What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-11-04 compared with 2021-08-05 · 216 added, 157 removed, 509 unchanged (42% of the section changed)

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Investment Assets

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 June 30, 2021 compared with December 31, 2020 and our results of operations for the three and six months ended June 30, 2021, compared with the same periods last year and is intended to help you understand the ongoing trends in our business.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to provide information to assist you in better understanding and evaluating our financial condition as of September 30, 2021 compared with December 31, 2020 and our results of operations for the three and nine months ended September 30, 2021, compared with the same periods last year and is intended to help you understand the ongoing trends in our business.

We encourage you to read this MD&A in conjunction with our Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2020 ("Form 10-K").

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our prospects for growth in the coming years;

strategic transactions;

strategic transactions, including the sale of our international life, accident and supplemental benefits business;

and other statements regarding Cigna’s future beliefs, expectations, plans, intentions, liquidity, cash flows, financial condition or performance.

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our ability to adapt to changes in an evolving and rapidly changing industry;

the scale, scope and duration of the COVID-19 pandemic and its potential impact on our business, operating results, cash flows or financial condition, our ability to compete effectively, differentiate our products and services from those of our competitors and maintain or increase market share;

the scale, scope and duration of the COVID-19 pandemic and its potential impact on our business, operating results, cash flows or financial condition;

our ability to compete effectively, differentiate our products and services from those of our competitors and maintain or increase market share;

price competition and other pressures that could compress our margins or result in premiums that are insufficient to cover the cost of services delivered to our customers;

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political, legal, operational, regulatory, economic and other risks that could affect our multinational operations;

risks related to strategic transactions and realization of the expected benefits of such transactions, as well as integration difficulties or underperformance relative to expectations;

risks related to strategic transactions and realization of the expected benefits of such transactions, including with respect to the sale of our international life, accident and supplemental benefits business, as well as integration difficulties or underperformance relative to expectations;

dependence on success of relationships with third parties;

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

The commentary provided below describes our results for the three and six months ended June 30, 2021 compared with the same periods in 2020.

Unless specified otherwise, commentary applies to both the three and six month periods.

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

The commentary provided below describes our results for the three and nine months ended September 30, 2021 compared with the same periods in 2020.

Unless specified otherwise, commentary applies to both the three and nine month periods.

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

Financial highlights by segment

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

(Dollars in millions, except per share amounts) 2021 2020 % Change 2021 2020 % Change

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Adjusted revenues 44,310 40,801 9 128,402 118,398 8

Net realized investment results from certain equity method investments 24 60 (60) 10 50 (80)

Net realized investment results from certain equity method investments (22) 37 N/M (12) 87 N/M

Special items — 117 N/M — 204 N/M

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Net realized investment gains (losses) (1)

83 98 (15) 70 — N/M

46 69 (33) 116 69 68

Amortization of acquired intangible assets (501) (493) (2) (1,499) (1,487) (1)

Special items (26) (144) 82 (159) (395) 60

Special items (13) 106 N/M (172) (289) 40

Income before income taxes $ 2,059 $ 1,804 14 % $ 5,470 $ 5,490 — %

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Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

(Dollars in millions) 2021 2020 % Change 2021 2020 % Change

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Interest expense and other (303) (336) 10 (915) (1,101) 17

Debt extinguishment costs (10) (14) 29 (141) (199) 29

Debt extinguishment costs — — N/M (141) (199) 29

Net realized investment gains (losses) 68 32 113 128 (18) N/M

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Three Months Ended

June 30, Six Months Ended

June 30, Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30, Three Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020 2021 2020 2021 2020

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Debt extinguishment costs — — 110 151 — — 0.32 0.41

Integration and transaction-related costs 14 99 36 173 0.04 0.27 0.10 0.46

Charges associated with litigation matters — — (21) 19 — — (0.06) 0.05

Integration and transaction-related (benefits) costs (35) 83 1 256 (0.10) 0.23 — 0.69

(Benefits) charges associated with litigation matters — — (21) 19 — — (0.06) 0.05

Charge for organizational efficiency plan — — — 24 — — — 0.06

Risk corridors recovery — (76) — (76) — (0.21) — (0.20)

Contractual adjustment for a former client — (89) — (155) — (0.24) — (0.42)

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COVID-19 Update

Cigna continues to closely monitor the evolving dynamics of the COVID-19 pandemic including the evolving variants, and remains focused on the safety and service of our customers, clients, employees and partners.

We continue to take steps to increase vaccinations by enabling, educating and encouraging vaccine acceptance.

We launched the Community of Immunity initiative to engage communities where we live and work.

We are offering onsite vaccinations for clients that have Employer Worksite Health Centers.

To help enable the vaccination of seniors age 65+ in America’s most at-risk, underserved communities, we are participating in the industry Vaccine Community Connectors (VCC) initiative.

These efforts are part of Cigna’s broad range of initiatives to encourage and expand access to COVID-19 vaccines, including transportation to vaccine appointments at no cost for most Medicare Advantage customers, paid time off for Cigna employees to get vaccinated and an incentive award for employees enrolled in our medical plan who are fully vaccinated.

To help meet growing mental health needs exacerbated by the pandemic, Cigna continues to expand the innovative behavioral health services available to its customers.

Beginning in April 2021, Cigna's behavioral health customers with commercial health care plans have access to in-network, on-demand behavioral health coaching, therapy and psychiatry services.

Cigna also continues to provide supportive resources for all customers, clients and communities for managing anxiety, fear, stress and improving resiliency during COVID-19.

The COVID-19 pandemic has pervasively impacted the economy, financial markets and the global health care delivery systems.

For the second quarter of 2021, COVID-19 impacts are most notable in our U.S.

Medical segment with net unfavorable COVID-19 related impacts as compared with the same period in 2020 when we experienced the most significant reduction to consumption of medical care, a portion of which was deferred care.

