, including $3.2 billion through Accelerated Share Repurchase (ASR) agreements[212] - The debt-to-capitalization ratio was 43.8% at September 30, 2024[206] - Proceeds from the HCSC divestiture, expected to close in Q1 2025, are anticipated to be primarily allocated to share repurchases[213] Critical Accounting Estimates The Company's critical accounting estimates, which require significant management judgment and assumptions, remain consistent with those reported in the 2023 Form 10-K. Annual evaluations of goodwill and other intangible assets for impairments were completed in Q3 2024, with fair values exceeding carrying values by substantial margins - No significant changes to critical accounting estimates were reported as of September 30, 2024, from the 2023 Form 10-K[220] - Annual evaluations of goodwill and other intangible assets for impairments were completed in Q3 2024, with the estimated fair value of each reporting unit substantially exceeding its carrying value[221] Segment Reporting This section details the financial performance of the Company's operating segments, including Evernorth Health Services, Cigna Healthcare, Other Operations, and Corporate Evernorth Health Services Segment Evernorth Health Services reported adjusted revenues of $52.64 billion for the three months and $148.41 billion for the nine months ended September 30, 2024, representing 36% and 31% increases, respectively. Pre-tax adjusted income from operations increased by 9% and 7% for the same periods, driven by customer growth in Specialty and Care Services and affordability improvements in Pharmacy Benefit Services Evernorth Health Services Segment Performance (in millions) | Metric (in millions) | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Adjusted revenues | $52,637 | $38,596 | $148,411 | $112,980 | | Adjusted gross profit | $2,869 | $2,596 | $7,953 | $7,161 | | Pre-tax adjusted income from operations | $1,876 | $1,716 | $4,855 | $4,552 | | Pre-tax adjusted margin | 3.6% | 4.4% | 3.3% | 4.0% | | Adjusted SG&A expense ratio | 1.7% | 2.2% | 1.9% | 2.2% | - Adjusted revenues increased primarily due to higher utilization of prescription drugs from customer growth in both Pharmacy Benefit Services and Specialty and Care Services[235] - Adjusted gross profit increased 11% for both periods, reflecting contributions from customer growth in Specialty and Care Services and affordability improvements in Pharmacy Benefit Services[236] - Pre-tax adjusted income from operations increased due to customer growth in Specialty and Care Services (+11% and +10%) and affordability improvements in Pharmacy Benefit Services (+3% in both periods), partially offset by strategic investments[237] Cigna Healthcare Segment Cigna Healthcare's adjusted revenues increased by 3% for the three months and 4% for the nine months ended September 30, 2024, driven by higher premiums. Pre-tax adjusted income from operations decreased 4% for the three-month period due to higher medical costs but increased 6% for the nine-month period. The medical care ratio increased, reflecting higher U.S. Healthcare medical care ratio Cigna Healthcare Segment Performance (in millions) | Metric (in millions) | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Adjusted revenues | $13,163 | $12,768 | $39,583 | $38,200 | | Pre-tax adjusted income from operations | $1,174 | $1,222 | $3,718 | $3,509 | | Pre-tax adjusted margin | 8.9% | 9.6% | 9.4% | 9.2% | | Medical care ratio | 82.8% | 80.5% | 81.7% | 81.0% | | Adjusted SG&A expense ratio | 20.0% | 21.6% | 20.2% | 21.3% | - Adjusted revenues increased due to higher premiums in employer insured, Medicare Part D, and stop loss, offset by lower premiums in Individual and Family Plans[245] - The medical care ratio increased by 230 bps for the three months and 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 and an additional business day[247] Medical Customers (in thousands) | Medical Customers (in thousands) | September 30, 2023 | | :------------------------------- | :----------------- | | U.S. Healthcare (Insured) | 4,189 | | International Health (Insured) | 1,198 | | U.S. Healthcare (Administrative services only) | 13,790 | | International Health (Administrative services only) | 430 | | Total Medical Customers | 19,607 | - Total medical customers decreased 3%, primarily due to a decrease in Individual and Family Plans customers[250] Other Operations Other Operations reported adjusted revenues of $234 million for the three months and $627 million for the nine months ended September 30, 2024, showing significant increases. However, pre-tax adjusted income from operations shifted to a loss for both periods, primarily driven by unfavorable margins in non-strategic businesses Other Operations Segment Performance (in millions) | Metric (in millions) | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Adjusted revenues | $234 | $147 | $627 | $462 | | Pre-tax adjusted (loss) income from operations | $(6) | $26 | $(4) | $70 | | Pre-tax adjusted margin | (2.6)% | 17.7% | (0.6)% | 15.2% | - Pre-tax adjusted (loss) income from operations decreased for both periods primarily driven by unfavorable margins in non-strategic businesses[256] Corporate Corporate's pre-tax adjusted loss from operations decreased for both the three and nine months ended September 30, 2024, primarily due to lower operating and pension costs, partially offset by higher interest rates on indebtedness Corporate Segment Performance (in millions) | Metric (in millions) | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Pre-tax adjusted loss from operations | $(425) | $(435) | $(1,269) | $(1,272) | - The decrease in pre-tax adjusted loss from operations was primarily due to lower operating and pension costs (-800 bps for both periods), partially offset