The unfavorable COVID-19 related impacts include the resumption of medical care to near pre-COVID-19 levels during the second quarter of 2021, increased direct costs of COVID-19 testing, treatment and vaccines in 2021, lower risk adjusted revenues in our Medicare Advantage business and increased disenrollment resulting from the economic effects of the pandemic.

These impacts were partially offset by the absence of the premium relief programs for clients implemented in the second quarter of 2020 in response to significantly lower than historical utilization as individuals deferred care due to the COVID-19 pandemic.

As compared with the three months ended March 31, 2021 the net unfavorable impacts of COVID-19 increased reflecting less deferral of care, partially offset by lower direct costs for testing and treatment.

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

As Cigna closely monitors the evolving dynamics of the COVID-19 pandemic, the Company’s commitment to the health and safety of its employees, customers and clients remains our primary focus.

Cigna firmly believes COVID-19 vaccinations help control the spread of the virus, limit the severity of the disease and save lives.

The Company continues its work to increase vaccinations by enabling, educating and encouraging vaccine acceptance across all eligible populations.

Cigna continues to provide access to care and supportive resources to help everyone it serves knowledgeably navigate the pandemic and take care of their physical and mental health during this time.

For the third quarter of 2021, COVID-19 impacts are most notable in our U.S.

Medical segment as net unfavorable COVID-19 related impacts increased as compared with the same period in 2020.

The unfavorable COVID-19 related impacts include increased direct costs of COVID-19 testing, treatment and vaccines as well as lower risk adjustment revenues in our Medicare Advantage business.

For the nine months ended September 30, 2021 compared with the same period in 2020 the net unfavorable impacts reflect increased direct costs of COVID-19 testing, treatment and vaccines, the significant deferral of care by our customers in 2020, lower risk adjustment revenues in our Medicare Advantage business and increased disenrollment resulting from the economic effects of the pandemic.

These impacts were partially offset by the absence of the premium relief programs implemented in the second quarter of 2020.

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

The situation surrounding COVID-19 remains fluid with continued uncertainty and a wide range of potential outcomes.

We continue to actively manage our response and assess impacts to our financial position and operating results, as well as mitigate adverse developments in our business.

There continues to be elevated uncertainty surrounding the pace, duration and extent of the COVID-19 pandemic and its related impacts — including the vaccination efforts and new COVID-19 variants — on our results for the remainder of 2021 and beyond.

We believe that such financial results may continue to be impacted by, among other things, vaccine related costs, higher medical costs to treat those affected by the virus, lower customer volumes due to elevated unemployment, lower risk adjustment revenue due to disrupted care impeding appropriate documentation of customer risk profiles in our Medicare Advantage business, the pace at which costs return as well as the severity of costs for those who had previously deferred care, the potential for future deferral of care, or volatility in the economic markets.

Cigna has taken actions to enhance our liquidity that, combined with our other sources of liquidity described in the "Liquidity and Capital Resources Outlook" section below, and our current projections for operating cash flows, we believe are sufficient to support our operations and meet our obligations.

Segment results are discussed further in the "Segment Reporting" section of this MD&A and discussion of the impact of COVID-19 on our investment portfolio and related considerations regarding our investment outlook can be found in Note 9 to the Consolidated Financial Statements and in the "Investment Assets" discussion of this MD&A.

There continues to be uncertainty surrounding the pace, duration and extent of the COVID-19 pandemic and its related impacts — including the vaccination efforts and new COVID-19 variants — on our results for the remainder of 2021 and beyond.

We believe that such financial results may continue to be impacted by, among other things, vaccine related costs, higher medical costs to treat those affected by the virus, lower customer volumes due to a disrupted employment market, lower risk adjustment revenue due to disrupted care impeding appropriate documentation of customer risk profiles in our Medicare Advantage business, the pace at which costs return as well as the severity of costs for those who had previously deferred care, the potential for future deferral of care, or volatility in the economic markets.

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

Three and Six Months Ended June 30, 2021 versus Three and Six Months Ended June 30, 2020

The commentary presented below, and in the segment discussions that follow, compare results for the three and six months ended June 30, 2021 with results for the three and six months ended June 30, 2020.

Unless otherwise specified, commentary applies to both the three and six month periods.

Shareholders’ net income decreased, driven by lower adjusted income from operations (see below) and, for the six months ended June 30, the absence of certain favorable tax benefits reported in the first quarter of 2020.

Adjusted income from operations decreased, primarily resulting from lower earnings in U.S.

Medical due to net unfavorable COVID-19 related impacts.

See the "U.S.

Medical segment" section of this MD&A for further information.

The absence of earnings due to the sale of the Group Disability and Life business also contributed to the decrease.

These declines were partially offset by increased earnings in the Evernorth segment primarily attributable to effective management of supply chain and business growth.

Medical customers declined slightly, reflecting a lower customer base in our National Accounts and Middle Markets segments including disenrollment resulting from the economic impacts of the COVID-19 pandemic;

partially offset by growth in our Select, Individual and Medicare Advantage businesses.

Pharmacy revenues increased, reflecting strong business and customer growth.

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

The commentary presented below, and in the segment discussions that follow, compare results for the three and nine months ended September 30, 2021 with results for the three and nine months ended September 30, 2020.

Unless otherwise specified, commentary applies to both the three and nine month periods.

Shareholders’ net income increased for the three months ended September 30, 2021 compared with the same period last year, primarily driven by higher adjusted income from operations (see below).

For the nine months ended September 30, 2021, shareholders' net income decreased slightly compared with the same period last year, reflecting a decline in adjusted income from operations (see below).

For the nine months ended September 30, 2021 shareholders' net income increased on a per-share basis compared with the same period last year due to the favorable effect of the share repurchase program.

Adjusted income from operations increased for the three months ended September 30, 2021 compared with the same period last year, primarily resulting from higher earnings across our reporting segments, partially offset by the absence of earnings from the sold Group Disability and Life business.