by higher interest rates on indebtedness (+600 bps for both periods)[259] Investment Assets The Company's investment asset portfolio, excluding separate account assets, decreased to $17.75 billion as of September 30, 2024, from $20.35 billion at December 31, 2023, mainly due to the impairment of equity securities. The portfolio remains diversified, with debt securities being largely investment grade, and commercial mortgage loans maintaining strong credit quality despite office sector weaknesses Investment Assets (in millions) | Investment Category (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 | $(1,614) | $(1,438) | | Investments per Consolidated Balance Sheets | $16,134 | $18,910 | - The debt securities portfolio slightly increased in carrying value but remains in a net unrealized depreciation position due to generally increasing interest rates. 86% of the portfolio is investment grade[264][265] - The $1.5 billion commercial mortgage loan portfolio consists of approximately 45 fixed-rate loans, diversified by property type, location, and borrower, with ongoing strong overall credit quality[268][270] - Other long-term investments of $4.5 billion are diversified across approximately 220 separate partnerships, with less than 4% exposed to real estate in the office sector[272][273] Item 3. Quantitative and Qualitative Disclosures About Market Risk The Company's primary market risk exposures are interest rate risk and equity price risk. Interest rate risk increased, with a 100 basis point rise in rates potentially decreasing long-term debt fair value by $2.1 billion. Equity price risk decreased due to the impairment of equity securities, with a 10% decline in market price potentially decreasing equity securities fair value by $0.1 billion - A 100 basis point increase in interest rates would decrease the fair value of the Company's long-term debt by approximately $2.1 billion at September 30, 2024, an increase from $1.8 billion at December 31, 2023[277] - A 10% decline in the market price for all equity securities would decrease the fair value of the Company's equity securities by approximately $0.1 billion as of September 30, 2024, a decrease from $0.3 billion at December 31, 2023, driven by equity securities impairment[278] Item 4. Controls and Procedures The Company's disclosure controls and procedures were deemed effective as of September 30, 2024. During the quarter, certain subsidiaries completed the initial phase of an enterprise resource planning (ERP) system implementation, leading to the addition or modification of internal controls over financial reporting - The Cigna Group's disclosure controls and procedures were effective as of September 30, 2024[280] - An initial phase of an enterprise resource planning (ERP) system implementation was completed in Q3 2024, resulting in added or modified internal controls over financial reporting[281][282] Part II. OTHER INFORMATION This section covers legal proceedings, risk factors, equity sales, other disclosures, and the official signature for the report Item 1. Legal Proceedings Information regarding legal proceedings is incorporated by reference from Note 16 to the Consolidated Financial Statements - Legal proceedings information is detailed in Note 16 to the Consolidated Financial Statements[284] Item 1A. Risk Factors Factors that could affect the Company's results of operations, financial condition, and liquidity are discussed in the 'Risk Factors' section of the Annual Report on Form 10-K for the year ended December 31, 2023 - Risk factors are referenced from Part I, Item 1A. 'Risk Factors' in the 2023 Annual Report on Form 10-K[285] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The Company repurchased 8.8 million shares of common stock for approximately $2.45 billion during the quarter ended September 30, 2024, at an average price of $277.80 per share. As of October 30, 2024, the remaining share repurchase authority was $5.6 billion Common Stock Repurchases (Quarter Ended Sep 30, 2024) | Period | Total of shares purchased (thousands) | Average price paid per share | | :----------------- | :-------------------------------------- | :--------------------------- | | July 1-31, 2024 | 2,879 | $267.74 | | August 1-31, 2024 | 1,719 | $276.21 | | September 1-30, 2024 | 4,202 | $285.34 | | Total | 8,800 | $277.80 | - As of October 30, 2024, the Company had $5.6 billion in remaining share repurchase authority[286] Item 5. Other Information During the quarter ended September 30, 2024, an Executive Vice President adopted a Rule 10b5-1 trading plan for the sale of common stock and exercise of vested stock options through May 2, 2025 - On September 12, 2024, Noelle K. Eder, EVP, Global Chief Information Officer, adopted a Rule 10b5-1 plan for the sale of up to 5,981 shares, shares from performance awards, and up to 7,026 shares from stock option exercises through May 2, 2025[287] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including the Restated Certificate of Incorporation, Amended and Restated By-laws, CEO and CFO certifications (31.1, 31.2, 32.1, 32.2), and Inline XBRL financial statements (101, 104) - Key exhibits include the Restated Certificate of Incorporation, Amended and Restated By-laws, CEO and CFO certifications (Rule 13a-14(a) and 18 U.S.C. Section 1350), and Inline XBRL financial statements[290] SIGNATURE The report was duly signed on October 31, 2024, by Brian C. Evanko, Executive Vice President, Chief Financial Officer, and President and Chief Executive Officer of Cigna Healthcare, as the Principal Financial Officer and Authorized Signatory - The report was signed by Brian C. Evanko, Executive Vice President, Chief Financial Officer, and President and Chief Executive Officer, Cigna Healthcare, on October 31, 2024[292](