The increase in earnings in the Evernorth segment was primarily attributable to effective management of supply chain and business growth;

Medical and International segments, earnings growth largely reflected significantly higher net investment income (see net investment income discussion below).

For the nine months ended September 30, 2021, adjusted income from operations declined compared with the same period last year, primarily due to lower earnings in U.S.

Medical reflecting the unfavorable impacts of COVID-19 and the absence of earnings from the sold Group Disability and Life business.

These unfavorable effects were partially offset by increased earnings in the Evernorth segment.

For the nine months ended September 30, 2021, adjusted income from operations increased on a per-share basis compared with the same period last year due to the favorable effect of the share repurchase program.

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

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

See the "Evernorth segment" section of this MD&A for further discussion of Pharmacy revenues.

Premiums were lower, reflecting the effect of the sale of the Group Disability and Life business.

Premiums were lower, reflecting the sale of the Group Disability and Life business.

This effect was partially offset by an increase in U.S.

Medical premiums resulting from the absence of premium relief programs implemented in the second quarter of 2020 in response to deferred care due to the COVID-19 pandemic, increased customers in our insured businesses and higher premium rates due to anticipated underlying medical cost trend.

Medical premiums resulting from increased customers in our insured businesses, higher premium rates due to anticipated underlying medical cost trend and, for the nine months ended September 30,2021 the absence of premium relief programs implemented in the second quarter of 2020 in response to deferred care due to the COVID-19 pandemic.

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

Net investment income increased due to strong returns on our partnership investments, partially offset by lower average assets due to the sale of the Group Disability and Life business.

Net investment income increased due to strong returns on our securities limited partnership investments, partially offset by lower average assets due to the sale of the Group Disability and Life business.

See the "Investment Assets" section of this MD&A for further discussion.

Pharmacy and other service costs increased, reflecting strong business and customer growth.

Medical costs and other benefit expenses increased, primarily reflecting the absence of deferred care as well as higher costs of COVID-19 treatment, testing and vaccines and customer growth in our insured businesses.

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

Medical costs and other benefit expenses decreased slightly for the three months ended September 30, 2021 compared with the same period last year, reflecting the sale of the Group Disability and Life business, largely offset by an increase in U.S.

Medical due to higher costs of COVID-19 treatment, testing and vaccines and customer growth in our insured businesses.

For the nine months ended September 30, 2021, the increase compared with the same period last year was due to higher medical costs in U.S.

Medical for the reasons cited above and a significant reduction in deferred care in 2021 as compared to 2020.

Most care was deferred in the second quarter of 2020, with claims returning to more normal levels beginning in the third quarter of 2020.

These unfavorable effects were partially offset by the sale of the Group Disability and Life business.

Selling, general and administrative expenses decreased, primarily resulting from the sale of the Group Disability and Life business, lower integration and transaction-related costs, the elimination of the health insurance industry tax and the impact of favorable litigation developments .

Selling, general and administrative expenses decreased, primarily resulting from the sale of the Group Disability and Life business and the elimination of the health insurance industry tax.

These favorable effects were partially offset by expense growth in Evernorth and U.S.

Medical reflecting business growth.

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

Debt extinguishment costs were lower because the debt repaid in 2021 had lower interest rates than the debt repaid in 2020.

Realized investment results significantly improved for the six months ended June 30, 2021 compared with the same period last year due to favorable market value adjustments on equity securities in 2021 compared with 2020 and lower credit loss reserves on debt securities.

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

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

Effective tax rate.

The decrease for the three months ended June 30, 2021 compared with the same period last year primarily reflects the repeal of the nondeductible health insurance industry tax in 2021.

For the six months ended June 30, 2021, the effective tax rate was higher than the same period last year, driven by recognition of certain incremental federal and state tax benefits in the first quarter of 2020, partially offset by the repeal of the nondeductible health insurance industry tax in 2021.

The decrease for the three months ended September 30, 2021 compared with the same period last year primarily reflects the repeal of the nondeductible health insurance industry tax in 2021.

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

Medicare Star Quality Ratings (“Star Ratings”)

The Centers for Medicare & Medicaid Services ("CMS") uses a Star Rating system to measure how well Medicare Advantage (“MA”) plans perform, scoring how well plans perform in several categories, including quality of care and customer service.

Star Ratings range from one to five stars.

CMS recognizes plans with Star Ratings of four stars or greater with quality bonus payments and the ability to offer enhanced benefits.

Approximately 87% of our MA customers were in four star or greater plans for bonus payments received in 2021 and approximately 88% were in four star or greater plans for bonus payments to be received in 2022;

we expect this percentage to increase to 89% for bonus payments to be received in 2023.

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

Cigna entered into a definitive agreement in October 2021 to sell its life, accident and supplemental benefits businesses in seven countries to Chubb INA Holdings, Inc.

("Chubb") for $5.75 billion cash.

Subject to applicable regulatory approvals and customary closing conditions, we expect to complete the sale of our life, accident and supplemental benefits businesses in Hong Kong, Indonesia, New Zealand, South Korea, Taiwan, Thailand and our interest in a joint venture in Turkey in 2022.

The “Liquidity and Capital Resources” section of this MD&A provides discussion of the expected impact of this transaction to liquidity.

Purchase of MDLIVE

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The acquisition of MDLIVE will enable Evernorth to continue expanding access to virtual care and delivering a more affordable, convenient and connected care experience for consumers.

The “Liquidity and Capital Resources” section of this MD&A provides discussion of the impact of this transaction to liquidity.

The “Liquidity and Capital Resources” section of this MD&A provides discussion of the impact of this transaction on liquidity.

Sale of Group Disability and Life Business

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On February 19, 2021 two insurers filed a petition seeking Supreme Court review.

On June 21, 2021, the Supreme Court declined the insurers’ petitions, which means the decision from the Court of Appeals for the Federal Circuit stands and will not be modified further.

On June 21, 2021, the Supreme Court declined the insurers’ petitions, which means the decision from the Court of Appeals for the Federal Circuit stands and will not

be modified further.

As described in Note 15 to the Consolidated Financial Statements, we filed a lawsuit in May 2020 against the federal government seeking payment of these subsidies.

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Corporate Tax Reform.

Recent proposals related to corporate tax reform propose raising corporate tax rates, among other things.

While it is unclear whether recent proposals will be enacted in their current form, the proposed increases in corporate tax rates could have a material impact on our future results of operations and, in the period of enactment, both our results of operations and financial condition.

Recent proposals related to corporate tax reform propose raising corporate taxes, among other things.

Some proposed reforms could have a material impact on our future results of operations.

We will continue to monitor developments.

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HHS previously delayed the elimination of the aforementioned regulatory safe harbor to January 1, 2023 and, in March 2021, HHS-OIG delayed the effective date for the two new safe harbors to January 1, 2023.

Transparency in Coverage.

As previously disclosed in our 2020 Form 10-K, in October 2020, the Departments of Health and Human Services, Labor and the Treasury issued a final rule that requires most group health plans and health insurance issuers in the individual and group markets to disclose price and cost-sharing information for all items and services to participants and enrollees (the “Rule”).

On August 20, 2021, the agencies jointly released guidance regarding the implementation of the Rule.

Importantly, the guidance announced that the agencies will (i) indefinitely defer enforcement of the Rule’s requirement that plans and issuers publish machine-readable files relating to prescription drug pricing pending further rulemaking and (ii) defer enforcement of the Rule’s requirement to publish the remaining machine-readable files until July 1, 2022.

Risk Adjustment.

As discussed in the “Regulation” and “Risk Factors” sections of our 2020 Form 10-K, our MA business is subject to reviews, including risk adjustment data validation (“RADV”) audits by CMS and the Office of the Inspector General (“OIG”).

We expect that CMS, OIG and other federal agencies will continue to closely scrutinize components of the Medicare program.

The “Regulation” section of our 2020 Form 10-K also discusses a proposed rule issued by CMS in 2018 for RADV audits of contract year 2011 and all subsequent years that included, among other things, extrapolation of the error rate related to RADV audit findings without applying the adjustment for underlying fee-for-service data errors as currently contemplated by CMS’ RADV audit methodology.

RADV audits for our contract years 2011 through 2015 are currently in process.

CMS has announced its intent to use third-party auditors to audit all MA contracts by either a comprehensive or a targeted RADV review for each contract year.

If the proposed rule is adopted in its current form, it could result in some combination of degraded plan benefits, higher monthly premiums and reduced choice for the population served by all MA insurers.

The Company, along with other MA organizations and additional interested parties, submitted comments to CMS on the proposed rule as part of the notice-and-comment rulemaking process.

The comment period concluded on August 28, 2019 and CMS issued guidance on October 20, 2021 extending the timeline to finalize the proposed rule until November 2022.

If CMS adopts the rule as proposed, there could be a material impact on the Company’s future results of operations, though we expect the rule would be subject to legal challenges.

In addition, the Company is subject to OIG RADV audits that are in process.

Also, as described in Note 15 to the Consolidated Financial Statements, the U.S.

Department of Justice is currently conducting an industry-wide investigation of risk adjustment data submission practices and business processes, which in the case of certain other MA organizations has resulted in litigation.

LIQUIDITY AND CAPITAL RESOURCES

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Most of Evernorth's subsidiaries are not subject to regulatory restrictions regarding dividends and therefore provide significant financial flexibility to Cigna.

Cash flows for the six months ended June 30 were as follows:

Six Months Ended June 30,

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

Nine Months Ended September 30,

(In millions) 2021 2020

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Financing activities $ (5,841) $ (3,812)

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

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

Operating activities

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

Cash flows from operating activities decreased, primarily driven by higher tax payments including approximately $800M related to the gain on sale of the Group Disability and Life business, timing of payable and accrued liabilities and increases in accounts receivable

due to higher pharmacy claim volume and business growth.

2020 operating cash flow reflected the deferral of approximately $900M of income and payroll tax payments as permitted under the CARES Act and COVID-19 related Regulatory actions.

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

Investing and Financing activities

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

Cash used in financing activities increased, primarily due to higher stock repurchases and an increase in dividends paid.

Cash used in financing activities also includes proceeds from debt issuances offset by the repayment of long-term debt and commercial paper borrowings.

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

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

We maintain a share repurchase program authorized by our Board of Directors, under which we may repurchase shares of our common stock from time to time.

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The program may be suspended or discontinued at any time.

For the six months ended June 30, 2021, we repurchased 16.3 million shares for approximately $3.7 billion.

From July 1, 2021 through August 4, 2021, we repurchased 1.7 million shares for approximately $400 million.

Share repurchase authority was $3.8 billion as of August 4, 2021.

On August 23, 2021, as part of our existing share repurchase program, we entered into separate accelerated share repurchase agreements (“ASR agreements”) with Morgan Stanley & Co.

LLC and JP Morgan Chase Bank, N.A.

(collectively, the “Counterparties”) to repurchase $2.0 billion of common stock in aggregate.

On August 24, 2021, in accordance with the ASR agreements we remitted $2.0 billion to the Counterparties and received an initial delivery of 7.7 million shares of our common stock.

The final number of shares to be received under the ASR agreements will be determined based on the daily volume-weighted average share price of our common stock over the term of the agreements, less a discount and subject to adjustments pursuant to the terms and conditions of the ASR agreements.

We expect final settlement under the ASR agreements to occur in the fourth quarter of 2021.

At final settlement, we may be entitled to receive additional shares of our common stock from the Counterparties or we may be required to make a payment.

If we are obligated to make a payment, we may elect to satisfy such obligation in cash or shares of our common stock.

For the nine months ended September 30, 2021, we repurchased 26.5 million shares for approximately $6.3 billion including the $2.0 billion paid under the ASR agreements.

Share repurchase authority was $6.6 billion as of November 3, 2021.

Capital Resources

Our capital resources consist primarily of cash, cash equivalents and investments maintained at regulated subsidiaries required to underwrite insurance risks, cash flows from operating activities, our commercial paper program, credit agreements and the issuance of long-term debt and equity securities.

Our businesses generate significant cash flow from operations, some of which is subject to regulatory restrictions relative to the amount and timing of dividend payments to parent.

Our businesses generate significant cash flow from operations, some of which is subject to regulatory restrictions relative to the amount and timing of dividend payments to the parent company.

Dividends from U.S.

regulated subsidiaries were $1.3 billion and $1.1 billion for the six months ended June 30, 2021 and 2020, respectively.

Nonregulated subsidiaries also generate significant cash flow from operating activities, which is typically available immediately to parent for general corporate purposes.

regulated subsidiaries were $2.1 billion and $1.6 billion for the nine months ended September 30, 2021 and 2020, respectively.

Non-regulated subsidiaries also generate significant cash flow from operating activities, which is typically available immediately to the parent company for general corporate purposes.

We prioritize our use of capital resources to:

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• return capital to shareholders through share repurchases.

At June 30, 2021, our debt-to-capitalization ratio was 40.5%, an increase from 39.5% at December 31, 2020.

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

Sale of life, accident and supplemental benefits businesses in seven countries.

Cigna entered into a definitive agreement in October 2021 to sell its life, accident and supplemental benefits businesses in seven countries to Chubb INA Holdings, Inc.

("Chubb") for $5.75 billion cash.

Cigna estimates it will receive approximately $5.4 billion of net after-tax proceeds from this transaction and expects to utilize the after-tax proceeds from the transaction primarily for share repurchases.

MDLIVE Acquisition .

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Commercial Paper Program .

Cigna also 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 $4.25 billion as of June 30, 2021.

Cigna maintains a commercial paper program and may issue short-term, unsecured commercial paper notes privately placed on a discount basis through certain broker dealers at any time not to exceed an aggregate amount of $5.0 billion.

The net proceeds of issuances have been and are expected to be used for general corporate purposes.

In July 2021, our commercial paper program size was increased to $5.0 billion.

Revolving Credit Agreements.

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We maintain sufficient liquidity to meet our cash needs through our cash and cash equivalents balances, cash flows from operations, commercial paper program, credit agreements and the issuance of long-term debt and equity securities.

As of June 30, 2021, we had $5.0 billion of undrawn committed capacity under our revolving credit agreements (these amounts are available for general corporate purposes, including providing liquidity support for our commercial paper program), $2.7 billion of remaining capacity under our commercial paper program and $4.2 billion in cash and short-term investments, approximately $700 million of which was held by the parent company or certain nonregulated subsidiaries.

As of September 30, 2021, we had $5.0 billion of undrawn committed capacity under our revolving credit agreements (these amounts are available for general corporate purposes, including providing liquidity support for our commercial paper program), $2.3 billion of remaining capacity under our commercial paper program and $3.9 billion in cash and short-term investments, approximately $810 million of which was held by the parent company or certain non-regulated subsidiaries.

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

A description of our outstanding debt can be found in Note 6 to the Consolidated Financial Statements.

In the first and second quarter of 2021 Cigna declared and paid quarterly cash dividends of $1.00 per share of Cigna common stock.

On July 28, 2021 the Board of Directors declared a quarterly cash dividend of $1.00 per share of Cigna common stock to be paid on September 23, 2021 to shareholders of record on September 8, 2021.

For the first nine months of 2021, Cigna declared and paid quarterly cash dividends of $1.00 per share of Cigna common stock.

On October 27, 2021 the Board of Directors declared a quarterly cash dividend of $1.00 per share of Cigna common stock to be paid on December 22, 2021 to shareholders of record on December 7, 2021.

Cigna currently intends to pay regular quarterly dividends, with future declarations subject to approval by its Board of Directors and the Board's determination that the declaration of dividends remains in the best interests of Cigna and its shareholders.

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Though we believe we have adequate sources of liquidity, significant disruption or volatility in the capital and credit markets could affect our ability to access those markets for additional borrowings or increase costs.

In addition to the sources of liquidity discussed above, the parent company can borrow an additional $1.2 billion from its subsidiaries without further approvals as of June 30, 2021.

In addition to the sources of liquidity discussed above, the parent company can borrow an additional $875 million from its subsidiaries without further approvals as of September 30, 2021.

Guarantees and Contractual Obligations

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See Note 15 to the Consolidated Financial Statements for discussion of various guarantees.

We have updated long-term debt obligations and purchase obligations as of June 30, 2021 which were previously provided in our 2020 Form 10-K.

We have updated long-term debt obligations and purchase obligations as of September 30, 2021 which were previously provided in our 2020 Form 10-K.

Investment commitments are described in Note 9 to the Consolidated Financial Statements.

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Our most critical accounting estimates, as well as the effect of hypothetical changes in material assumptions used to develop each estimate, are described in the 2020 Form 10-K.

As of June 30, 2021, there were no significant changes to the critical accounting estimates from what was reported in our 2020 Form 10-K.

As of September 30, 2021, there were no significant changes to the critical accounting estimates from what was reported in our 2020 Form 10-K.

Goodwill and Other Intangible Assets

Our annual evaluations of goodwill and other intangible assets for impairments were completed during the third quarter of 2021.

These evaluations were performed at the reporting unit level, based on discounted cash flow analyses or market data.

The estimated fair value of each of our reporting units exceeded their carrying values by significant margins.

Management believes the current assumptions used to estimate amounts reflected in our Consolidated Financial Statements are appropriate.

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

SEGMENT REPORTING

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Financial Summary Three Months Ended

June 30, Change Favorable

(Unfavorable) Six Months Ended June 30, Change Favorable

September 30, Change Favorable

(Unfavorable) Nine Months Ended

September 30, Change Favorable

(Unfavorable)

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Pre-tax adjusted margin 4.6 % 4.8 % (20) bps 4.3 % 4.4 % (10) bps

Three Months Ended June 30, Change Favorable

(Unfavorable) Six Months Ended June 30, Change Favorable

Three Months Ended September 30, Change Favorable

(Unfavorable) Nine Months Ended September 30, Change Favorable

(Unfavorable)

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All other network and specialty scripts are counted as one script.

Three and Six Months Ended June 30, 2021 versus Three and Six Months Ended June 30, 2020

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

Adjusted network revenues.

The increase reflected higher claims volume, primarily due to our collaboration with Prime Therapeutics, and increased prices due to inflation on branded drugs, partially offset by claims mix.

The generic fill rate increased when excluding the impact of COVID-19 vaccines.

The increases reflected increased prices, primarily due to inflation on branded drugs and higher claims volume, primarily due to our collaboration with Prime Therapeutics.

These increases were partially offset by claims mix, primarily due to an increase in the generic fill rate when excluding the impact of COVID-19 vaccines.

Adjusted home delivery and specialty revenues.

The increase reflected higher prices, primarily due to inflation on branded drugs, as well as higher specialty claims volume due in part to our collaboration with Prime Therapeutics.

This increase was partially offset by lower home delivery claims volume, primarily due to client mix and increased script volume in the first quarter of 2020 due to customers requesting advance prescriptions related to COVID-19 supply concerns and claims mix due to an increase in the generic fill rate.

The increases reflected increased prices, primarily due to inflation on branded drugs, as well as higher specialty claims volume due in part to our collaboration with Prime Therapeutics.

These increases were partially offset by lower home delivery claims volume and claims mix due to an increase in the generic fill rate.

Other revenues.

The increase reflected higher volume from our CuraScript Specialty Distribution business.

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

Adjusted gross profit.

The increase reflected benefits from the effective management of supply chain, strong performance in specialty pharmacy services, customer growth and higher adjusted pharmacy script volumes, primarily due to our collaboration with Prime Therapeutics.

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

For the nine months ended September 30, 2021, the increase also reflected an increase in specialty pharmacy services.

Pre-tax adjusted income from operations.

This increase was partially offset by technology investments.

For the nine months ended September 30, 2021, the increase also reflected an increase in specialty pharmacy services.

Medical Segment

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Results of Operations

Financial Summary Three Months Ended June 30, Change Favorable

(Unfavorable) Six Months Ended June 30, Change Favorable

Financial Summary Three Months Ended September 30, Change Favorable

(Unfavorable) Nine Months Ended September 30, Change Favorable

(Unfavorable)

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Expense ratio 20.1 % 21.8 % 170 bps 20.0 % 22.2 % 220 bps

Three and Six Months Ended June 30, 2021 versus Three and Six Months Ended June 30, 2020

Adjusted revenues increased for the three months and six months ended June 30, 2021 compared with the same periods in 2020 reflecting customer growth in our Medicare Advantage and Individual businesses, higher premium rates due to anticipated underlying medical cost trend, the absence of the premium relief programs for clients implemented in the second quarter of 2020 and higher net investment income.

Pre-tax adjusted in come from operations decreased for the three months and six months ended June 30, 2021 compared with the same periods in 2020.

The decreases are due to net unfavorable COVID-19 related impacts;

partially offset by higher net investment income, the net effect of non-recurring items and the repeal of the health insurance industry tax.

COVID-19 impacts for the remainder of 2021 may vary as discussed in the "COVID-19 Update" section of this MD&A.

The medical care ratio increased for the three months and six months ended June 30, 2021 compared with the same period in 2020, reflecting COVID-19 related impacts and the repeal of the health insurance industry tax.

In 2020, COVID-19 driven deferred utilization significantly outpaced incremental COVID-19 testing and treatment costs.

In 2021, COVID-19 testing and treatment costs are outpacing deferral of care.

The expense ratio decreased for the three months and six months ended June 30, 2021 compared with the same periods in 2020, reflecting the repeal of the health insurance industry tax, increased revenue and the impact of favorable litigation developments.

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

Adjusted revenues increased for the three months and nine months ended September 30, 2021 compared with the same periods in 2020 reflecting customer growth in our Medicare Advantage and Individual businesses, higher premium rates due to anticipated underlying medical cost trend and higher net investment income.

The nine months ended increase also reflects the absence of the premium relief programs for clients implemented in the second quarter of 2020 in response to significantly lower than historical utilization as individuals deferred care due to the COVID-19 pandemic.

Pre-tax adjusted income from operations increased for the three months ended September 30, 2021 compared with the same period in 2020.

The increase is due to higher net investment income, increased specialty contributions and the repeal of the health insurance industry tax;

partially offset by net unfavorable COVID-19 related impacts.

The unfavorable COVID-19 related impacts include increased direct costs of COVID-19 testing, treatment and vaccines as well as lower risk adjustment revenues in our Medicare Advantage business.

Pre-tax adjusted income from operations decreased for the nine months ended September 30, 2021 compared with the same period in 2020.

The decrease is due to net unfavorable COVID-19 related impacts;

partially offset by higher net investment income, increased specialty contributions and the repeal of the health insurance industry tax.

The unfavorable COVID-19 related impacts include increased direct costs of COVID-19 testing, treatment and vaccines, the significant deferral of care by our customers in 2020, lower risk adjustment revenues in our Medicare Advantage business and increased disenrollment resulting from the economic effects of the pandemic.

These impacts were partially offset by the absence of the premium relief programs implemented in the second quarter of 2020.

COVID-19 impacts for the remainder of 2021 and beyond may vary as discussed in the "COVID-19 Update" section of this MD&A.

The medical care ratio increased for the three months and nine months ended September 30, 2021 compared with the same periods in 2020, reflecting COVID-19 related impacts and the repeal of the health insurance industry tax.

The unfavorable COVID-19 related impacts primarily reflect higher direct COVID-19 testing, treatment and vaccine costs.

The nine months ended September 30, 2021 increase also reflects the impact of the COVID-19 related deferred utilization experienced in the second quarter of 2020;

partially offset by the absence of the premium relief programs.

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

Medical Customers

As of June 30,

As of September 30,

(In thousands) 2021 2020 % Change

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Total 15,305 15,314 — %

Our medical customer base decreased at June 30, 2021 compared with the same period in 2020, reflecting a lower customer base in our National Accounts and Middle Markets segments including disenrollment resulting from the economic impacts of the COVID-19 pandemic;

Our medical customer base was flat at September 30, 2021 compared with the same period in 2020, reflecting a lower customer base in our National Accounts and Middle Markets segments including disenrollment resulting from the economic impacts of the COVID-19 pandemic;

partially offset by growth in our Select segment as well as our Individual and Medicare Advantage businesses.

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Unpaid Claims and Claim Expenses

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

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

Unpaid claims and claim expenses – U.S.

$ 3,846 $ 3,184 21 %

Our unpaid claims and claim expenses liability was higher as of June 30, 2021 compared with December 31, 2020, primarily due to stop loss seasonality and increases in our U.S.

Government segment reflecting customer growth in our Medicare Advantage and Individual businesses.

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

International Markets Segment

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Results of Operations

Financial Summary Three Months Ended June 30, Change

(Unfavorable) Six Months Ended June 30, Change

Financial Summary Three Months Ended September 30, Change

(Unfavorable) Nine Months Ended September 30, Change

(Unfavorable)

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Expense ratio (excluding acquisition costs) 17.4 % 19.5 % 210 bps 17.8 % 18.7 % 90 bps

Three and Six Months Ended June 30, 2021 versus Three and Six Months Ended June 30, 2020

Adjusted revenues increased primarily due to favorable foreign currency movements, business growth and higher net investment income.

Pre-tax adjusted income from operations decreased reflecting higher loss ratios, partially offset by higher net investment income and favorable foreign currency movements.

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

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

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

Pre-tax adjusted income from operations increased reflecting higher net investment income and lower expense ratios, partially offset by higher loss ratios for the three months ended September 30, 2021.

For the nine months ended September 30, 2021, pre-tax adjusted income from operations decreased reflecting higher loss and acquisition ratios, partially offset by higher net investment income, favorable foreign currency movements, lower expense ratios, and business growth.

The loss, acquisition and expense ratios for both the three and nine months ended September 30, 2020 reflected the unfavorable impact of COVID-19 related premium relief programs.

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

The acquisition cost ratio decreased reflecting lower amortization expenses in Asia for the three months ended June 30, 2021.

For the six months ended June 30, 2021, the acquisition cost ratio increased reflecting the absence of the favorable impact from a refinement to the accounting for acquisition costs in the first quarter of 2020, largely offset by lower amortization expenses in Asia.

The expense ratio (excluding acquisition costs) decreased mainly driven by lower spend across markets for the three months ended June 30, 2021.

For the six months ended June 30, 2021, the expense ratio was essentially flat.

The acquisition cost ratio decreased reflecting lower amortization expenses in Asia and the absence of the unfavorable impact of COVID-19 related premium relief programs for the three months ended September 30, 2021.

For the nine months ended September 30, 2021, the acquisition cost ratio increased reflecting the absence of the favorable impact from a refinement to the accounting for acquisition costs, largely offset by lower amortization expenses in Asia.

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

Other Items Related to International Markets Results

South Korea is the single largest geographic market for our International Markets segment.

For the six months ended June 30, 2021, South Korea generated 39% of the segment’s adjusted revenues and 63% of the segment’s pre-tax adjusted income from operations.

For the nine months ended September 30, 2021, South Korea generated 38% of the segment’s adjusted revenues and 63% of the segment’s pre-tax adjusted income from operations.

Other Operations

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Results of Operations

Financial Summary Three Months Ended June 30, Change

(Unfavorable) Six Months Ended June 30, Change

Financial Summary Three Months Ended September 30, Change

(Unfavorable) Nine Months Ended

September 30, Change

(Unfavorable)

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Pre-tax adjusted margin 23.6 % 5.3 % 1830 bps 17.2 % 7.0 % 1,020 bps

Three and Six Months Ended June 30, 2021 versus Three and Six Months Ended June 30, 2020

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

Adjusted revenues and pre-tax adjusted income from operations decreased due to the sale of the Group Disability and Life business on December 31, 2020.

Because this business constituted the vast majority of the segment, we expect a substantial decline in adjusted revenues and adjusted income from operations in this segment in 2021 as compared to 2020.

Because the sold business constituted the vast majority of the segment's operations, we experienced a substantial decline in adjusted revenues and adjusted income from operations in this segment in 2021 as compared to 2020.

Corporate reflects amounts not allocated to operating segments, including net interest expense (defined as interest on corporate debt less net investment income on investments not supporting segment and other operations), certain litigation matters, expense associated with our frozen pension plans, charitable contributions, severance, certain overhead and project costs and intersegment eliminations

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Financial Summary Three Months Ended

June 30, Change Favorable (Unfavorable) Six Months Ended June 30, Change Favorable (Unfavorable)

September 30, Change Favorable (Unfavorable) Nine Months Ended September 30, Change Favorable (Unfavorable)

(In millions) 2021 2020 2021 2020

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

Three and Six Months Ended June 30, 2021 versus Three and Six Months Ended June 30, 2020

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

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

INVESTMENT ASSETS

The following table presents our investment asset portfolio excluding separate account assets as of June 30, 2021 and December 31, 2020.

The following table presents our investment asset portfolio excluding separate account assets as of September 30, 2021 and December 31, 2020.

Additional information regarding our investment assets is included in Notes 9, 10, 11 and 12 to the Consolidated Financial Statements.

(In millions) June 30,

(In millions) September 30,

2021 December 31, 2020

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Total $ 25,130 $ 24,593

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

Debt Securities

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More detailed information about debt securities by type of issuer and maturity dates is included in Note 9 to the Consolidated Financial Statements.

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

(In millions) June 30,

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

(In millions) September 30,

2021 December 31,

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Total $ 17,857 $ 18,131

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

As of June 30, 2021, $15.6 billion, or 86% of the debt securities in our investment portfolio were investment grade (Baa and above, or equivalent) and the remaining $2.6 billion were below investment grade.

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

As of September 30, 2021, $15.3 billion, or 86% of the debt securities in our investment portfolio were investment grade (Baa and above, or equivalent) and the remaining $2.6 billion were below investment grade.

The majority of the bonds that are below investment grade are rated at the higher end of the non-investment grade spectrum.

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Foreign government obligations are concentrated in Asia, primarily South Korea and Taiwan, consistent with our risk management practice and local regulatory requirements of our international business operations.

We expect the amount of these foreign government obligations to decrease significantly during 2022 upon the close of our sale of certain International Markets businesses as discussed in the "Developments" section of this MD&A.

Debt securities include private placement assets of $6.0 billion.

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Commercial Mortgage Loans

As of June 30, 2021, the $1.5 billion commercial mortgage loan portfolio consisted of approximately 45 loans that are in good standing.

As of September 30, 2021, the $1.5 billion commercial mortgage loan portfolio consisted of approximately 50 loans that are in good standing.

Our commercial mortgage loans are fixed rate loans, diversified by property type, location and borrower.

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Other Long-term Investments

Other long-term investments of $3.1 billion as of June 30, 2021 included investments in securities limited partnerships and real estate limited partnerships, direct investments in real estate joint ventures and other deposit activity that is required to support various insurance and health services businesses.

The increase in other long-term investments is primarily driven by net additional funding activity.

Other long-term investments of $3.4 billion as of September 30, 2021 included investments in securities limited partnerships and real estate limited partnerships, direct investments in real estate joint ventures and other deposit activity that is required to support various insurance and health services businesses.

The increase in other long-term investments is primarily driven by net additional funding activity and value creation in the underlying funds.

These limited partnership entities typically invest in mezzanine debt or equity of privately-held companies and equity real estate.

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Income from our limited partnership investments is generally reported on a one quarter lag due to the timing of when financial information is received from the general partner or manager of the investments.

Our net investment income increased significantly versus the first six months of 2020 driven by the performance of assets underlying our limited partnership investments.

The broad recovery has resulted in strong corporate earnings and higher public and private asset valuations through the second quarter of 2021.

Our net investment income increased significantly versus the first nine months of 2020 driven by the strong performance of assets underlying our limited partnership investments.

The broad recovery has resulted in strong corporate earnings and higher public and private asset valuations and valuation recovery through the second quarter of 2021 is generally reflected in third quarter results consistent with the financial information reporting lag.

We expect volatility in private equity and real estate fund performance going forward as fair market valuations are adjusted to reflect market and portfolio transactions.

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We account for this joint venture on the equity method of accounting and report our share of the net assets of $0.9 billion in Other assets.

Our 50% share of the investment portfolio supporting the joint venture's business is approximately $6.9 billion, primarily invested in Chinese corporate and government debt securities diversified by issuer, industry and geography, as appropriate.

To a lesser extent and consistent with its investment strategy, the joint venture is invested in Chinese equity investments comprised of approximately 50% equity mutual funds, with the remainder

invested in equity securities and private equity partnerships.

Our 50% share of the investment portfolio supporting the joint venture's business is approximately $7.4 billion, primarily invested in Chinese corporate and government debt

securities diversified by issuer, industry and geography, as appropriate.

To a lesser extent and consistent with its investment strategy, the joint venture is invested in Chinese equity investments comprised of approximately 50% equity mutual funds, with the remainder invested in equity securities and private equity partnerships.

We participate in the approval of the joint venture's investment strategy and continuously review its execution.

There were no investments with a material unrealized loss as of June 30, 2021.

There were no investments with a material unrealized loss as of September 30, 2021.

Investment Outlook

The general optimism globally fueled by business re-opening combined with unprecedented monetary and fiscal support from the U.S.

government continue to support expectations for improved economic growth.

government supports expectations for continued economic growth.

treasury rates have increased from their historic lows during 2020, but they remain well below long-term historical averages.

In addition, the wider market credit spreads experienced during 2020 have narrowed meaningfully, resulting in yields for investment grade assets that also remain well below historical averages.

While this continues to pressure the income we earn on our fixed income investments, it has been more than offset by our security partnership results, which are reflecting improved growth prospects.

We continue to actively monitor the economic impact of the pandemic, including slowing vaccinations and more transmissible variant COVID-19 cases spreading through the unvaccinated population, as well as fiscal and monetary responses, and their potential impact on the portfolio.

We expect net investment income over the remainder of 2021 will reflect both the improved optimism within public and private markets for economic recovery, along with the potential for additional market volatility and portfolio impacts.

While this continues to pressure the income we earn on our fixed income investments, it has been more than offset by our limited partnership results, which are reflecting improved growth prospects.

We continue to actively monitor the economic impact of the pandemic, including supply chain, labor market and inflation dynamics, as well as fiscal and monetary responses and their potential impact on the portfolio.

Over the balance of 2021, we expect net investment income and investment valuations will reflect the optimism within public and private markets for the continued economic recovery, along with the potential for increasing market volatility with resulting net investment income and asset valuation impacts.

Future realized and unrealized investment results will be driven largely by market conditions that exist when a transaction occurs or at the reporting date.

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We encourage you to read this in conjunction with “Market Risk – Financial Instruments” included in the MD&A section of our 2020 Form 10-K.

As of June 30, 2021 there were no material changes in our risk exposures from those reported in our 2020 Form 10-K.

As of September 30, 2021 there were no material changes in our risk exposures from those reported in our 2020 Form 10-K.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis