What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2022-02-24 compared with 2021-02-25 · 614 added, 719 removed, 1667 unchanged (44% of the section changed)

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Goodwill Impairment Assessment - Evernorth and U.S.

Medical Reporting Units

As described in Note 17 to the consolidated financial statements, as of December 31, 2020, goodwill is primarily reported in the Evernorth segment ($33.8 billion), the U.S.

Medical segment ($10.4 billion) and, to a lesser extent, the International Markets segment ($0.4 billion).

Government Reporting Units

As described in Note 18 to the consolidated financial statements, as of December 31, 2021, goodwill is primarily reported in the Evernorth segment ($35.1 billion) and the Cigna Healthcare segment ($10.7 billion), of which a portion of the goodwill balance for the Cigna Healthcare segment relates to the U.S.

Government reporting unit.

Management conducts its annual quantitative evaluation for goodwill impairment during the third quarter at the reporting unit level and writes it down through shareholders' net income if impaired.

On a quarterly basis, management performs a qualitative impairment assessment to determine if events or changes in circumstances indicate that it is more likely than not that the carrying value of a reporting unit exceeds its estimated fair value.

Fair value of a reporting unit is generally estimated based on either a market approach or a discounted cash flow analysis using assumptions that management believes a hypothetical market participant would use to determine a current transaction price.

The significant assumptions and estimates used in determining fair value include the discount rate and future cash flows.

A discount rate is selected to correspond with each reporting unit's weighted average cost of capital, consistent with that used for investment decisions considering the specific and detailed operating plans and strategies within that reporting unit.

Projections of future cash flows for each reporting unit are consistent with management’s annual planning process for revenues, pharmacy costs, benefits expenses, operating expenses, taxes, capital levels and long-term growth rates.

The principal considerations for our determination that performing procedures relating to the goodwill impairment assessment of the Evernorth and U.S.

Medical reporting units is a critical audit matter are the significant judgment by management when determining the fair value measurement of the reporting units.

This in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s estimate of the reporting units’ fair value related to the assumptions for the discount rate and projection of future cash flows.

In addition, the audit effort involved the use of professionals with specialized skill and knowledge to assist in performing these procedures and evaluating the audit evidence obtained.

Fair value of a reporting unit is generally estimated based on both a discounted cash flow analysis and a market approach using assumptions that management believes a hypothetical market participant would use to determine a current transaction price.

The significant assumptions and estimates used in determining fair value primarily include the discount rate and future cash flows.

A discount rate is selected to correspond with each reporting unit's weighted average cost of capital.

Future cash flows for Evernorth are primarily driven by the forecasted gross margins of the business, as well as operating expenses and long-term growth rates.

Future cash flows for the U.S.

Government reporting unit is primarily driven by forecasted revenues, benefit expenses, operating expenses and long-term growth rates.

The principal considerations for our determination that performing procedures relating to the goodwill impairment assessment of the Evernorth and the U.S.

Government reporting units is a critical audit matter are the significant judgment by management when estimating the fair value of the reporting units.

This in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management's estimate of the reporting units' fair value determined using significant assumptions related to the discount rate, forecasted gross margins, and long-term growth rates for the Evernorth reporting unit and the discount rate, forecasted revenues, benefit expenses, operating expenses, and long-term growth rates for the U.S.

Government reporting unit (collectively referred to as the "significant assumptions").

In addition, the audit effort involved the use of professionals with specialized skill and knowledge.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.

These procedures included testing the effectiveness of controls relating to management’s goodwill impairment assessment, including controls over management’s methodology, inputs and assumptions used in its goodwill impairment assessment of the Evernorth and U.S.

Medical reporting units.

These procedures also included, among others, testing management’s process for determining the fair value estimate of the reporting units;

evaluating the appropriateness of the discounted cash flow analysis;

testing the completeness and accuracy of underlying data used in the discounted cash flow analysis;

and evaluating the key inputs and significant assumptions related to the discount rate and the projections of future cash flows.

The underlying inputs and assumptions used in the development of the discount rate and the projections of future cash flows that were evaluated related to the weighted average cost of capital, revenues, pharmacy costs, benefits expenses, operating expenses, capital levels and long-term growth rates.

Evaluating the reasonableness of management’s inputs and assumptions involved considering (i) the current and past performance of the reporting unit, (ii) the consistency of the discount rate and long-term growth rates with external market and industry data, and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit.

Professionals with specialized skill and knowledge were used to assist in the evaluation of certain significant assumptions related to the discount rate.

These procedures included testing the effectiveness of controls relating to management's goodwill impairment assessment, including controls over management's methodology, inputs and assumptions used in its goodwill impairment assessment of the Evernorth and the U.S.

Government reporting units.

These procedures also included, among others (i) testing management's process for determining the fair value estimate of the reporting units;

(ii) evaluating the appropriateness of the discounted cash flow analysis and market approach;

(iii) testing the completeness and accuracy of underlying data used in the discounted cash flow analysis and market approach and (iv) evaluating the reasonableness of the significant assumptions.

Evaluating the reasonableness of the significant assumptions involved consideration of (i) the current and past performance of the reporting units;

(ii) the consistency with external market and industry data;

and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit, as applicable.

Professionals with specialized skill and knowledge were used to assist in the evaluation of the reasonableness of the discount rate and long-term growth rate significant assumptions .

/s/ PricewaterhouseCoopers LLP

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Other comprehensive income (loss), net of tax

Net unrealized (depreciation) appreciation on securities and derivatives ( 75 ) 957 ( 365 )

Net unrealized appreciation (depreciation) on securities and derivatives ( 215 ) ( 75 ) 957

Net translation gains (losses) on foreign currencies ( 232 ) 252 ( 59 )

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Comprehensive income (loss) attributable to noncontrolling interests

Net income attributable to redeemable noncontrolling interest 14 11 9

Net income attributable to redeemable noncontrolling interests 19 14 11

Net income attributable to other noncontrolling interests 31 17 5

Other comprehensive (loss) attributable to redeemable noncontrolling interest ( 8 ) ( 5 ) ( 15 )

Total comprehensive income (loss) attributable to noncontrolling interests 23 11 ( 6 )

Other comprehensive (loss) attributable to redeemable noncontrolling interests ( 14 ) ( 8 ) ( 5 )

Total comprehensive income attributable to noncontrolling interests 36 23 11

SHAREHOLDERS' COMPREHENSIVE INCOME $ 5,342 $ 8,538 $ 5,874

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Other current assets 1,283 930

Assets of business held for sale — 9,512

Assets of businesses held for sale 10,057 —

Total current assets 36,134 27,799

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Short-term debt 2,545 3,374

Liabilities of business held for sale — 6,812

Liabilities of businesses held for sale 6,423 —

Total current liabilities 43,572 36,022

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Balance at December 31, 2018 $ 4 $ 27,751 $ ( 1,711 ) $ 15,088 $ ( 104 ) $ 41,028 $ 7 $ 41,035 $ 37

Cumulative effect of accounting for financial instruments and hedging ( 10 ) 68 58 58

Reclassification adjustment related to U.S.

tax reform legislation ( 229 ) 229 — —

Retirement of treasury stock ( 13 ) ( 529 ) ( 3,498 ) 4,040 — —

Exchange of Old Cigna common stock ( 58 ) 58 — —

Acquisition of Express Scripts (see Note 5)

1 25,223 25,224 7 25,231

Cumulative effect of adopting new lease accounting guidance (ASU 2016-02) ( 15 ) ( 15 ) ( 15 )

Effect of issuing stock for employee benefit plans 555 ( 104 ) 451 451

Other comprehensive (loss) ( 390 ) ( 390 ) ( 390 ) ( 15 )

Other comprehensive income (loss) 770 770 770 ( 5 )

Net income 5,104 5,104 5 5,109 11

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Balance at December 31, 2019 $ 4 $ 28,306 $ ( 941 ) $ 20,162 $ ( 2,193 ) $ 45,338 $ 6 $ 45,344 $ 35

Cumulative effect of adopting new lease accounting guidance (ASU 2016-02) ( 15 ) ( 15 ) ( 15 )

Cumulative effect of adopting new credit loss guidance (ASU 2016-13)

( 30 ) ( 30 ) ( 30 )

Effect of issuing stock for employee benefit plans 672 ( 90 ) 582 582

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Balance at December 31, 2020 $ 4 $ 28,975 $ ( 861 ) $ 28,575 $ ( 6,372 ) $ 50,321 $ 7 $ 50,328 $ 58

Cumulative effect of adopting new credit loss guidance (ASU 2016-13) (1)

( 30 ) ( 30 ) ( 30 )

Effect of issuing stock for employee benefit plans 604 ( 93 ) 511 511

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Balance at December 31, 2021 $ 4 $ 29,574 $ ( 884 ) $ 32,593 $ ( 14,175 ) $ 47,112 $ 18 $ 47,130 $ 54

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

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

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Depreciation and amortization 2,923 2,802 3,651

Realized investment losses (gains), net ( 149 ) ( 177 ) 81

Realized investment (gains) losses, net ( 196 ) ( 149 ) ( 177 )

Deferred income tax (benefit) ( 220 ) ( 386 ) ( 313 )

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Other, net 97 23 ( 11 )

NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 2,976 ( 734 ) ( 26,378 )

NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES ( 3,611 ) 2,976 ( 734 )

Cash Flows from Financing Activities

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Issuance of common stock 326 376 224

Common stock dividend paid ( 1,341 ) ( 15 ) ( 15 )

Other, net 39 ( 160 ) ( 92 )

NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES ( 8,533 ) ( 7,187 ) 23,515

NET CASH (USED IN) FINANCING ACTIVITIES ( 8,212 ) ( 8,533 ) ( 7,187 )

Effect of foreign currency rate changes on cash, cash equivalents and restricted cash ( 65 ) 41 ( 8 )

Net increase in cash, cash equivalents and restricted cash 4,834 1,556 883

Net (decrease) increase in cash, cash equivalents and restricted cash ( 4,697 ) 4,834 1,556

Cash, cash equivalents and restricted cash January 1, (1)

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Cash, cash equivalents and restricted cash, December 31,

Cash reclassified to assets of business held for sale — ( 743 ) —

5,548 10,245 5,411

Cash reclassified to assets of businesses held for sale ( 425 ) — ( 743 )

Cash, cash equivalents and restricted cash December 31, per Consolidated Balance Sheets (2)

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Interest paid $ 1,253 $ 1,439 $ 1,645

(1) Includes $ 743 million reported in Assets of business held for sale as of January 1, 2020.

See table below for Cash, cash equivalents and restricted cash reconciliation.

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

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

As of December 31,

(In millions) 2020 2019

Cash and cash equivalents $ 10,182 $ 4,619

Restricted cash and cash equivalents, included in other long-term investments 63 49

Total cash, cash equivalents, and restricted cash and cash equivalents $ 10,245 $ 4,668

(1) Includes $ 743 million reported in Assets of businesses held for sale as of January 1, 2020.

(2) Restricted cash and cash equivalents were reported in Other long-term investments as of December 31, 2021 and December 31, 2020 and were reported in Other long-term investments and Other assets as of December 31, 2019.

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

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Description of Business

COVID-19 and Related Economic Impact

Summary of Significant Accounting Policies

Accounts Receivable, Net

Mergers , Acqui sition s and Divestitures

Mergers, Acquisitions and Divestitures

Assets and Liabilities of Businesses Held for Sale

Earnings Per Share

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W ORKFORCE M ANAGEMENT AND C OMPENSATION

O rganizational Efficiency Plan

Employee Incentive Plans

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Note 1 – Description of Business

Cigna Corporation, together with its subsidiaries (either individually or collectively referred to as “Cigna,” the “Company,” “we,” “our” or “us”) is a global health services organization with a mission of helping those we serve improve their health, well-being and peace of mind.

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

Cigna Corporation, together with its subsidiaries (either individually or collectively referred to as "Cigna," the "Company," "we," "our" or "us") is a global health services organization with a mission of helping those we serve improve their health, well-being and peace of mind by making health care affordable, predictable and simple.

Our subsidiaries offer a differentiated set of pharmacy, medical, behavioral, dental and supplemental products and services.

The majority of these products are offered through employers and other groups such as governmental and non-governmental organizations, unions and associations.

Cigna also offers commercial health and dental insurance, Medicare and Medicaid products and health, life and accident insurance coverages to individuals in the United States and selected international markets.

Cigna also offers commercial health and dental insurance and Medicare products to individuals in the United States and selected international markets.

In addition to these ongoing operations, Cigna also has certain run-off operations.

The Company reports its results in the segments detailed below:

In connection with the launch of Evernorth in the third quarter 2020, two reporting segments were re-named:

Health Services was renamed as Evernorth and Integrated Medical was renamed as U.S.

In addition, two of our operating segments were re-named:

Commercial and Government were renamed as U.S.

Commercial and U.S.

Government, respectively.

There were no changes to the underlying businesses reported in the segments.

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

Medical includes Cigna’s U.S.

Details of the Company's reporting segments and recent changes are provided below:

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

("Chubb") for $ 5.75 billion cash (the "Chubb Transaction").

See Note 5 for further information on the classification of these businesses as held for sale.

In connection with the pending Chubb Transaction, we revised our business reporting structure.

As such, we adjusted our segment reporting effective in the fourth quarter of 2021 so that the results previously reported in the International Markets segment are now reported as follows:

• The businesses to be retained by Cigna are now reported in the newly created International Health operating segment that will be aggregated with our existing U.S.

Commercial and U.S.

Government businesses that provide comprehensive medical and coordinated solutions to clients and customers.

Commercial products and services include medical, pharmacy, behavioral health, dental, vision, health advocacy programs and other products and services for insured and self-insured clients.

Government solutions include Medicare Advantage, Medicare Supplement, and Medicare Part D plans for seniors, Medicaid plans, and individual health insurance plans both on and off the public exchanges.

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

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

• Group Disability and Life provides group long-term and short-term disability, group life, accident, voluntary and specialty insurance products and related services.

On December 31, 2020, Cigna completed the sale of its U.S.

Group Disability and Life business to New York Life Insurance Company.

See Note 5 for additional information.

Government operating segments in the renamed Cigna Healthcare reporting segment (previously named U.S.

Medical segment).

• The businesses to be sold pursuant to the Chubb Transaction are now reported in Other Operations.

Segment results for the years ended December 31, 2020 and 2019 have been restated to conform to the new segment presentation (see Note 23).

A full description of our segments follows:

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

Cigna Healthcare includes U.S.

Commercial, U.S.

Government and International Health operating segments that provide comprehensive medical and coordinated solutions to clients and customers.

Commercial products and services include medical, pharmacy, behavioral health, dental, vision, health advocacy programs and other products and services for insured and self-insured customers.

Government solutions include Medicare Advantage, Medicare Supplement and Medicare Part D plans for seniors and individual health insurance plans both on and off the public exchanges.

International Health solutions include health care coverage in our international markets, as well as health care benefits for globally mobile individuals and employees of multinational organizations.

The Cigna Healthcare segment is comprised of the previously named U.S.

Medical segment and the businesses to be retained from the previous International Markets segment.

Other Operations contains the remainder of our business operations, consisting of the following:

• Ongoing business:

• Corporate-Owned Life Insurance ("COLI") offers permanent insurance contracts sold to corporations to provide coverage on the lives of certain employees for the purpose of financing employer-paid future benefit obligations.

• Exiting businesses:

• International Life, Accident and Supplemental Benefits Businesses in seven countries to be sold pursuant to the Chubb Transaction.

• Group Disability and Life .

Prior to the sale of the U.S.

Group Disability and Life business on December 31, 2020, this operating segment provided group long-term and short-term disability, group life, accident, voluntary and specialty insurance products and related services.

• Run-off businesses:

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deferred gains from the sales of these businesses.

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

Note 2 – COVID-19 and Related Economic Impact

All aspects of our business were impacted in fiscal year 2020 by the ongoing coronavirus ("COVID-19") pandemic.

The Company initiated several actions to assist our customers, clients, health care providers and employees in this time of crisis.

As described below, management has taken a number of steps to assess the impact on our business, including the financial reporting implications associated with this pandemic.

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

The effects of the COVID-19 pandemic on the Company began to emerge in the United States at the end of the first quarter and were not material to the Company's results of operations or financial condition for that period.

Beginning in April, we experienced a significant deferral of care by our customers.

The deferral of care moderated over the course of the second quarter with utilization levels eventually returning to nearly normal levels by the end of June.

In the third quarter, we experienced increased medical utilization as we observed a reduction to the level of deferred care and our customers sought care for COVID-19 testing and treatment.

In the fourth quarter, as COVID-19 cases increased, the costs for testing and treatment exceeded the savings related to the deferral of care.

These impacts were most prevalent in the U.S.

Medical segment where fourth quarter earnings were adversely impacted by increased costs of COVID-19 care and decreased contributions from our specialty products.

Full year U.S.

Medical results reflect COVID-19 impacts of deferral of care by our customers partially offset by the cost of COVID-19 care, the cost of COVID-19 related actions including premium relief programs for employer clients, cost share waivers for customers, customer disenrollment and actions to support providers and employees.

Our Group Disability and Other results reflect significantly elevated life insurance claims related to the COVID-19 pandemic and its effects in the third and fourth quarters.

Quarterly and year-to-date earnings in our Evernorth segment also reflected effects of the pandemic, specifically, a favorable mix of claims as a result of both the type of drugs dispensed as well as the distribution method used for dispensing and fulfilling, partially offset by lower 30-day retail script volume.

The Company conducted its annual quantitative evaluation of goodwill impairment during the third quarter of 2020.

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

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

During the fourth quarter of 2020, the Company conducted its normal quarterly qualitative assessment and concluded that the current economic and business conditions did not result in a triggering event requiring a quantitative analysis.

For all other long-lived assets, including intangible assets, the Company conducted its normal quarterly qualitative impairment assessment and concluded that the current economic and business conditions did not result in a triggering event requiring a quantitative impairment analysis.

There were no material impairments recorded for the year ended December 31, 2020.

The Company reviewed all classes of financial instruments including investments, accounts receivable and reinsurance recoverables.

The additional allowance for expected credit losses recorded was not material for the year ended December 31, 2020.

Other Operations was previously named Group Disability and Other.

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 enterprise-wide project costs and intersegment eliminations for products and services sold between segments.

Note 2 – Summary of Significant Accounting Policies

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The impact of a change in estimate is generally included in earnings in the period of adjustment.

Recently Adopted Accounting Guidance

The Company adopted Accounting Standards Update (“ASU”) No.

2016-13 , Measurement of Credit Losses on Financial Instruments , and its related amendments, as of January 1, 2020, using the modified retrospective transition method.

The new standard requires the use of a current expected credit loss impairment model to develop and recognize credit losses for financial instruments at amortized cost when the asset is first originated or acquired, and each subsequent reporting period.

The new standard also eliminates the concept

of other-than-temporary impairments and changes the criteria for impairment of available-for-sale debt securities.

A cumulative effect adjustment of $ 30 million after-tax was recorded as a reduction to retained earnings as of January 1, 2020, reflecting an additional allowance for future expected credit losses required under the new model, primarily related to reinsurance recoverables.

Subsequent changes in the allowance are reported in current period earnings.

See additional information regarding the Company’s accounting policy for establishing the allowance for credit losses in Accounts Receivable, Net (Note 4), Reinsurance (Note 10) and Investments (Note 11).

The Company adopted ASU 2017-04, Simplifying the Test for Goodwill Impairment , as of January 1, 2020, on a prospective basis.

The new standard eliminates the need to determine the fair value of individual assets and liabilities of a reporting unit to measure a goodwill impairment.

There was no impact of adopting this new standard to the Company’s financial statements because our quarterly qualitative assessments did not result in a triggering event for impairment of goodwill, and the results of our annual quantitative evaluation performed in the third quarter of 2020 indicated that the estimated fair value of each of our reporting units exceeded their carrying values by significant margins.

Recent Accounting Pronouncements

There were no new accounting standards adopted during the year ended December 31, 2021 that had a material impact on our consolidated financial statements.

Accounting Guidance Not Yet Adopted

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

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

• Provides temporary optional relief to ease the potential burden of accounting for reference rate reform under existing GAAP.

Amendments are elective and apply to all entities that have contracts, hedging relationships and other transactions that reference interbank offered rates, including LIBOR, expected to be discontinued for new contracts by December 31, 2021.

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

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

• An entity may elect to apply the amendments, by topic or subsection, at any point prospectively through December 31, 2022.

When elected, the optional expedients must be applied consistently for all eligible contracts or transactions.

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

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

The Company has performed a comprehensive evaluation of our exposures and does not believe the cessation of LIBOR will materially impact our operations or financial results, primarily because many of the Company's contracts contain contractual fallback language for a new benchmark rate or the underlying exposure is minimal.

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

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

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

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

• Discount rate assumptions to be updated quarterly based on market level yields for low credit risk fixed income instruments ("upper-medium grade fixed-income instrument"), with any changes reflected in other comprehensive income.

The upper-medium grade fixed-income instrument yield is interpreted to mean A-rated.

• Deferred policy acquisition costs ("DAC") related to long-duration insurance contracts to be amortized on a constant-level basis over the expected term of the related contracts.

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

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

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

• Transition methods at adoption vary:

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Expected effects:

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

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

• The Company developed a cross-functional implementation project plan and is executing on the necessary significant changes to our systems, processes and controls.

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

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

We currently do not expect the impact of adoption to be material to shareholder's equity.

• Although we continue to evaluate the new requirements of the standard and model their impacts across various products, we are unable to project or estimate the magnitude or frequency of expected changes to our financial results.

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

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

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

Significant Accounting Policies

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

See Note 5 for Deferred policy acquisition costs reclassified to Assets of businesses held for sale.

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

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Other Assets (Current and Non-Current)

Other current assets consist primarily of prepaid expenses, accrued investment income and the current portion of reinsurance recoverables.

Other current assets consist primarily of prepaid expenses, accrued investment income, the current portion of reinsurance recoverables and income tax receivables.

Other non-current assets consist primarily of GMIB assets, operating lease right-of-use assets and various other insurance-related assets.

See Note 10 for the Company's accounting policy for GMIB assets and Note 19 for the Company's accounting policy related to leases.

Additionally, other non-current assets include the carrying value of our equity-method investments in joint ventures in China, India, the U.S.

Additionally, other non-current assets include the carrying value of our equity-method investments in business-related joint ventures in China, India, the U.S.

and other foreign jurisdictions.

Assets and Liabilities of Business Held for Sale

The Company classifies assets and liabilities as held for sale (“disposal group”) when management commits to a plan to sell the disposal group, the sale is probable within one year and the disposal group is available for immediate sale in its present condition.

The Company considers various factors, particularly whether actions required to complete the plan indicate it is unlikely that significant changes to the plan will be made or the plan will be withdrawn.

Assets held for sale are measured at the lower of carrying value or fair value less costs to sell.

Any loss resulting from the measurement is recognized in the period the held for sale criteria are met.

Conversely, gains are not recognized until the date of the sale.

When the disposal group is classified as held for sale, depreciation and amortization ceases and the Company tests the assets for impairment.

Redeemable Noncontrolling Interest

Redeemable noncontrolling interest on our Consolidated Balance Sheets represents the noncontrolling shareholders preferred and common stock interests of the Company's consolidated less than fully owned subsidiaries.

Earnings or losses from these equity-method investments in joint ventures are recorded in Fees and other revenues.

Redeemable Noncontrolling Interests

Redeemable noncontrolling interests on our Consolidated Balance Sheets represents the noncontrolling shareholders' preferred and common stock interests of the Company's consolidated less than fully owned subsidiaries.

Those shareholders may choose to require the Company to purchase their redeemable noncontrolling interest.

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The redeemable noncontrolling interest was recorded at fair value as of the date of purchase.

When the estimated redemption value for a redeemable noncontrolling interest exceeds its carrying value, an adjustment to increase the redeemable noncontrolling interest is recorded with an offsetting reduction to retained earnings or additional paid-in capital in the absence of retained earnings.

absence of retained earnings.

When an adjustment is made to the carrying value of the redeemable noncontrolling interest, the calculation of shareholders' net income per share will be adjusted if the redemption value exceeds fair value.

Accrued Expenses and Other Current and Non-Current Liabilities

Accrued expenses (current) primarily includes financial and performance guarantee liabilities under pharmacy contracts (see section I), management compensation and various insurance-related liabilities, including experience-rated refunds, reinsurance contracts and the risk adjustment and minimum medical loss ratio rebate accruals under The Patient Protection and Affordable Care Act (the “ACA”).

Other non-current liabilities include obligations for pension (see Note 15), GMIB contract liabilities (see Note 10), lease liabilities (see Note 18) and self-insured exposures not expected to be settled within one year.

Accrued expenses (current) primarily includes financial and performance guarantee liabilities under pharmacy contracts (see section H), management compensation and various insurance-related liabilities, including experience-rated refunds, reinsurance contracts and the risk adjustment and minimum medical loss ratio rebate accruals under The Patient Protection and Affordable Care Act (the "ACA").

Other non-current liabilities primarily include obligations for pension (see Note 16), GMIB contract liabilities (see Note 10), lease liabilities (see Note 19), uncertain tax positions (see Note 21) and self-insured exposures not expected to be settled within one year.

The Company accrues for legal and regulatory matters when a loss contingency is both probable and estimable.

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Clients may be entitled to receive compensation if we fail to meet the guarantees.

Actual performance is compared to the contractual guarantee for each measure throughout the period and the Company defers revenue for any estimated payouts within Accrued expenses and other liabilities (current).

Actual performance is compared to the contractual guarantee for each measure throughout the period and the Company defers revenue

for any estimated payouts within Accrued expenses and other liabilities (current).

These estimates are adjusted at the end of the guarantee period.

Historically, adjustments to original estimates have not been material.

The performance guarantee liability was $ 1.1 billion as of December 31, 2020 and $ 1.0 billion as of December 31, 2019.

The performance guarantee liability was $ 1.1 billion as of December 31, 2021 and December 31, 2020.

The Company administers programs through which we may receive rebates and other vendor consideration from pharmaceutical manufacturers.

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Historically, these adjustments have not been material.

In certain retail, home delivery and specialty transactions certain amounts may be collected from third-party payors.

In retail, home delivery and specialty transactions, amounts may be collected from third-party payors.

These are billed and collected subject to normal account receivable collections procedures.

Other pharmacy service revenues are earned by distributing specialty pharmaceuticals and medical supplies to providers, clinics and hospitals and services to specialty pharmacy manufacturers.

These revenues are recognized as prescriptions and supplies are shipped and services are provided.

Other pharmacy service revenues are earned by distributing specialty pharmaceuticals and medical supplies to providers, clinics and hospitals.

These revenues are billed, due and recognized at contracted rates as prescriptions and supplies are shipped and services are provided.

Pharmacy costs .

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Rebates are recognized as prescriptions are shipped or processed and approved for payment.

Historically, the effect of adjustments resulting from the reconciliation of rebates recognized to the amounts billed and collected has not been material.

Historically, the effect of adjustments resulting from the reconciliation of rebates recognized to the amounts billed and collected, net of contractual allowances, has not been material.

The Company maintains reimbursement guarantees with certain retail network pharmacies.

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Premiums for group life, accident and health insurance and managed care coverages are recognized as revenue on a pro rata basis over the contract period.

Benefits and expenses are recognized when incurred and, for our U.S.

Medical insured business, are presented net of pharmaceutical manufacturer rebates.

Benefits and expenses are recognized when incurred and, for our Cigna Healthcare insured business, are presented net of pharmaceutical manufacturer rebates.

For experience-rated contracts, premium revenue includes an adjustment for experience-rated refunds based on contract terms and calculated using the customer's experience (including estimates of incurred but not reported claims).

Premium revenue also includes an adjustment to reflect the estimated effect of rebates due to customers under the commercial minimum medical loss ratio provisions of the ACA.

These rebates are settled in the subsequent calendar year.

Premiums received for the Company’s Medicare Advantage plans and Medicare Part D products from the Centers for Medicare and Medicaid Services (“CMS”) and customers are recognized as revenue ratably over the contract period.

CMS provides risk-adjusted premium payments for Medicare Advantage Plans and Medicare Part D products based on our customer demographics and wellness.

The Company recognizes periodic changes to risk-adjusted premiums as revenue when the amounts are determinable and collection is reasonably assured.

Additionally, Medicare Part D premiums include payments from CMS for risk-sharing adjustments.

adjustments are estimated quarterly based on claim experience by comparing actual incurred drug benefit costs to estimated costs submitted in original contracts.

Premiums received for the Company's Medicare Advantage plans, Medicare Part D products and Individual and Family Plans from the Centers for Medicare and Medicaid Services ("CMS") and customers are recognized as revenue ratably over the contract period.

CMS provides risk-adjusted premium payments for Medicare Advantage Plans and Medicare Part D products based on our customer demographics and medical diagnoses, which may change from period to period based on the underlying health of our customers.

The Company recognizes changes to risk-adjusted premiums as revenue when the amounts are determinable and collection is reasonably assured.

Revenue adjustments are generally settled semi-annually with CMS.

The final revenue adjustment is generally settled with CMS in the year following the contract year.

Medicare Part D premiums include payments from CMS for risk-sharing adjustments that are estimated quarterly based on claim experience by comparing actual incurred prescription drug costs to the estimated costs submitted in the original contracts.

These adjustments may result in more or less revenue from CMS.

Final revenue adjustments are determined and settled with CMS in the year following the contract year.

Premium revenue may also include an adjustment to reflect the estimated effect of rebates due to CMS under the Medicare Advantage and Medicare Part D minimum medical loss ratio provisions of the ACA.

The ACA prescribed three programs to mitigate the risk for participating health insurance companies selling coverage on the public exchanges:

risk adjustment, reinsurance and risk corridor.

The reinsurance and ACA risk corridor programs expired at the end of 2016, while the permanent risk-adjustment program continues.

The risk-adjustment program reallocates funds from insurers with lower risk populations to insurers with higher risk populations based on the relative risk scores of participants in non-grandfathered plans in the individual and small group markets, both on and off the exchanges.

We estimate our receivable or payable based on the risk of our customers compared to the risk of other customers in the same state and market, considering data obtained from industry studies and the United States Department of Health and Human Services (“HHS”).

Final revenue adjustments generally occur in the year following the contract year.

The ACA prescribed a risk-adjustment program to mitigate the risk for participating health insurance companies selling coverage on the public exchanges.

The risk-adjustment program reallocates funds from insurers with lower risk populations to insurers with higher risk populations based on the relative risk scores of participants.

We estimate our receivable or payable based on the risk of our

customers compared to the risk of other customers in the same state and market, considering data obtained from industry studies and the United States Department of Health and Human Services ("HHS").

Receivables or payables are recorded as adjustments to premium revenue based on our year-to-date experience when the amounts are reasonably estimable and collection is reasonably assured.

Final revenue adjustments are determined by HHS in the year following the policy year.

Premium revenue may also include an adjustment to reflect the estimated effect of rebates due to customers under medical loss ratio provisions of the ACA.

These rebate liabilities are settled in the subsequent year.

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

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Fees and Related Expenses

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

The majority of the Company's service fees are derived from administrative services only ("ASO") arrangements, fee-for-service clinical solutions, administration of certain rebate arrangements, health benefit management services and administration of services to specialty pharmacy manufacturers.

ASO arrangements allow plan sponsors to self-fund claims and assume the risk of medical or other benefit costs.

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The amount of revenue deferred is estimated for each type of guarantee using either a most likely amount or expected value method depending on the nature of the guarantee and the information available to estimate refunds.

Estimates are refined each reporting period as additional information on the Company’s performance becomes available and upon final reconciliation and settlement at the end of the guarantee period.

Estimates are refined each reporting period as additional information on the Company's performance becomes available and upon final reconciliation and settlement following the guarantee period.

Amounts accrued and paid for these performance guarantees during the reporting periods were not material.

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Direct costs associated with these programs are recognized in Pharmacy and other service costs, and other related expenses are recorded as incurred in Selling, general and administrative expenses.

The Company earns fees from our Pharmacy Rebate Program services.

These services include either our formulary rebate administrative service arrangements or our formulary processing arrangements.

Formulary rebate administrative services may include formulary consultation, administration of rebate contracts, rebate submission, collection from drug manufacturers and the distribution of rebates to clients.

Services may also include facilitating audits of data submissions and reporting of rebates to clients.

Clients agree to pay administrative fees that are billed, due and recognized at contracted rates as services are performed.

These revenues are reported gross in Fees and other revenues and associated costs are reported in Pharmacy and other service costs in the Consolidated Statements of Income.

For certain other clients in our formulary processing arrangements, the Company does not control the right to retain rebates before they are transferred to the client for services performed.

Clients agree to allow the Company to retain a portion of each rebate collected in exchange for formulary processing services provided.

These rebate and administrative fee revenues are reported net in Fees and other revenues in the Consolidated Statements of Income.

Revenue is recognized as rebates are processed.

The Company also earns fees by providing health benefit management solutions that drive cost reductions and improve quality outcomes.

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The estimated profits and costs are recognized net in Fees and other revenues.

The Company also earns other service fees related to administrating services to specialty pharmacy manufacturers that are recorded in Fees and other revenues in the Consolidated Statements of Income.

These revenues are billed, due and recognized at contracted rates as services are provided.

Note 3 – Accounts Receivable, Net

Accounting policy.

The Company's accounts receivable balances primarily include amounts due from clients, third-party payors, customers and pharmaceutical manufacturers, and are presented net of allowances.

The Company's adoption of ASU 2016-13, Measurement of Credit Losses on Financial Instruments (ASU 2016-13), as of January 1, 2020 did not have a material impact on our accounts receivable credit loss allowance, as there were no substantive changes to our methodology for this class of assets.

The allowance for expected credit losses for current accounts receivable is based primarily on past collections experience relative to the length of time receivables are past due;

however, when available evidence reasonably supports an assumption that counterparty credit risk over the expected payment period will differ from current and historical payment collections, a forecasting adjustment is reflected in the allowance for expected credit losses.

All other (non-credit) allowances are based on the current status of each customer's receivable balance as well as current economic and market conditions and a variety of other factors, including the length of time the receivables are past due, the financial health of customers and our past experience.

All other (non-credit) allowances are based on the current status of each customer's receivable balance, current economic and market conditions and a variety of other factors, including the length of time the receivables are past due, the financial health of customers and our past experience.

We bill pharmaceutical manufacturers based on management's interpretation of contractual terms and estimate a contractual allowance based on the best information available at the time a claim is processed.

Contractual allowances for certain rebates receivable from pharmaceutical manufacturers are determined by reviewing payment experience and specific known items that could be adjusted under contract terms.

Contractual allowances for certain rebates receivable from pharmaceutical manufacturers are determined by reviewing payment experience and specific known items that could be adjusted under

contract terms.

The Company's estimation process for contractual allowances for pharmaceutical manufacturer receivables generally results in an allowance for balances outstanding greater than 90 days.

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When circumstances related to specific collection patterns change, estimates of the recoverability of receivables are adjusted.

The Company's accounts receivable include amounts due from clients, third-party payors, customers and pharmaceutical manufacturers, and are presented net of allowances.

These balances include:

• Noninsurance customer receivables - amounts due from customers for noninsurance services, primarily pharmacy benefit management and ASO contracts.

• Pharmaceutical manufacturers receivable - amounts due from pharmaceutical manufacturers.

• Insurance customer receivables - amounts due from customers under insurance contracts, primarily premiums receivable and amounts due from CMS.

• Other receivables - all other accounts receivable not defined in the categories above.

The following amounts were included within Accounts receivable, net:

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Other receivables 456 192

Accounts receivable, net classified as assets of business held for sale ( 521 )

Accounts receivable, net classified as Assets of businesses held for sale ( 54 )

Accounts receivable, net per Consolidated Balance Sheets $ 15,071 $ 12,191

These receivables are reported net of our allowances of $ 1.2 billion as of December 31, 2020 and $ 778 million as of December 31, 2019.

The allowances as of December 31, 2020 include contractual allowances for certain rebates receivable with pharmaceutical manufacturers of $ 757 million and contractual allowances from third-party payors of $ 208 million based upon the contractual payment terms.

The remaining allowances of $ 224 million include allowances, discounts and claims adjustments issued to customers in the form of client credits, an allowance for current expected credit losses and other non-credit adjustments.

The Company's allowance for current expected credit losses was $ 65 million as of December 31, 2020 and $ 39 million as of January 1, 2020 (no change to allowance for credit losses from December 31, 2019).

These receivables are reported net of our allowances of $ 1.4 billion as of December 31, 2021 and $ 1.2 billion as of December 31, 2020 as follows:

• Included in our Pharmaceutical manufacturers receivable are contractual allowances for certain rebates receivable with pharmaceutical manufacturers of $ 926 million as of December 31, 2021 and $ 757 million as of December 31, 2020.

• Included in our Noninsurance customer receivables are contractual allowances from third-party payors of $ 321 million as of December 31, 2021 and $ 208 million as of December 31, 2020 based upon the contractual payment terms.

• The remaining allowances of $ 186 million as of December 31, 2021 and $ 224 million as of December 31, 2020 include allowances, discounts and claims adjustments issued to customers in the form of client credits, an allowance for current expected credit losses and other non-credit adjustments.

• The Company's allowance for current expected credit losses was $ 60 million as of December 31, 2021 and $ 65 million as of December 31, 2020.

Note 4 – Mergers, Acquisitions and Divestitures

Divestiture of Group Disability and Life busines s

Acquisition of MDLIVE

On April 19, 2021, Cigna acquired 97 % of MDLIVE, Inc.

("MDLIVE"), a 24/7 virtual care platform.

Combined with Cigna's previously held equity investment, Cigna now owns 100 % of MDLIVE.

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

The purchase price of $ 2.0 billion consisted of cash consideration.

In accordance with GAAP, the total consideration transferred has been allocated to the tangible and intangible net assets acquired based on management's preliminary estimates of their fair values and may change as additional information becomes available over the next several months.

As of December 31, 2021, the Company made immaterial measurement period adjustments to the purchase price allocation.

The estimated fair values of assets acquired and liabilities assumed as of the closing date were as follows:

(In millions)

Goodwill $ 1,438

Acquired intangible assets 627

Tangible assets acquired net of liabilities assumed 17

Total consideration transferred 2,082

Fair value to Cigna's previously held equity interest ( 55 )

Total purchase price $ 2,027

Substantially all of the goodwill is assigned to the Evernorth segment ($ 1.3 billion).

Goodwill is not deductible for federal income tax purposes.

The acquired intangible assets primarily consist of customer relationships ($ 577 million) as well as internal-use software, provider networks and a trade name.

The fair value of the customer relationships and the amortization period were determined using an income approach that relies heavily on projected future net cash flows including key assumptions for customer attrition, margins and discount rates.

The customer relationship intangible asset is amortized over a period of 17 years in a pattern that reflects when Cigna expects to receive the benefits of the related cash flows.

The results of MDLIVE have been included in the Company's Consolidated Financial Statements from the date of the acquisition.

Revenues from MDLIVE and their results of operations were not material to Cigna's consolidated results of operations for the year ended December 31, 2021.

The pro forma effects of this acquisition for current and prior periods were not material to our consolidated results of operations.

Divestiture of U.S.

Group Disability and Life business

On December 31, 2020, Cigna completed the sale of its U.S.

Group Disability and Life business to New York Life Insurance Company for cash proceeds of $ 6.2 billion.

The Company recognized a gain of $ 4.2 billion pre-tax ($ 3.2 billion after-tax), which includes recognition of previously unrealized capital gains on investments sold (see Note 14 for further information).

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

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

The Company recognized a gain of $ 4.2 billion pre-tax ($ 3.2 billion after-tax), which included recognition of previously unrealized capital gains on investments sold (see Note 14 for further information).

Integration and Transaction-related Costs

In 2021, the Company incurred costs related to the acquisition of MDLIVE, the sale of the U.S.

Group Disability and Life business, the terminated merger with Anthem, Inc.

("Anthem") and the pending Chubb Transaction (see Note 5 for further information on assets and liabilities of businesses held for sale).

In 2020 and 2019, the Company incurred costs related to the acquisition and integration of Express Scripts Holding Company ("Express Scripts"), the terminated merger with Anthem, the sale of the U.S.

Group Disability and Life insurance business and other transactions.

These costs were $ 169 million pre-tax ($ 71 million after-tax) for the year ended December 31, 2021, compared with $ 527 million pre-tax ($ 404 million after-tax) for the year ended December 31, 2020 and $ 552 million pre-tax ($ 427 million after-tax) for the year ended December 31, 2019.

These costs consisted primarily of certain projects to integrate or separate the Company's systems, products and services, fees for legal, advisory and other professional services and certain employment-related costs.

After-tax costs for the year ended December 31, 2021 included a tax benefit from the resolution of a tax matter related to the sold Group Disability and Life business.

Note 5 – Assets and Liabilities of Businesses Held for Sale

Accounting Policy .

The Company classifies assets and liabilities as held for sale ("disposal group") when management commits to a plan to sell the disposal group, the sale is probable within one year and the disposal group is available for immediate sale in its present condition.

Assets held for sale are measured at the lower of carrying value or fair value less costs to sell.

Any loss resulting from the measurement is recognized in the period the held-for-sale criteria are met.

Conversely, gains are not recognized until the date of the sale.

When the disposal group is classified as held for sale, depreciation and amortization for most long-lived assets ceases and the Company tests the assets for impairment.

Deferred policy acquisition costs continue to be amortized.

Cigna entered into a definitive agreement in October 2021 to sell its life, accident and supplemental benefits businesses in seven countries to 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 the second quarter of 2022.

The Company believes this sale is probable and has aggregated and classified the assets and liabilities directly associated with the pending sale as held for sale and has reported them separately on our Consolidated Balance Sheets as of December 31, 2021.

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

(In millions) December 31, 2021

Cash and cash equivalents $ 406

Accounts receivable, net 521

Investments 5,109

Other assets 539

Deferred policy acquisition costs 2,755

Separate account assets 878

Goodwill, other intangible assets and all other assets 909

Total assets of business held for sale 10,057

Insurance and contractholder liabilities 4,644

Other liabilities 504

Accounts payable, accrued expenses and other liabilities 452

Deferred tax liabilities, net 449

Separate account liabilities 878

Total liabilities of business held for sale $ 6,423

Acquisition of Express Scripts

On December 20, 2018, Cigna acquired Express Scripts Holding Company (“Express Scripts") through a series of mergers for a purchase price of $ 52.8 billion, which consisted of cash and stock consideration.

The purchase price was allocated to the tangible and intangible net assets acquired based on management’s final estimates of their fair values.

Total goodwill of $ 38.4 billion was recorded, of which $ 33.7 billion resides in the Company’s Evernorth segment, with the remainder in the Company’s U.S.

Medical segment.

The results of Express Scripts have been included in the Company’s Consolidated Financial Statements from the date of the acquisition.

Revenues of Express Scripts included in the Company’s results for 2018 approximated $ 2.6 billion and Express Scripts’ results of operations were immaterial to Cigna’s net income.

Integration and Transaction-related Costs

The Company has incurred costs detailed in the table below related to the acquisition and integration of Express Scripts, the terminated merger with Anthem, Inc.

(“Anthem”), the sale of the U.S.

Group Disability and Life business and other transactions.

These costs consisted primarily of certain projects to integrate the Company’s systems, products and services, fees for legal, advisory and other professional services and certain employment-related costs.

Costs in 2018 also included charitable contributions and amortization of certain financing fees and interest expense on the debt issued in the third quarter of 2018 to fund the Express Scripts merger, net of investment income earned on proceeds of the debt issuance.

2020 2019 2018

(In millions) Before-tax After-tax Before-tax After-tax Before-tax After-tax

Interest expense on newly-issued debt $ — $ — $ — $ — $ 227 $ 179

Net investment income on debt proceeds — — — — ( 123 ) ( 97 )

Charitable contributions — — — — 200 158

Legal and advisory fees 48 36 53 41 204 185

Bridge facility fees — — — — 140 111

All other integration and transaction-related costs 479 368 499 386 204 133

Integration and transaction-related costs, net $ 527 $ 404 $ 552 $ 427 $ 852 $ 669

The held for sale businesses reported Redeemable noncontrolling interests of $ 24 million, Gross unrealized appreciation on securities and derivatives of $ 137 million and Gross translation loss on foreign currencies of $ 209 million on our Consolidated Balance Sheets as of December 31, 2021.

Note 6 – Earnings Per Share ("EPS")

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Short-term debt

$ 1,000 million, Floating Rate Notes due 3/2020

$ 300 million, 5.125 % Notes due 6/2020

$ 1,750 million, 3.2 % Notes due 9/2020

$ 349 million, 4.125 % Notes due 9/2020

$ 500 million, 2.6 % Notes due 11/2020

$ 400 million, Floating Rate Notes due 11/2020

Commercial paper $ 2,027 $ 1,030

$ 500 million, 3.05 % Notes due 11/2022

Other, including finance leases 23 18

$ 78 million, 6.37 % Notes due 6/2021

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$ 1,250 million, 3.4 % Notes due 9/2021

Commercial paper 1,030 944

Other, including finance leases 18 27

Total short-term debt $ 2,545 $ 3,374

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$ 500 million, 3.05 % Notes due 2022

$ 1,000 million, Floating Rate Notes due 2021

$ 17 million, 8.3 % Notes due 2023

$ 63 million, 7.65 % Notes due 2023

$ 277 million, 4 % Notes due 2022

$ 973 million, 3.9 % Notes due 2022

$ 500 million, 3.05 % Notes due 2022

$ 700 million, Floating Rate Notes due 2023

$ 1,000 million, 3 % Notes due 2023

$ 1,187 million, 3.75 % Notes due 2023

$ 700 million, Floating Rate Notes due 2023

$ 500 million, 0.613 % Notes due 2024

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$ 1,500 million, 2.4 % Notes due 2030

$ 1,500 million, 2.375 % Notes due 2031 (1)

$ 45 million, 8.3 % Step Down Notes due 2033

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$ 1,250 million, 3.4 % Notes due 2050

$ 1,500 million , 3.4 % Notes due 2051

Other, including finance leases 28 36

Total long-term debt $ 31,125 $ 29,545

(1) The Company has entered into interest rate swap contracts hedging a portion of these fixed-rate debt instruments.

See Note 11 for further information about the Company's interest rate risk management and these derivative instruments.

Debt Issuance and Redemption.

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

In order to decrease future interest expense, mitigate future refinancing risk and raise proceeds for general corporate purposes, the Company entered into the following transactions during 2021:

• Debt issuance:

On March 3, 2021, the Company issued $ 4.3 billion of new senior notes.

The proceeds of this issuance were mainly used to pay the consideration for the cash tender and redemption offer as described below.

The proceeds of this issuance were mainly used to redeem outstanding debt securities.

The remaining proceeds are available for general corporate purposes.

Interest on this debt is paid semi-annually.

Principal Maturity Date Interest Rate Net Proceeds

$ 1,500 million March 15, 2030 2.4 % $ 1,491 million

$ 750 million March 15, 2040 3.2 % $ 743 million

$ 1,250 million March 15, 2050 3.4 % $ 1,237 million

• Debt tender and redemption:

In March and April 2020, the Company completed a tender offer and an optional redemption totaling $ 3.5 billion of aggregate principal amount of certain of its outstanding debt securities.

The principal amount repurchased in this tender offer was $ 1.5 billion.

Additionally, $ 2.0 billion of notes were repurchased via optional redemption.

The Company recorded a pre-tax loss of $ 199 million ($ 151 million after-tax), consisting primarily of premium payments on the tender and optional redemption.

Debt Exchange .

In the fourth quarter of 2019, the Company settled an exchange of approximately $ 12.7 billion of Notes issued by Express Scripts Holding Company, Medco Health Solutions, Inc.

and Cigna Holding Company (formerly named Cigna Corporation) for privately placed Notes issued by Cigna with the same interest rates and maturities and comparable other terms.

We initiated an exchange offer to register such debt in the second quarter of 2020 and completed the exchange in July 2020 .

Debt Repayment.

In 2020, the Company repaid $ 8.0 billion of long-term debt, including the $ 3.5 billion debt tender and redemption described above.

On December 31, 2020 Cigna issued a notice of full redemption to the holders of Cigna’s Senior Floating Rate Notes due 2021 (the “Notes”) pursuant to which Cigna redeemed the entire $ 1.0 billion aggregate principal amount of the Notes outstanding on January 15, 2021 at a redemption price calculated in accordance with the terms and conditions of the indenture governing the Notes.

$ 500 million (1)

March 15, 2024 0.613 % $ 499 million

$ 800 million (2)

March 15, 2026 1.250 % $ 797 million

$ 1,500 million (3)

March 15, 2031 2.375 % $ 1,492 million

$ 1,500 million (4)

March 15, 2051 3.400 % $ 1,479 million

(1) Redeemable at any time discounted at the U.S.

Treasury rate plus 7.5 basis points.

Redeemable at par on or after March 15, 2022.

(2) Redeemable at any time discounted at the U.S.

Treasury rate plus 10 basis points.

Redeemable at par on or after February 15, 2026.

(3) Redeemable at any time discounted at the U.S.

Treasury rate plus 15 basis points.

Redeemable at par on or after December 15, 2030.

(4) Redeemable at any time discounted at the U.S.

Treasury rate plus 20 basis points.

Redeemable at par on or after September 15, 2050.

• Debt redemption:

During 2021, the Company completed the redemption of a total of $ 4.5 billion in aggregate principal amount of certain of its outstanding debt securities.

The Company recorded a pre-tax loss of $ 141 million ($ 110 million after-tax), consisting primarily of premium payments.

Revolving Credit Agreements.

Cigna has a revolving credit and letter of credit agreement that matures in April 2023 and is diversified among 23 banks.

Cigna can borrow up to $ 3.25 billion for general corporate purposes, with up to $ 500 million available for issuance of letters of credit.

This revolving credit agreement also includes an option to increase the facility amount up to $ 500 million and an option to extend the termination date for additional one-year periods, subject to consent of the banks.

Additionally, Cigna has a 364 -day $ 1.0 billion revolving credit agreement that will mature in October 2021.

The agreement replaces the $ 1.0 billion 364 -day revolving credit agreement that expired in October 2020.

The agreement is diversified among 23 banks.

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

As of December 31, 2021, there were no outstanding balances under these revolving credit agreements.

In April 2021, Cigna entered into a $ 3.0 billion five-year revolving credit and letter of credit agreement that matures in April 2026 and a $ 1.0 billion three-year revolving credit agreement that matures in April 2024, which are diversified among 23 banks and replaced the five-year revolving credit and letter of credit agreement that was scheduled to mature in April 2023.

Under the current agreements, Cigna can borrow up to $ 3.0 billion and $ 1.0 billion, respectively, for general corporate purposes, with up to $ 500 million available under the five-year facility for issuance of letters of credit.

The revolving credit agreements also include an option to extend the termination date for an additional one-year period, subject to consent of the banks.

Additionally, in April 2021, Cigna entered into a $ 1.0 billion 364-day revolving credit agreement that will mature in April 2022 and is diversified among 23 banks.

This agreement replaced the prior $ 1.0 billion 364-day revolving credit agreement that was scheduled to expire in October 2021.

Pursuant to this revolving credit agreement, Cigna can borrow up to $ 1.0 billion for general corporate purposes.

The agreement includes the option to "term out" any revolving loans that are outstanding at maturity by converting them into a term loan maturing on the one-year anniversary of conversion.

The revolving credit agreements contain customary covenants and restrictions including a financial covenant that the Company’s leverage ratio may not exceed 60 %.

As of December 31, 2020, there were no outstanding balances under the revolving credit agreements.

Term Loan Credit Agreement .

On April 1, 2020, the Company borrowed an aggregate principal amount of $ 1.4 billion under a new 364 -Day Term Loan Credit Agreement.

In connection with the sale of the Group Life and Disability business, on December 31, 2020 we repaid the entire $ 1.4 billion balance outstanding.

Each of the five-year facility, the three-year facility and the 364-day facility include an option to increase commitments in an aggregate amount of up to $ 1.5 billion across all three facilities.

Each of the three facilities also contain customary covenants and restrictions including a financial covenant that the Company's leverage ratio, as defined in the credit agreements, may not exceed 60 %, subject to certain exceptions upon the consummation of an acquisition.

Commercial Paper.

Under our commercial paper program we may issue short-term, unsecured commercial paper notes privately placed on a discount basis through certain broker dealers at any time not to exceed $ 4.25 billion.

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

Amounts available under the program may be borrowed, repaid and re-borrowed from time to time.

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

The commercial paper program had approximately $ 1.0 billion outstanding at December 31, 2020 at an average interest rate of 0.2 %.

The commercial paper average interest rate was 0.26 % at December 31, 2021.

The Company was in compliance with its debt covenants as of December 31, 2021.

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

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

Interest expense on long-term and short-term debt was $ 1.3 billion in 2021, $ 1.4 billion in 2020 and $ 1.6 billion in 2019.

Note 8 – Common and Preferred Stock

On December 20, 2018 Cigna acquired Express Scripts through a series of mergers (collectively, the "Merger").

Cigna Holding Company (formerly named Cigna Corporation and referred to as "Old Cigna") and Express Scripts each merged with and into a wholly-owned subsidiary of Cigna.

As a result of these transactions, Cigna became the parent of the combined company.

Old Cigna shareholders exchanged each of their shares for a share of Cigna common stock and shareholders of Express Scripts received 0.2434 of a share of Cigna (and $ 48.75 in cash) for each share of Express Scripts.

Following the Merger, Old Cigna was de-listed and shares of Cigna were listed on the New York Stock Exchange for trading.

Cigna (and, prior to the Merger, Old Cigna) has a total of 25 million shares of $ 1 par value preferred stock authorized for issuance.

Cigna has a total of 25 million shares of $ 1 par value preferred stock authorized for issuance.

No shares of preferred stock were outstanding at December 31, 2021, 2020 or 2019.

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

The following table presents the share activity of Cigna for the years ended December 31, 2021, 2020 and 2019:

(Shares in thousands) 2021 2020 2019

Par value $ 0.01 ;

600,000 shares authorized - Cigna

600,000 shares authorized

Outstanding- January 1, 354,771 372,531 380,924

Shares issued to Old Cigna shareholders 243,785

Shares issued to Express Scripts shareholders 137,337

Issued for stock option exercises and other benefit plans 4,142 3,413 91

Net issued for stock option exercises and other benefit plans 3,375 4,142 3,413

Repurchased common stock ( 35,198 ) ( 21,902 ) ( 11,806 )

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Issued- December 31, 394,194 390,276 385,543

Par value $ 0.25 ;

600,000 shares authorized - Old Cigna

Outstanding- January 1, 243,967

Issued for stock option exercises and other benefit plans 1,118

Repurchased common stock ( 1,300 )

Balance, December 20, 2018 (Merger Date) 243,785

Exchange of Old Cigna shares for shares of Cigna ( 243,785 )

Outstanding- December 31, —

Retirement of treasury stock on December 20, 2018 ( 52,358 )

Exchange of Old Cigna certificated treasury stock for new Cigna certificated treasury stock ( 2 )

Treasury stock- December 31, —

Issued- December 31, —

In 2021, Cigna initiated and declared quarterly cash dividends of $ 1.00 per share of Cigna common stock.

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

The decision of whether to pay future dividends and the amount of any such dividends will be based on the Company's financial position, results of operations, cash flows, capital requirements, the requirements of applicable law and any other factors the Board of Directors may deem relevant.

On February 3, 2022, the Board of Directors declared a quarterly cash dividend of $ 1.12 per share of Cigna common stock to be paid on March 27, 2022 to shareholders of records on March 9, 2022.

The following table provides details of Cigna's dividend payments:

Record Date Payment Date Amount per Share Total Amount Paid (in millions)

March 10, 2021 March 25, 2021 $ 1.00 $ 345

June 8, 2021 June 23, 2021 $ 1.00 $ 342

September 8, 2021 September 23, 2021 $ 1.00 $ 330

December 7, 2021 December 22, 2021 $ 1.00 $ 324

March 10, 2020 April 9, 2020 $ 0.04 $ 15

March 11, 2019 April 10, 2019 $ 0.04 $ 15

Accelerated Share Repurchase Agreements

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.

We recorded the payments to the Counterparties as a reduction to stockholders' equity, consisting of a $ 1.6 billion increase in treasury stock, which reflects the value of the initial 7.7 million shares received upon initial settlement and a $ 400 million decrease in Additional paid-in capital, which reflects the value of the stock held back by the Counterparties pending final settlement of the agreements.

Upon final settlement of the ASR agreements on November 29, 2021 and December 1, 2021, we received an additional 1.8 million shares of our common stock for no additional consideration as the value of this stock was held back by the Counterparties pending final settlement of the agreements.

The total number of shares of our common stock repurchased under the ASR agreements was 9.5 million based on an average daily volume weighted-average share price of our common stock during the term of the agreements, less a discount, of $ 209.53 .

In addition, we reclassified the $ 400 million recorded in Additional paid-in capital to Treasury stock upon settlement.

Note 9 – Insurance and Contractholder Liabilities

Account Balances – Insurance and Contractholder Liabilities

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

The Company's insurance and contractholder liabilities were comprised of the following:

December 31, 2021 December 31, 2020

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Unpaid claims and claim expenses

Cigna Healthcare

4,159 102 4,261 3,608 87 3,695

Other segments 980 292 1,272 2,529 3,474 6,003

Other Operations 548 180 728 538 223 761

Total 5,929 16,596 22,525

Insurance and contractholder liabilities classified as liabilities of business held for sale (1)

Insurance and contractholder liabilities classified as Liabilities of businesses held for sale (1)

( 611 ) ( 4,033 ) ( 4,644 )

Total insurance and contractholder liabilities $ 5,318 $ 12,563 $ 17,881 $ 5,308 $ 16,844 $ 22,152

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

(1) Amounts classified as Liabilities of businesses held for sale primarily include $ 3.8 billion of Future policy benefits, $ 0.4 billion of Unpaid claims and $ 0.4 billion of Unearned premiums as of December 31, 2021.

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

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Future policy benefits represent the present value of estimated future obligations under long-term life and supplemental health insurance policies and annuity products currently in force.

These obligations are estimated using actuarial methods and consist primarily of reserves for annuity contracts, life insurance benefits, GMDB contracts (GMDB contracts are fully reinsured, see Note 10 for additional information) and certain health, life and accident insurance products of our International Markets segment.

These obligations are estimated using actuarial methods and consist primarily of reserves for annuity contracts, life insurance benefits, GMDB contracts (GMDB contracts are fully reinsured, see Note 10 for additional information) and certain life and accident insurance products of our international businesses to be sold.

Obligations for annuities represent specified periodic benefits to be paid to an individual or groups of individuals over their remaining lives.

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Mortality, morbidity and surrender assumptions are based on the Company's own experience and published actuarial tables.

Interest rate assumptions are based on management’s judgment considering the Company’s experience and future expectations, and range from 1 % to 9 %.

Interest rate

assumptions are based on management's judgment considering the Company's experience and future expectations and range from 1 % to 9 %.

Obligations for the direct and assumed run-off settlement annuity business include adjustments for realized and unrealized investment returns consistent with GAAP when a premium deficiency exists.

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The unrecognized portion of premiums received is recorded as unearned premiums included in insurance and contractholder liabilities.

Unpaid Claims and Claim Expenses – U.S.

Unpaid Claims and Claim Expenses – Cigna Healthcare

This liability reflects estimates of the ultimate cost of claims that have been incurred but not reported, including expected development on reported claims, those that have been reported but not yet paid (reported claims in process) and other medical care expenses and services payable that are primarily comprised of accruals for incentives and other amounts payable to health care professionals and facilities.

This liability includes amounts from the International Health businesses now reported in Cigna Healthcare following our change in segment reporting in 2021.

Prior year rollforwards have been updated to reflect this segment change.

Accounting policy.

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2) frequency and timeliness of provider claims submissions;

3) membership and 4) the mix of products.

3) number of customers and 4) the mix of products.

The Company uses historical completion factors combined with an analysis of current trends and operational factors to develop current estimates of completion factors.

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The total of incurred but not reported liabilities plus expected development on reported claims, including reported claims in process, was $ 4.0 billion at December 31, 2021 and $ 3.4 billion at December 31, 2020.

Activity, net of intercompany transactions, in the unpaid claims liability for the U.S.

Medical segment for the years ended December 31 was as follows:

Activity, net of intercompany transactions, in the unpaid claims liability for the Cigna Healthcare segment for the years ended December 31 was as follows:

(In millions) 2021 2020 2019

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Beginning balance, net 3,458 3,018 2,810

Acquired, net — — 40

Incurred costs related to:

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Variances in incurred costs related to prior years' unpaid claims and claim expenses that resulted from the differences between actual experience and the Company's key assumptions for the years ended December 31 were as follows:

(Dollars in millions) December 31, 2020 December 31, 2019

(Dollars in millions) 2021 2020

Actual completion factors $ 81 0.3 % $ 57 0.2 %

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

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

The following table depicts the incurred and paid claims development as of December 31, 2020 (net of reinsurance), claims frequency metrics and incurred but not reported liabilities reported in the U.S.

Medical segment.

Favorable prior year development in both years reflects lower than expected utilization of medical services as compared to our assumptions.

The following table depicts the incurred and paid claims development as of December 31, 2021 (net of reinsurance), claims frequency metrics and incurred but not reported liabilities reported in the Cigna Healthcare segment.

The information about incurred and paid claims development for the year ended December 31, 2020 is presented as supplementary information and is unaudited.

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(Unaudited) 2021

(In millions)

2020 $ 23,347 $ 26,176

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Other long-duration liabilities not included in development table above 148

Net unpaid claims and claims expenses - U.S.

Net unpaid claims and claims expenses - Cigna Healthcare

Reinsurance and other amounts recoverable 261

Unpaid claims and claim expenses - U.S.

Unpaid claims and claim expenses - Cigna Healthcare

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

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Claims that did not result in a liability are not included in the frequency metric.

Unpaid Claims and Claim Expenses – Group Disability and Other and International Markets

Unpaid Claims and Claim Expenses – Other Operations

Accounting policy.

Liabilities for unpaid claims and claim expenses are established by book of business within Group Disability and Other and International Markets.

Unpaid claims and claim expenses within the Group Disability and Other and International Markets segments consist of (1) case or claims reserves for reported claims that are unpaid as of the balance sheet date;

Liabilities for unpaid claims and claim expenses are established by book of business within Other Operations including the international businesses to be sold.

Unpaid claims and claim expenses within the Other Operations consist of (1) case or claims reserves for reported claims that are unpaid as of the balance sheet date;

(2) incurred but not reported reserves for claims when the insured event has occurred but has not been reported to the Company and (3) loss adjustment expense reserves for the expected costs of settling these claims.

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See Note 4 for a discussion of the divestiture of the Group Disability and Life business on December 31, 2020.

For the year ended December 31, 2019, liabilities for unpaid claims and claim expenses within the Group Disability and Life business reflect the following primary products:

long-term and short-term disability, life insurance and accident coverages and the majority of the Company’s liability for disability claims consisted of “disabled life reserves”, measured as the present value of estimated future benefit payments, including expected development, for each reported claim that is currently receiving benefit payments over the expected disability period or pending a decision on eligibility for benefits.

The Company projected the expected disability period by using historical resolution rates combined with an analysis of current trends and operational factors to develop current estimates of resolution rates.

Expected claim resolution rates may vary based upon the Company’s experience for the anticipated disability period, the covered benefit period, the cause of disability, the benefit design and the claimant’s age, gender and income level.

The gross monthly benefit is reduced (offset) by disability income received under other benefit programs, most commonly Social Security Disability Income, workers’ compensation, statutory disability or other group benefit plans.

The Company estimated the probability and amount of future offset awards and lapses based on the Company’s experience for certain offsets not yet finalized.

The Company also establishes a liability for the expected present value of future benefit payments for known claims that have recently been resolved but may reopen in the future, based on Company experience.

Prior to a claim becoming known, the Company establishes a liability for incurred but not reported claims using standard actuarial techniques and calculations based on completion factors and loss ratio assumptions using the Company’s experience combined with an analysis of current trends and operational factors.

Completion factors are impacted by several key items including changes in claim inventory levels, claim payment patterns, changes in business volume and other factors.

Loss ratio assumptions are developed using historical Company experience, adjusted prospectively for expected changes in the underlying business including rate actions, persistency and inforce growth.

Prior to the sale, the liabilities for unpaid claims and claim expenses in the Group Disability and Life business reflected reserves for long-term and short-term disability, life insurance and accident products.

The majority of the unpaid claim liability related to disability claims that was measured as the present value of estimated future benefit payments, including expected development, for each reported claim that was receiving benefit payments over the expected disability period or pending a decision on eligibility for benefits.

Liability balance details.

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

(In millions) 2020

Group Disability and Other

Group Disability and Life $ 150 $ 4,972

The liability details for unpaid claims and claim expenses are as follows.

The liability no longer includes the International Health businesses now reported in Cigna Healthcare following our change in segment reporting.

Prior year rollforwards have been updated to reflect the segment change.

(In millions) December 31, 2021 December 31, 2020

Other Operations

Total Group Disability and Other

International Markets

Unpaid claims and claim expenses Group Disability and Other and International Markets

$ 1,272 $ 6,003

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

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

The Company discounts certain liabilities, predominantly long-term disability liabilities, because benefits payments are made over extended periods.

Discount rate assumptions for these liabilities are based on projected investment returns for the supporting asset portfolios.

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

(In billions) 2019 (1)

Discounted liabilities $ 4.5

Aggregate amount of discount $ 1.2

Range of discount rates 4.0 % — 5.2 %

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

Activity in the Company’s liabilities for unpaid claims and claim expenses, excluding Other Operations, are presented in the following table.

Liabilities associated with Other Operations are excluded because they pertain to obligations for long-duration insurance contracts or, if short-duration, the liabilities have been fully reinsured.

International businesses to be sold $ 447 $ 452

Other Operations 281 309

Unpaid claims and claim expenses Other Operations

Activity in the unpaid claims and claim expenses for international businesses held for sale and, prior to the sale, Group Disability and Life (see Note 4 for further information) is presented in the following table.

Liabilities associated with Other Operations are excluded because they pertain to obligations for long-duration insurance contracts or, if short-duration, the liabilities have been largely reinsured.

(In millions) 2021 (1)

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Total paid 965 4,082 3,770

Acquisitions — — 23

Foreign currency ( 34 ) 21 ( 11 )

Divestiture of Group Disability and Life business (2)

— ( 5,142 ) —

Ending balance, net 401 407 5,203

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Ending balance

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

$ 447 $ 452 $ 5,372

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

(2) Includes Group Disability and Life reserves sold or reinsured to New York Life Insurance Company as part of the sale of the Group Disability and Life business and immaterial retained balances which are now excluded from this table.

Reinsurance in the table above reflects amounts due from reinsurers related to unpaid claims liabilities.

The Company’s insurance subsidiaries enter into agreements with other companies primarily to limit losses from large exposures and to permit recovery of a portion of incurred losses.

See Note 10 for additional information on reinsurance.

Following the sale of the Company's Group Disability and Life business (see Note 5 for further information), the majority of the liability for unpaid claims and claim expenses relates to products sold in the International Markets segment.

Prior to the sale, the majority of the liability for unpaid claims and claim expenses related to disability claims with long-tailed payouts.

The rollforward above reflects activity inclusive of these reserves, which were sold on December 31, 2020.

Interest earned on assets backing these liabilities is an integral part of pricing and reserving.

Therefore, interest accreted on prior year balances is shown as a separate component of prior year incurred claims and reported in Medical costs and other benefit expenses in the Consolidated Statements of Income.

This interest is calculated by applying the average discount rate used in determining the liability balance to the average liability balance over the period.

The remaining prior year incurred claims amount primarily reflects updates to the Company’s liability estimates and variances between actual experience during the period relative to the assumptions and expectations reflected in determining the liability.

Assumptions reflect the Company’s expectations over the life of the book of business and will vary from actual experience in any period, both favorably and unfavorably, with variation in resolution rates being the most significant driver for the long-term disability business.

Favorable prior year incurred claims for the year ended December 31, 2019 primarily reflected favorable long-term disability resolution rate experience relative to expectations reflected in the prior year reserve and favorable reserve development for life, accident and voluntary driven by lower than expected incidence.

Development for the year ended December 31, 2020 was immaterial.

Note 10 – Reinsurance

The Company’s insurance subsidiaries enter into agreements with other insurance companies to assume and cede reinsurance.

The Company's insurance subsidiaries enter into agreements with other insurance companies to limit losses from large exposures and to permit recovery of a portion of incurred losses.

Reinsurance is ceded primarily in acquisition and disposition transactions when the underwriting company is not being acquired.

Reinsurance is also used to limit losses from large exposures and to permit recovery of a portion of direct or assumed losses.

Reinsurance does not relieve the originating insurer of liability.

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Reinsurance recoverables represent amounts due from reinsurers for both paid and unpaid claims of the Company's insurance businesses.

The Company bears the risk of loss if its reinsurers and retrocessionaires do not meet or are unable to meet their reinsurance obligations to the Company.

Most reinsurance recoverables are classified as non-current assets.

The current portion of reinsurance recoverables is reported in Other current assets and consists primarily of recoverables on paid claims expected to be settled within one year.

Reinsurance recoverables are presented net of allowances for uncollectible reinsurance that, effective with adopting ASU 2016-13 on January 1, 2020, consists primarily of an allowance for expected credit losses.

$ 31 million was recorded as a cumulative effect adjustment to retained earnings at adoption.

Reinsurance recoverables are presented net of allowances, consisting primarily of an allowance for expected credit losses which is recognized on reinsurance recoverable balances each period and adjusted through benefits expense.

Estimates of the allowance for expected credit losses are based on internal and external data used to develop expected loss rates over the anticipated duration of the recoverable asset that vary by external credit rating and collateral level.

The Company's allowance for credit losses on reinsurance recoverables was $ 32 million as of December 31, 2020, of which $ 31 million was recorded as a cumulative effect adjustment to retained earnings at adoption.

The majority of the Company's reinsurance recoverables resulted from acquisition and disposition transactions in which the underwriting company was not acquired.

Included in the table below is $ 217 million of current reinsurance recoverables that are reported in Other current assets as of December 31, 2020;

as of December 31, 2019 there was $ 222 million of current reinsurance recoverables reported in Other current assets.

The Company’s reinsurance recoverables are presented in the following table by range of external credit rating and collateral level.

(Dollars in millions) Fair value of collateral contractually required to meet or exceed carrying value of recoverable

Included in the table below are $ 129 million of current reinsurance recoverables that are reported in Other current assets as of December 31, 2021;

as of December 31, 2020 there were $ 217 million of current reinsurance recoverables reported in Other current assets.

The Company's reinsurance recoverables as of December 31, 2021 are presented in the following table by range of external credit rating and collateral level:

(In millions) Fair value of collateral contractually required to meet or exceed carrying value of recoverable

Collateral provisions exist that may mitigate risk of credit loss (2)

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Ongoing Operations

Upper-medium grade and higher (1)

A-A A- equivalent and higher current ratings (1)

$ — $ — $ 172 $ 172

Lower-medium grade (2)

BBB BBB- to BBB+ equivalent current credit ratings (1)

Not rated 103 1 35 139

Total recoverables related to ongoing operations (3)

103 1 268 372

Acquisition, disposition or runoff activities

Upper-medium grade and higher (1)

A- equivalent and higher current ratings (1)

Lincoln National Life and Lincoln Life & Annuity of New York — 2,935 — 2,935

Berkshire 309 409 — 718

Berkshire Hathaway Life Insurance Company of Nebraska 276 370 — 646

Prudential Retirement Insurance and Annuity 565 — — 565

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Total reinsurance recoverables (3)

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

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

(1) Certified by a nationally recognized statistical rating organization ("NRSRO").

(2) Includes collateral provisions requiring the reinsurer to fully collateralize its obligation if its external credit rating is downgraded to a specified level.

(3) Includes $ 95 million of recoverables classified as Assets of businesses held for sale.

Collateral levels are defined internally based on the fair value of the collateral relative to the carrying amount of the reinsurance recoverable, the frequency at which collateral is required to be replenished and the potential for volatility in the collateral's fair value.

The Company bears the risk of loss if its reinsurers and retrocessionaires do not meet or are unable to meet their reinsurance obligations to the Company.

The Company reviews its reinsurance arrangements and establishes reserves against the recoverables, as further described above.

Effects of Reinsurance

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Assumed 99 99 105

Individual life insurance and annuity business sold ( 119 ) ( 126 ) ( 133 )

Other ( 150 ) ( 168 ) ( 181 )

Ceded ( 398 ) ( 269 ) ( 294 )

Total long-duration contract premiums 4,454 4,347 4,163

Total premiums $ 41,154 $ 42,627 $ 39,714

Reinsurance recoveries

Individual life insurance and annuity business sold $ 240 $ 238 $ 249

Other 191 157 203

Total reinsurance recoveries $ 552 $ 431 $ 395

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The impact of non-performance risk was immaterial for the years ended December 31, 2021 and December 31, 2020.

GMIB liabilities totaling $ 729 million as of December 31, 2020 and $ 688 million as of December 31, 2019 were reported in Accrued expenses and other liabilities and Other non-current liabilities.

GMIB liabilities totaling $ 572 million as of December 31, 2021 and $ 729 million as of December 31, 2020 are classified as Level 3 because fair value inputs are largely unobservable.

The GMIB liabilities reflect the Company's credit risk, while the reinsurance recoverable reflects the credit risk of the reinsurers.

There were three reinsurers covering 100 % of the GMIB exposures as of December 31, 2021 and December 31, 2020 as follows:

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

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

Note 11 – Investments

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Debt securities, commercial mortgage loans, derivative financial instruments and short-term investments with contractual maturities during the next twelve months are classified on the balance sheet as current investments, unless they are held as statutory deposits or restricted for other purposes and then they are classified in Long-term investments.

Equity securities may include exchange traded funds that are used in our cash management strategy and are classified as current investments.

Equity securities may include funds that are used in our cash management strategy and are classified as current investments.

All other investments are classified as Long-term investments.

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Total 1,264 23,203 24,467

Investments classified as assets of business held for sale (1)

Investments classified as assets of businesses held for sale (1)

( 344 ) ( 4,765 ) ( 5,109 )

Investments per Consolidated Balance Sheets $ 920 $ 18,438 $ 19,358 $ 1,331 $ 23,262 $ 24,593

(1) On December 31, 2020, Cigna completed the sale of its U.S.

Group Disability and Life business and transferred a total of $ 8.4 billion of investments to New York Life Insurance Company as part of this divestiture.

The table above includes $ 7.7 billion as of December 31, 2019 of investments associated with this business that was previously held for sale.

(1) Investments related to the international life, accident and supplemental benefits businesses that are held for sale.

These investments are primarily comprised of debt securities and other long-term investments, and to a lesser extent, equity securities and short-term investments.

See Note 5 to the Consolidated Financial Statements for additional information.

Investment Portfolio

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When the Company intends to sell or determines that it is more likely than not to be required to sell an impaired debt security, the excess of amortized cost over fair value is directly written down with a charge to Realized investment gains and losses.

A portion of these investments are unconsolidated variable interest entities, see Note 13 for additional information.

As of January 1, 2020, the Company adopted ASU 2016-13 that included certain targeted improvements to the accounting for available-for-sale debt securities.

The new guidance resulted in certain policy changes related to the process used by the Company to review declines in fair value from a security’s amortized cost basis to determine whether a credit loss exists.

For example, the length of time that a debt security has been impaired is no longer a criterion for this review.

In addition, under this new guidance, the Company recognizes an allowance for credit loss with a corresponding charge to credit loss expense, presented in Realized investment gains and losses in the Company’s income statement.

Prior to this new guidance, the Company recorded a direct write-down of the instrument’s amortized cost basis.

Certain asset-backed securities are considered variable interest entities, see Note 13 for additional information.

The Company reviews declines in fair value from a debt security's amortized cost basis to determine whether a credit loss exists, and when appropriate, recognizes a credit loss allowance with a corresponding charge to credit loss expense, presented in Realized investment gains and losses in the Company's Consolidated Statements of Income.

The allowance for credit loss represents the excess of amortized cost over the greater of its fair value or the net present value of the debt security's projected future cash flows (based on qualitative and quantitative factors, including the probability of default and the estimated timing and amount of recovery).

Each period, the allowance for credit loss is adjusted through credit loss expense.

The Company elected the expedient to not measure an allowance for credit losses for accrued interest receivables.

Consistent with prior practice, when interest payments are delinquent based on contractual terms or when certain terms (interest rate or maturity date) of the investment have been restructured, accrued interest, reported in Other current assets, is written off through a charge to Net investment income, and interest income is recognized on a cash basis.

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

Each period, the allowance for credit loss is adjusted as needed through credit loss expense.

The Company does not measure an allowance for credit losses for accrued interest receivables.

When interest payments are delinquent based on contractual terms or when certain terms (interest rate or maturity date) of the investment have been restructured, accrued interest, reported in Other current assets, is written off through a charge to Net investment income and interest income is recognized on a cash basis.

The amortized cost and fair value by contractual maturity periods for debt securities were as follows at December 31, 2021:

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Gross unrealized appreciation (depreciation) on debt securities by type of issuer is shown below:

As a result of the U.S.

Group Disability and Life business divestiture, debt securities with a fair value of $ 7.8 billion, primarily in the Corporate and State and local government sectors, were transferred to New York Life on December 31, 2020.

These debt securities included unrealized appreciation of $ 864 million and unrealized depreciation of $ 2 million.

See Note 5 for further information.

(In millions) Amortized

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

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

Review of declines in fair value.

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These debt securities are primarily corporate securities with a decline in fair value that reflects an increase in market yields since purchase.

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

Our allowance for credit losses on debt securities was not material as of December 31, 2021 and December 31, 2020.

December 31, 2021 December 31, 2020

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Total $ 3,890 $ 4,021 $ ( 131 ) 1,886 $ 1,515 $ 1,568 $ ( 53 ) 571

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

(In millions) 2020

Balance at beginning of period $ —

Additions for debt securities where no credit loss has previously been recognized 82

Reductions for securities sold during the period ( 15 )

Decrease for debt securities where credit losses have previously been recorded ( 41 )

Balance December 31, $ 26

Equity Securities

Accounting policy .

Equity securities with a readily determinable fair value consist primarily of mutual funds that invest in fixed income debt securities while those without a readily determinable fair value consist of private equity investments.

Changes in the fair values of equity securities that have a readily determinable fair value are reported in Net realized investment gains (losses).

Equity securities without a readily determinable fair value are carried at cost minus impairment, if any, plus or minus changes resulting from observable price changes.

Equity securities also include hybrid investments consisting of preferred stock with call features that are carried at fair value with changes in fair value reported in Net realized investment gains (losses) and dividends reported in Net investment income.

The amount of impairments or value changes resulting from observable price changes on equity securities still held was not material as of December 31, 2020 or 2019.

The following table provides the values of the Company's equity security investments as of December 31, 2021 and December 31, 2020.

The amount of impairments or value changes resulting from observable price changes on equity securities still held was not material to the financial statements as of December 31, 2021 or 2020.

December 31, 2021 December 31, 2020

2 unchanged sentences

Equity securities with no readily determinable fair value 270 396 225 255

Hybrid equity securities $ 58 $ 44 $ 58 $ 47

Total $ 527 $ 603 $ 463 $ 501

As of December 31, 2021, the Company had a commitment to purchase $ 550 million of equity securities in Bright Health Group, Inc., a technology-enabled health insurance carrier.

This transaction was completed in January 2022.

Commercial Mortgage Loans

Accounting policy.

Commercial mortgage loans are carried at unpaid principal balances.

Beginning January 1, 2020 with the adoption of ASU 2016-13, unpaid principal balances are presented net of an allowance for expected credit losses.

Changes in the allowance for expected credit losses are recognized as credit loss expense and presented in Realized investment gains and losses in the Company’s income statement.

Commercial mortgage loans are carried at unpaid principal balances, net of an allowance for expected credit losses, and classified as either current or long-term investments based on their contractual maturities.

Changes in the allowance for expected credit losses are recognized as credit loss expense and presented in Realized investment gains and losses in the Company's Consolidated Statements of Income.

Each period, the Company establishes (or adjusts) its allowance for expected credit losses for commercial mortgage loans.

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Credit risk categories are updated as key credit quality indicators change.

An expected loss rate, assigned based on the credit risk category, is applied to each loan's unpaid principal balance to develop an aggregate allowance for expected credit losses.

Prior to adoption, impaired commercial mortgage loans were written down to the lower of unpaid principal or fair value of the underlying collateral when it became probable that the Company

would not collect all amounts due under its promissory note.

The Company recorded an allowance of $ 7 million through a cumulative effect adjustment to retained earnings to reflect expected credit losses at adoption.

The credit loss allowance for the Company’s commercial mortgage loan investments was $ 6 million as of December 31, 2020.

An expected loss rate, assigned based on the credit risk category, is applied to each loan's unpaid principal balance to develop the aggregate allowance for expected credit losses.

Commercial mortgage loans are considered impaired and written off against the allowance when it is probable that the Company will not collect all amounts due per the terms of the promissory note.

The Company elected the expedient to not measure an allowance for credit losses for accrued interest receivables.

Consistent with our prior practice, accrued interest, reported in Other current assets, is written off through a charge to Net investment income;

interest income on impaired loans is only recognized when a payment is received.

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

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Loans are generally issued at fixed rates of interest and are secured by high quality, primarily completed and substantially leased operating properties.

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

Credit quality .

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The loan-to-value ratio, commonly expressed as a percentage, compares the amount of the loan to the fair value of the underlying property collateralizing the loan.

The following table summarizes the credit risk profile of the Company’s commercial mortgage loan portfolio based on loan-to-value and debt service coverage ratios as of December 31, 2020 and December 31, 2019.

As a result of the U.S.

Group Disability and Life business divestiture, $ 0.6 billion of commercial mortgage loans were transferred to New York Life on December 31, 2020, see Note 5 for further information.

The following table summarizes the credit risk profile of the Company's commercial mortgage loan portfolio as of December 31, 2021 and December 31, 2020:

(Dollars in millions) December 31, 2021 December 31, 2020

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Total $ 1,566 1.96 61 % $ 1,419 2.08 61 %

The Company’s annual in-depth review of its commercial mortgage loan investments is the primary mechanism for identifying emerging risks in the portfolio.

The Company’s investment professionals completed the annual in-depth review in the second quarter of 2020 that included an analysis of each underlying property’s most recent annual financial statements, rent rolls, operating plans, budgets, a physical inspection of the property and other pertinent factors.

Based on historical results, current leases, lease expirations and rental conditions in each market, the Company estimated the current year and future stabilized property income and fair value for each loan.

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

All commercial mortgage loans in the Company's portfolio are current as of December 31, 2021 and December 31, 2020.

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Accounting policy.

Other long-term investments include investments in unconsolidated entities, including certain limited partnerships and limited liability companies holding real estate, securities or loans.

Other long-term investments include investments in unconsolidated entities, including certain limited partnerships and limited liability companies holding real estate, securities or loans and healthcare related investments.

These investments are carried at cost plus the Company's ownership percentage of reporting income or loss, based on the financial statements of the underlying investments that are generally reported at fair value.

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Investment real estate as of December 31, 2021 and 2020 is expected to be held longer than one year and may include real estate acquired through the foreclosure of commercial mortgage loans.

Additionally, statutory and other restricted deposits, healthcare related investment partnerships and foreign currency swaps carried at fair value are reported in the table below as Other.

See discussion below for information on the Company’s accounting policies for derivative financial instruments.

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

Other long-term investments and related commitments are diversified by issuer, property type and geographic regions.

A majority of these investments are unconsolidated variable entities, see Note 13 for additional information.

These investments are primarily unconsolidated variable interest entities, see Note 13 for additional information.

The following table provides unfunded commitment and carrying value information for these investments.

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Cash equivalents consist of short-term investments with maturities of three months or less from the time of purchase and are carried at cost that approximates fair value.

Short-term investments and cash equivalents included the following types of issuers.

The increase since prior year end is substantially attributable to proceeds received on December 31, 2020 from the U.S.

Group Disability and Life business divestiture, see Note 5 for further information.

(In millions) December 31, 2020 December 31, 2019

Corporate securities $ 2,669 $ 1,985

Federal government securities $ 158 $ 472

Foreign government securities $ 90 $ 65

Money market funds $ 5,134 $ 631

Derivative Financial Instruments

The Company uses derivative financial instruments to manage the characteristics of investment assets (such as duration, yield, currency and liquidity) to meet the varying demands of the related insurance and contract holder liabilities.

The Company also uses derivative financial instruments to hedge the risk of changes in the net assets of certain of its foreign subsidiaries due to changes in foreign currency exchange rates.

The Company also uses derivative financial instruments to hedge the risk of changes in the net assets of certain of its foreign subsidiaries due to changes in foreign currency exchange rates and to hedge the interest rate risk of certain long-term debt.

The Company has written and purchased GMIB reinsurance contracts in its run-off reinsurance business that are accounted for as freestanding derivatives as discussed in Note 10.

Derivatives in the Company’s separate accounts

are excluded from the following discussion because associated gains and losses generally accrue directly to separate account policyholders.

Derivative instruments used by the Company typically include foreign currency swap contracts and foreign currency forward contracts.

Foreign currency swap contracts periodically exchange cash flows between two currencies for principal and interest.

Foreign currency forward contracts require the Company to purchase a foreign currency in exchange for the functional currency of its operating unit at a future date.

The Company manages the credit risk of these derivative instruments by diversifying its portfolio among approved dealers of high credit quality and through routine monitoring of credit risk exposures.

Certain of the Company’s over-the-counter derivative instruments require either the Company or the counterparty to post collateral or demand immediate payment depending on the amount of the net liability position of the derivative instrument and predefined financial strength or credit rating thresholds.

These collateral posting requirements vary by counterparty.

The Company may incur a loss if dealers failed to perform under derivative contracts, however collateral has been posted by dealers to cover substantially all of the net fair values owed at December 31, 2020 and December 31, 2019.

The fair value of collateral posted by the Company was not significant as of December 31, 2020 or December 31, 2019.

Derivatives in the Company's separate accounts are excluded from the following discussion because associated gains and losses generally accrue directly to separate account policyholders.

Accounting policy.

Derivatives are recorded on our balance sheet at fair value and are classified as current or non-current according to their contractual maturities.

Derivatives are recorded on our Consolidated Balance Sheets at fair value and are classified as current or non-current according to their contractual maturities.

Further information on our policies for determining fair value are discussed in Note 12.

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Various qualitative or quantitative methods appropriate for each hedge are used to formally assess and document hedge effectiveness at inception and each period throughout the life of a hedge.

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

• Fair value hedges of the foreign exchange-related changes in fair values of certain foreign-denominated bonds :

Swap fair values are reported in Long-term investments or Other non-current liabilities.

Offsetting changes in fair values attributable to the foreign exchange risk of the swap contracts and the hedged bonds are reported in Realized investment gains and losses.

The portion of the swap contracts' changes in fair value excluded from the assessment of hedge effectiveness is recorded in Other comprehensive income and recognized in Net investment income as swap coupon payments are accrued, offsetting the foreign-denominated coupons received on the designated bonds.

Net cash flows are reported in Operating activities, while exchanges of notional principal amounts are reported in Investing activities.

• Fair value hedges of the interest rate exposure on the Company's long-term debt:

Using fair value hedge accounting, the fair values of the swap contracts are reported in Other assets or Other liabilities.

The critical terms of these swaps match those of the long-term debt being hedged.

As a result, the carrying value of the hedged debt is adjusted to reflect changes in its fair value driven by the Secured Overnight Financing Rate ("SOFR").

The effects of those adjustments on interest expense are offset by the effects of corresponding changes in the swaps' fair value.

The net impact from the hedge reported in Interest expense and other reflects interest expense on the hedged debt at the variable interest rate.

Cash flows relating to these contracts are reported in Operating activities.

• Net investment hedges of certain foreign subsidiaries that conduct their business principally in currencies other than the U.S.

The fair values of the foreign currency swap and forward contracts are reported in Other assets or Other liabilities.

The changes in fair values of these instruments are reported in Other comprehensive income, specifically in translation of foreign currencies.

The portion of the change in fair values relating to foreign exchange spot rates will be recognized in earnings upon deconsolidation of the hedged foreign subsidiaries.

The remaining changes in fair value of these instruments are

excluded from our effectiveness assessment and recognized in Interest expense and other over the term of the instrument.

Cash flows relating to these contracts are reported in Investing activities.

• Economic hedges for derivatives not designated as accounting hedges :

Fair values of forward contracts are reported in Current investments or Accrued expenses and other liabilities.

The changes in fair values are reported in Realized investment gains and losses.

Cash flows relating to these contracts are reported in Investing activities.

The gross fair values of our derivative financial instruments are presented in Note 12.

As of December 31, 2021 and December 31, 2020, the effects of derivative financial instruments used in these individual hedging strategies were not material to the Consolidated Financial Statements, including gains or losses reclassified from Accumulated other comprehensive income into Shareholders' net income, amounts excluded from the assessment of hedge effectiveness and fair values of assets posted or held as collateral supporting the fair values of these derivative financial instruments.

The following table summarizes the types and notional quantity of derivative instruments held by the Company:

As of December 31, 2020 and December 31, 2019, the effects of these individual hedging strategies were not material to the Consolidated Financial Statements, including gains or losses reclassified from accumulated other comprehensive income into shareholders' net income, as well as amounts excluded from the assessment of hedge effectiveness.

Notional Value as of

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The notional value of these derivatives matches the amortized cost of the hedged bonds.

A majority of these instruments are denominated in Euro, with the remaining instruments denominated in British Pound Sterling and Australian Dollars.

Foreign currency swap contracts

$ 1,081 $ 925

Fair value hedge:

To convert a portion of the interest rate exposure on the Company's long-term debt from fixed to variable rates.

This more closely aligns the Company's interest expense with the interest income received on its cash equivalent and short-term investment balances.

The variable rates are benchmarked to SOFR.

Interest rate swap contracts $ 750 $ —

Net investment hedge:

To reduce the risk of changes in net assets due to changes in foreign currency spot exchange rates for certain foreign subsidiaries that conduct their business principally in Euros, Korean Won and Taiwan Dollar.

To reduce the risk of changes in net assets due to changes in foreign currency spot exchange rates for certain foreign subsidiaries that conduct their business principally in currencies other than the U.S.

The notional value of hedging instruments matches the hedged amount of subsidiary net assets.

Foreign currency swap contracts are denominated in Euros, while foreign currency forward contracts are primarily denominated in Korean Won, with the remaining instruments denominated in New Zealand Dollar and Taiwan Dollar.

Foreign currency swap contracts

Foreign currency forward contracts

$ 1,380 $ 636

Economic hedge:

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Foreign currency forward contracts

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

• Fair value hedges of the foreign exchange-related changes in fair values of certain foreign-denominated bonds :

Swap fair values are reported in Long-term investments or Other non-current liabilities.

Changes in fair values attributable to foreign exchange risk of the swap contracts and the hedged bonds are reported in Realized investment gains and losses.

The portion of the swap contracts’ changes in fair value excluded from the assessment of hedge effectiveness is recorded in Other comprehensive income and recognized in Net investment income as swap coupon payments are accrued, offsetting the foreign-denominated coupons received on the designated bonds.

Net cash flows are reported in Operating activities, while exchanges of notional principal amounts are reported in Investing activities.

• Net investment hedges of certain foreign subsidiaries that conduct their business principally in currencies other than the U.S.

The fair values of the foreign currency swap and forward contracts are reported in Other assets or Other liabilities.

The changes in fair values of these instruments are reported in Other comprehensive income, specifically in translation of foreign currencies.

The portion of the change in fair values relating to foreign exchange spot rates will be recognized in earnings upon deconsolidation of the hedged foreign subsidiaries.

The remaining changes in fair value of these instruments are excluded from our effectiveness assessment and recognized in interest expense when coupon payments are accrued or ratably

over the term of the instrument.

The notional value of hedging instruments matches the hedged amount of subsidiary net assets.

Cash flows relating to these contracts are reported in Investing activities.

• Economic hedges for derivatives not designated as accounting hedges :

Fair values of forward contracts are reported in Current investments or Accrued expenses and other liabilities.

The changes in fair values are reported in Realized investment gains and losses.

Cash flows relating to these contracts are reported in Investing activities.

Concentration of Risk

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Net investment income $ 1,549 $ 1,244 $ 1,390

Investment income for the year ended December 31, 2021 increased versus the year ended December 31, 2020 due to strong performance of assets underlying our limited partnership investments reported in Other long-term investments.

The overall increase in investment income was partially offset by lower investment income from our debt securities as a result of lower invested asset levels following the divestiture of Cigna's U.S.

Group Disability and Life business on December 31, 2020.

The Company received income distributions of $ 568 million in 2021, $ 227 million in 2020 and $ 202 million in 2019 from its limited partnership investments reported in Other long-term investments.

Realized Investment Gains and Losses

Accounting policy.

Realized investment gains and losses are based on specifically identified assets and result from sales, investment asset write-downs, change in the fair value of certain derivatives and equity securities and changes in valuation reserves on commercial mortgage loans.

Commencing January 1, 2020, realized gains and losses also include credit loss expense resulting from the impact of changes in the allowances for credit losses on debt securities and commercial mortgage loan investments under ASU 2016-13.

Gains and losses relating to the transfers of investment assets associated with the divestiture of the U.S.

Group Disability and Life business are excluded from the activity below, see Note 5 for further information.

The following realized gains and losses on investments exclude amounts required to adjust future policy benefits for the run-off settlement annuity business (consistent with accounting for a premium deficiency, see Note 9 for further information), as well as realized gains and losses attributed to the Company’s separate accounts because those gains and losses generally accrue directly to separate account policyholders.

The following realized gains and losses on investments exclude amounts required to adjust future policy benefits for the run-off settlement annuity business (consistent with accounting for a premium deficiency), as well as realized gains and losses attributed to the Company's separate accounts because those gains and losses generally accrue directly to separate account policyholders:

(In millions) 2021 2020 2019

Net realized investment gains (losses), excluding credit loss expense and asset write-downs $ 194 $ 186 $ 189

Credit loss (expense) recoveries on invested assets ( 27 ) — —

Credit loss (expense) recoveries 2 ( 27 ) —

Other investment asset write-downs — ( 10 ) ( 12 )

Net realized investment gains (losses), before income taxes $ 196 $ 149 $ 177

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

Net realized investment losses, excluding credit loss expense and asset write-downs in 2018 represented mark-to-market losses on equity securities and

derivatives, partially offset by gains on the sales of real estate partnerships.

Credit loss (expense) recoveries on invested assets for the year ended December 31, 2020 reflects credit losses incurred primarily on debt securities due to uncertainty around issuers in certain industries that are particularly impacted by the global COVID-19 pandemic.

Realized gains and losses on equity securities still held at December 31, 2020, 2019 and 2018 were not material.

The following table presents sales information for available-for-sale debt securities.

Gross gains on sales and gross losses on sales exclude amounts required to adjust future policy benefits for the run-off settlement annuity business.

(In millions) 2020 2019 2018

Proceeds from sales $ 2,186 $ 3,077 $ 2,625

Gross gains on sales $ 89 $ 72 $ 28

Gross losses on sales $ ( 23 ) $ ( 19 ) $ ( 47 )

Net realized investment gains, excluding credit loss expense and asset write-downs for the year ended December 31, 2021 was primarily driven by mark-to-market gains on equity securities and gains on the sales of real estate partnerships, partially offset by mark-to-market losses on derivatives.

This activity for the year ended December 31, 2020 was primarily driven by mark-to-market on equity securities and sales of debt securities, while activity for the year ended December 31, 2019 was primarily driven by gains on the sales of real estate partnerships and debt securities.

Credit loss (expense) recoveries on invested assets reflect credit losses incurred on debt securities primarily relating to issuers in certain industries that have been impacted by the global COVID-19 pandemic.

Note 12 – Fair Value Measurements

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An asset's or a liability's classification is based on the lowest level of input that is significant to its measurement.

For example, a financial asset or liability carried at fair value would be classified in Level 3 if unobservable inputs were significant to the instrument’s fair value, even though the measurement may be derived using inputs that are both observable (Levels 1 and 2) and unobservable (Level 3).

For example, a financial asset or liability carried at fair value would be classified in Level 3 if unobservable inputs were significant to the instrument's

fair value, even though the measurement may be derived using inputs that are both observable (Levels 1 and 2) and unobservable (Level 3).

The Company estimates fair values using prices from third parties or internal pricing methods.

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The following table provides information as of December 31, 2021 and December 31, 2020 about the Company's financial assets and liabilities carried at fair value.

As a result of the U.S.

Group Disability and Life business divestiture, debt securities with a fair value of $ 7.8 billion, primarily classified in Level 2 of the fair value hierarchy, were transferred to New York Life on December 31, 2020.

See Note 5 for further information.

Separate account assets are also recorded at fair value on the Company's Consolidated Balance Sheets and are reported separately in the Separate Accounts section below as gains and losses related to these assets generally accrue directly to policyholders.

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— — 143 72 — — 143 72

Real estate funds priced at NAV as a practical expedient (2)

Financial liabilities at fair value

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

(2) As a practical expedient, certain real estate funds are carried at fair value based on the Company’s ownership share of the equity of the investee (Net Asset Value (“NAV”)) including changes in the fair value of its underlying investments.

The Company has $ 50 million in unfunded commitments in these funds as of December 31, 2020.

(3) Derivative assets above include $ 34 million that are presented in the Short-term investments category in Note 11.

See Note 11 for more information on our accounting for Derivative Financial Instruments.

(2) Derivative assets above include $ 34 million as of December 31, 2020 that are presented in the Short-term investments category disclosed in Note 11.

See Note 11 for more information on our Derivative Financial Instruments.

Level 1 Financial Assets

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Debt and equity securities .

Approximately 94 % of the Company’s investments in debt and equity securities are classified in Level 2 including most public and private corporate debt and hybrid equity securities, federal agency and municipal bonds, non-government mortgage-backed securities and preferred stocks.

Third-party pricing services and internal methods often use recent trades of securities

with similar features and characteristics because many debt securities do not trade daily.

Approximately 94 % of the Company's investments in debt and equity securities are classified in Level 2 including most public and private corporate debt and equity securities, federal agency and municipal bonds, non-government mortgage-backed securities and preferred stocks.

Third-party pricing services and internal methods often use recent trades of securities with similar features and characteristics because many debt securities do not trade daily.

Pricing models are used to determine these prices when recent trades are not available.

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Credit risk related to the counterparty and the Company is considered when estimating the fair values of these derivatives.

However, the Company is largely protected by collateral arrangements with counterparties and determined that no adjustments for credit risk were required as of December 31, 2020 or 2019.

However, the Company is largely protected by collateral arrangements with counterparties and determined that no adjustments for credit risk were required as of December 31, 2021 or December 31, 2020.

The nature and use of these derivative financial instruments are described in Note 11.

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Quantitative Information about Unobservable Inputs

The following table summarizes the fair value and significant unobservable inputs used in pricing the following debt securities that were developed directly by the Company as of December 31, 2020 and 2019.

The range and weighted average basis point (“bps”) amounts for liquidity and credit spreads (adjustment to discount rates) reflect the Company’s best estimates of the unobservable adjustments a market participant would make to calculate these fair values.

These liquidity and credit spreads have increased over the reported periods, resulting from continued uncertainty over the economic impacts related to COVID-19.

Corporate and government debt securities.

The significant unobservable input used to value the following corporate and government debt securities is an adjustment for liquidity.

The significant unobservable input used to value our corporate and government debt securities and mortgage and other asset-backed securities is an adjustment for liquidity.

This adjustment is needed to reflect current market conditions and issuer circumstances when there is limited trading activity for the security.

Mortgage and other asset-backed securities.

The significant unobservable inputs used to value the following mortgage and other asset-backed securities are liquidity and weighting of credit spreads.

An adjustment for liquidity is made as of the measurement date that considers current market conditions, issuer circumstances and complexity of the security structure when there is limited trading activity for the security.

An adjustment to weight credit spreads is needed to value a more complex bond structure with multiple underlying collateral and no standard market valuation technique.

The weighting of credit spreads is primarily based on the underlying collateral’s characteristics and their proportional cash flows supporting the bond obligations.

The following table summarizes the fair value and significant unobservable inputs that were developed directly by the Company and used in pricing these debt securities as of December 31, 2021 and December 31, 2020.

The range and weighted average basis point ("bps") amounts for liquidity reflect the Company's best estimates of the unobservable adjustments a market participant would make to calculate these fair values.

Fair Value as of Unobservable Adjustment Range (Weighted Average by Quantity) as of

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bps 60 - 380 ( 80 )

Weighting of credit spreads 300 - 670 ( 480 )

bps 240 - 460 ( 330 )

Securities not priced by the Company (1)

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

Significant increases in liquidity or credit spreads would result in lower fair value measurements while decreases in these inputs would result in higher fair value measurements.

The unobservable inputs are generally not interrelated and a change in the assumption used for one unobservable input is not accompanied by a change in the other unobservable input.

A significant increase in liquidity spread adjustments would result in a lower fair value measurement, while a decrease would result in a higher fair value measurement.

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

The following tables summarize the changes in financial assets and financial liabilities classified in Level 3 for the years ended December 31, 2020 and 2019.

Gains and losses reported in these tables may include net changes in fair value that are attributable to both observable and unobservable inputs.

The following table summarizes the changes in financial assets and financial liabilities classified in Level 3 for the years ended December 31, 2021 and 2020.

Gains and losses reported in the table may include net changes in fair value that are attributable to both observable and unobservable inputs.

(In millions) 2021 2020

Balance at beginning of period $ 555 $ 410

Debt and Equity Securities

Beginning balance $ 854 $ 555

Total gains (losses) included in shareholders' net income ( 22 ) ( 7 )

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Purchases 138 107

Sales ( 36 ) ( 121 )

Settlements ( 119 ) ( 89 )

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Total transfers into/(out of) Level 3 ( 5 ) 414

Balance at December 31,

Ending balance $ 796 $ 854

Total gains (losses) included in Shareholders' net income attributable to instruments held at the reporting date $ ( 17 ) $ ( 17 )

Change in unrealized gains or losses included in other comprehensive income for assets held at the end of the reporting period $ ( 6 ) N/A

Change in unrealized gains or losses included in Other comprehensive income for assets held at the end of the reporting period $ ( 10 ) $ ( 6 )

(1) Amounts do not accrue to shareholders.

(2) Sales in 2020 include $ 108 million of Level 3 debt securities transferred to New York Life Insurance Company on December 31, 2020 as part of the U.S.

Group Disability and Life business divestiture.

See Note 5 for further details.

Total gains and losses included in Shareholders' net income in the tables above are reflected in the Consolidated Statements of Income as Net realized investment gains (losses) and Net investment income.

Gains and losses included in Other comprehensive income in the tables above are reflected in Net unrealized (depreciation) appreciation on securities and derivatives in the Consolidated Statements of Comprehensive Income.

Gains and losses included in Other comprehensive income in the tables above are reflected in Net unrealized appreciation (depreciation) on securities and derivatives in the Consolidated Statements of Comprehensive Income.

Transfers into or out of the Level 3 category occur when unobservable inputs, such as the Company's best estimate of what a market participant would use to determine a current transaction price, become more or less significant to the fair value measurement.

activity typically decreases during periods of economic uncertainty, and this decrease in activity reduces the availability of market observable data.

As a result, the level of unobservable judgement that must be applied to the pricing of certain instruments increases, and is typically observed through the widening of liquidity and credit spreads.

Transfers between Level 2 and Level 3 during 2020 and 2019 primarily reflected changes in liquidity and credit risk estimates for certain private placement issuers across several sectors.

Transfers into and out of Level 3 are higher in 2020 due to fluctuations in liquidity and credit spreads over the reported periods, resulting from continued uncertainty over the economic impacts related to COVID-19.

Market activity typically decreases during periods of economic uncertainty and this decrease in activity reduces the availability of market observable data.

As a result, the level of unobservable judgment that must be applied to the pricing of certain instruments increases and is typically observed through the widening of liquidity spreads .

Transfers between Level 2 and Level 3 during 2021 and 2020 primarily reflected changes in liquidity estimates for certain private placement issuers across several sectors.

Transfers into and out of Level 3 were higher in 2020 due to significant fluctuations in unobservable inputs experienced as a result of the uncertainty over the economic impacts related to COVID-19.

See discussion under Quantitative Information about Unobservable Inputs above for more information.

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Fees and charges earned for mortality risks, asset management or administrative services are reported in either Premiums or Fees and other revenues.

Investments that are measured using the practical expedient of NAV are excluded from the fair value hierarchy.

Fair values of separate account assets at December 31 were as follows:

Investments that are measured using the practical expedient of net asset value ("NAV") are excluded from the fair value hierarchy.

Fair values of Separate account assets at December 31, 2021 and December 31, 2020 were as follows:

(In millions) Quoted Prices in Active Markets for Identical Assets

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(Level 3) Total

2020 2019 2020 2019 2020 2019 2020 2019

December 31, 2021 December 31, 2020 December 31, 2021 December 31, 2020 December 31, 2021 December 31, 2020 December 31, 2021 December 31, 2020

Guaranteed separate accounts (See Note 22)

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Non-guaranteed separate accounts priced at NAV as a practical expedient (1)

Separate account assets of business classified as held for sale ( 16 )

Separate account assets of businesses classified as held for sale (2)

Separate account assets per Consolidated Balance Sheets $ 8,337 $ 9,086

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

(1) Non-guaranteed separate accounts included $ 4.5 billion as of December 31, 2021 and $ 4.2 billion as of December 31, 2020 in assets supporting the Company's pension plans, including $ 0.3 billion classified in Level 3 as of December 31, 2021 and December 31, 2020.

(2) Investments related to the international life, accident and supplemental benefits businesses that are held for sale.

See Note 5 to the Consolidated Financial Statements for additional information.

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

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Separate account assets classified in Level 3 primarily support Cigna's pension plans and include certain newly-issued, privately-placed, complex or illiquid securities that are priced using methods discussed above, as well as commercial mortgage loans.

Activity, including transfers into and out of Level 3, was not material in 2020 or 2019.

Activity, including transfers into and out of Level 3, was not material for the year ended December 31, 2021 or 2020.

Separate account investments in securities partnerships, real estate and hedge funds are generally valued based on the separate account's ownership share of the equity of the investee (NAV as a practical expedient) including changes in the fair values of its underlying investments .

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Assets and Liabilities Measured at Fair Value under Certain Conditions

Some financial assets and liabilities are not carried at fair value each reporting period, but may be measured using fair value only under certain conditions such as when investments become impaired, including investment real estate and commercial mortgage loans and certain equity securities with no readily determinable fair value.

For 2020 and 2019, there were no such impairments.

Equity securities with no readily determinable fair value are also measured at fair value when there are observable price changes from orderly transactions with the same issuer.

There were $ 75 million in 2020 and $ 22 million in 2019 of realized investment gains relating to price changes for equity securities with no readily determinable fair value.

Carrying values represented less than 1 % of total investments as of both 2020 and 2019.

Some financial assets and liabilities are not carried at fair value, such as commercial mortgage loans that are carried at unpaid principal, investment real estate that is carried at depreciated cost and equity securities with no readily determinable fair value when there are no observable market transactions.

However, these financial assets and liabilities may be measured using fair value under certain conditions, such as when investments become impaired and are written down to their fair value, or when there are observable price changes from orderly market transactions of equity securities that otherwise had no readily determinable fair value.

For the years ended December 31, 2021 and 2020, no impairments were recognized requiring these assets to be measured at fair value.

Realized investment gains and losses from these observable price changes for the years ended December 31, 2021 and December 31, 2020 were not material.

Fair Value Disclosures for Financial Instruments Not Carried at Fair Value

The following table includes the Company’s financial instruments not recorded at fair value that are subject to fair value disclosure requirements at December 31, 2020 and 2019.

The following table includes the Company's financial instruments not recorded at fair value that are subject to fair value disclosure requirements at December 31, 2021 and December 31, 2020.

In addition to universal life products and finance leases, financial instruments that are carried in the Company's Consolidated Financial Statements at amounts that approximate fair value are excluded from the following table:

December 31, 2020 December 31, 2019

(In millions) Classification in Fair Value Hierarchy Fair Value Carrying Value Fair Value Carrying Value

Classification in Fair Value Hierarchy December 31, 2021 December 31, 2020

(In millions) Fair Value Carrying Value Fair Value Carrying Value

Commercial mortgage loans Level 3 $ 1,598 $ 1,566 $ 1,456 $ 1,419

Long-term debt, including current maturities, excluding finance leases Level 2 $ 35,621 $ 31,593 $ 37,676 $ 31,835

Off-balance sheet financial instruments include commitments to purchase debt securities or fund commercial mortgage loans at fixed rates of interest.

The fair values of off-balance sheet financial instruments were not material as of December 31, 2020 and 2019.

Note 13 – Variable Interest Entities

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

The Company determined it was not a primary beneficiary in any material variable interest entities as of December 31, 2020 or December 31, 2019.

The Company determined it was no t a primary beneficiary in any material variable interest entity as of December 31, 2021 or December 31, 2020.

The Company's involvement in variable interest entities for which it is not the primary beneficiary is described below.

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General partners unaffiliated with the Company control decisions that most significantly impact the partnership's operations and the limited partners do not have substantive kick-out or participating rights.

The Company’s investments in approximately 150 limited partnerships that have a carrying value of $ 2.1 billion as of December 31, 2020 and are reported in Long-term investments.

The Company has invested in approximately 180 limited partnerships that have a carrying value of $ 2.6 billion as of December 31, 2021 reported in Other long-term investments.

We have commitments to contribute an additional $ 2.2 billion to these entities.

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Our noncontrolling interest in each of these limited partnerships is generally less than 15 % of the partnership ownership interests.

See Note 11 for further information on the Company's accounting policy for long-term investments.

Other asset-backed and corporate securities.

In the normal course of its investing activities, the Company also makes passive investments in certain asset-backed and corporate securities that are issued by variable interest entities whose sponsors or issuers are unaffiliated with the Company.

These investments provide the Company fixed-rate cash flows and are accounted for as debt securities.

As of December 31, 2020 the carrying value of these investments is $ 0.5 billion, which represents the Company's maximum exposure related to these instruments.

Our combined ownership interests are insignificant relative to the total principal amounts issued by these entities.

See Note 11 for further information on the Company's accounting policy for debt securities.

The Company is involved in other types of variable interest entities, including real estate joint ventures that develop properties for residential and commercial use, independent physician associations (IPAs) that provide care management services and international healthcare joint ventures.

The carrying values and maximum exposures for each of these types of unconsolidated variable interest entities was not material as of December 31, 2020.

See Note 11 for further information on the Company's accounting policy for Other long-term investments.

Other variable interest entities.

The Company is involved in other types of variable interest entities, including certain asset-backed and corporate securities, real estate joint ventures that develop properties for residential and commercial use, independent physician associations (IPAs) that provide care management services and international healthcare joint ventures.

The Company's maximum exposure to loss is $ 0.6 billion from certain asset-backed and corporate securities and $ 0.4 billion from real estate joint ventures, which represents the sum of our carrying value and the additional funding commitments for these entities.

The carrying values and maximum exposures for remaining unconsolidated variable interest entities was not material as of December 31, 2021.

The Company has not provided, and does not intend to provide, financial support to any of the variable interest entities in excess of its maximum exposure.

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AOCI includes the Company's share from unconsolidated entities reported on the equity method.

Generally, tax effects in AOCI are established at the currently enacted tax rate and reclassified to net income in the same period that the related pre-tax AOCI reclassifications are recognized.

Generally, tax effects in AOCI are established at the currently enacted tax rate and reclassified to Shareholders' net income in the same period that the related pre-tax AOCI reclassifications are recognized.

Changes in the components of AOCI were as follows:

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Beginning balance $ 900 $ 975 $ 18

Reclassification adjustment to retained earnings related to U.S.

tax reform legislation — — 65

Reclassification adjustment to retained earnings related to new financial instruments guidance — — ( 4 )

Reclassification adjustment from retained earnings related to new hedging guidance — — ( 6 )

Adjusted beginning balance 975 18 383

Appreciation (depreciation) on securities and derivatives ( 230 ) 776 1,266

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Net appreciation (depreciation) on securities and derivatives ( 199 ) 626 996

Reclassification adjustment for (gains) included in shareholders' net income ((gain) loss on sale of business) ( 862 ) — —

Reclassification adjustment for (gains) losses included in Shareholders' net income ((Gain) loss on sale of business) — ( 862 ) —

Reclassification adjustment for (gains) losses included in Shareholders' net income (Net realized investment (gains) losses) ( 21 ) ( 26 ) ( 49 )

Reclassification adjustment for tax expense (benefit) included in shareholders’ net income 187 10 ( 13 )

Net (gains) losses reclassified from AOCI to net income ( 701 ) ( 39 ) 47

Other comprehensive (loss) income, net of tax ( 75 ) 957 ( 365 )

Reclassification adjustment for tax expense included in Shareholders' net income 5 187 10

Net (gains) losses reclassified from AOCI to Shareholders' net income ( 16 ) ( 701 ) ( 39 )

Other comprehensive income (loss), net of tax ( 215 ) ( 75 ) 957

Ending balance $ 685 $ 900 $ 975

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Beginning balance $ ( 15 ) $ ( 275 ) $ ( 221 )

Reclassification adjustment to retained earnings related to U.S.

tax reform legislation — — ( 4 )

Adjusted beginning balance ( 275 ) ( 221 ) ( 69 )

Translation of foreign currencies ( 213 ) 232 ( 57 )

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Net translation of foreign currencies ( 232 ) 244 ( 59 )

Reclassification adjustment for losses included in shareholders' net income ((gain) loss on sale of business) 11 — —

Reclassification adjustment for tax expense (benefit) included in shareholders’ net income ( 3 ) — —

Net translation losses reclassified from AOCI to net income 8 — —

Reclassification adjustment for (gains) losses included in Net income ((Gain) loss on sale of business) — 11 —

Reclassification adjustment for tax expense (benefit) included in Net income — ( 3 ) —

Net translation (gains) losses reclassified from AOCI to Net income — 8 —

Other comprehensive income (loss), net of tax ( 232 ) 252 ( 59 )

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Beginning balance $ ( 1,746 ) $ ( 1,641 ) $ ( 1,508 )

Reclassification adjustment to retained earnings related to U.S.

tax reform legislation — — ( 290 )

Adjusted beginning balance ( 1,641 ) ( 1,508 ) ( 1,635 )

Reclassification adjustment for amortization of net prior actuarial losses and prior service costs (Interest expense and other) 85 70 62

Reclassification adjustment for settlement (Interest expense and other) 4 — 10

Reclassification adjustment for tax expense (benefit) included in shareholders’ net income ( 17 ) ( 15 ) ( 15 )

Net adjustments reclassified from AOCI to net income 53 57 54

Reclassification adjustment for tax (benefit) included in Shareholders' net income ( 21 ) ( 17 ) ( 15 )

Net adjustments reclassified from AOCI to Shareholders' net income 68 53 57

Valuation update 448 ( 206 ) ( 249 )

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Net change due to valuation update 342 ( 158 ) ( 190 )

Other comprehensive (loss) income, net of tax ( 105 ) ( 133 ) 127

Other comprehensive income (loss), net of tax 410 ( 105 ) ( 133 )

Ending balance $ ( 1,336 ) $ ( 1,746 ) $ ( 1,641 )

Note 15 – Organizational Efficiency Plan

During the fourth quarter of 2021, we approved a strategic plan to further leverage the Company's ongoing growth to drive operational efficiency through enhancements to organizational structure and increased use of automation and shared services.

As a result we recognized a charge in Selling, general and administrative expenses of $ 168 million, pre-tax ($ 119 million, after-tax) in the fourth quarter of 2021.

This charge included $ 59 million of one-time expenses related to abandonment of leased assets and impairment of property and equipment as well as $ 109 million of accrued expenses primarily for severance costs related to headcount reductions.

We expect most of the severance to be paid by 2023.

The following table summarizes a rollforward of the accrued liability recorded in "Accrued expenses and other liabilities":

(In millions)

Fourth quarter 2021 charge $ 109

2021 payments ( 6 )

Balance, December 31, 2021 $ 103

Note 16 – Pension

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These changes are called net unrecognized actuarial gains (losses).

Under the corridor method, net unrecognized actuarial gains (losses) are initially recorded in accumulated other comprehensive income.

Under the corridor method, net unrecognized actuarial gains (losses) are initially recorded in Accumulated other comprehensive loss.

When the unrecognized gain (loss) exceeds 10% of the benefit obligation, that excess is amortized to expense over the expected remaining lives of plan participants.

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Interest cost 132 168

Litigation settlement — 142

Actuarial losses, net (1)

Actuarial (gains) losses, net (1)

Benefits paid from plan assets ( 304 ) ( 285 )

Benefits paid – other

( 18 ) ( 15 )

Benefit obligation, December 31 5,223 5,600

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Other non-current liabilities $ ( 363 ) $ ( 962 )

(1) 2021 gain reflects an increase in the discount rate;

2020 loss reflects a decrease in the discount rate, partially offset by a favorable change in the mortality assumption.

2019 loss reflects a decrease in the discount rate and an unfavorable change in the mortality assumption.

We fund our qualified pension plans at least at the minimum amount required by the Employee Retirement Income Security Act of 1974 and the Pension Protection Act of 2006.

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Prior actuarial losses, net 78 78 59

Prior service cost — — —

Litigation settlement – plan amendment — — 142

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Net (benefit) cost $ ( 53 ) $ ( 12 ) $ 162

Old Cigna and the Cigna Pension Plan (the “Plan”) were defendants in a class action lawsuit related to the Plan’s conversion of certain employees from an annuity to a cash balance benefit in 1997.

In the fourth quarter of 2018, the Plan was ordered to pay $ 32 million representing the attorney fee portion of the settlement.

This payment was recognized as an expense in 2018.

The Cigna Pension Plan (the "Plan"), together with its Plan Sponsor, was a defendant in a class action lawsuit related to the Plan's conversion of certain employees from an annuity to a cash balance benefit in 1997.

In the first quarter of 2019, the Plan implemented the court order resulting in an increase to the pension liability of $ 142 million.

The Company reversed a litigation reserve for the expenses recognized for this matter in both 2019 and 2018 aggregating to the same amount resulting in no impact on net income.

The Company reversed a litigation reserve for the expenses recognized for this matter in 2019 aggregating to the same amount resulting in no impact on net income.

Assumptions Used for Pension

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A substantial portion of domestic equity securities within pension assets are classified as Level 1, while international equity funds within pension assets are predominantly classified in Level 2 using daily net asset value.

Securities partnerships, real estate and hedge funds are valued using NAV as a practical expedient and are excluded from the fair value hierarchy.

Securities partnerships, real estate and hedge funds are valued using net asset value as a practical expedient and are excluded from the fair value hierarchy.

See Note 12 for additional disclosures related to these assets invested in the separate accounts of the Company's subsidiaries.

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

Prior to the acquisition of Express Scripts, the Company issued shares from Treasury stock for these awards.

Following the acquisition, original issue shares were used.

Awards of Express Scripts options and restricted stock units were rolled over to Cigna stock options and restricted stock units in connection with the Express Scripts acquisition on December 20, 2018.

Information in this footnote includes the effect of the Express Scripts rollover awards unless otherwise indicated.

The Company issues original issue shares for these awards.

The Company records compensation expense for stock and option awards over their vesting periods primarily based on the estimated fair value at the grant date.

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Accounting policy.

The Company awards options to purchase Cigna common stock at the market price of the stock on the grant date except for rollover option awards issued to Express Scripts employees in connection with the acquisition.

The Company awards options to purchase Cigna common stock at the market price of the stock on the grant date.

Options vest over periods ranging from one year to three years and expire no later than 10 years from grant date.

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Black-Scholes option-pricing model assumptions and the resulting fair value of options are presented in the following table:

The average fair value of options and the expected option life exclude the rollover options granted to Express Scripts employees in connection with the acquisition.

2021 2020 2019

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Weighted average fair value of options $ 44.84 $ 52.42 $ 53.10

The dividend yield reflects expected future dividends.

In 2021, the Company increased its dividend and expects to continue dividends at least at that level for the foreseeable future.

The expected volatility reflects the past daily stock price volatility of Cigna stock.

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The Company awards restricted stock (grants and units) to the Company's employees that vest over periods ranging from one to three years .

Recipients of restricted stock awards accumulate dividends during the vesting period, but forfeit their awards and accumulated dividends if their employment terminates before the vesting date.

Recipients of restricted stock awards accumulate dividends during the vesting period, but generally forfeit their awards and accumulated dividends if their employment terminates before the vesting date.

Accounting policy.

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Outstanding - December 31 860 $ 197.07 808 $ 190.02 818 $ 177.94

The weighted average fair value per share of SPSs for expense purposes, including the Monte Carlo factor, at the award date for the years ended December 31, 2021, 2020 and 2019 was $ 239.57 , $ 206.86 and $ 192.11 , respectively.

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

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The resulting goodwill is assigned to those reporting units expected to realize cash flows from the acquisition, based on those reporting units' relative fair values.

As a result, goodwill is primarily reported in the Evernorth segment ($ 33.8 billion), the U.S.

Medical segment ($ 10.4 billion) and, to a lesser extent, the International Markets segment ($ 0.4 billion).

As a result, goodwill is primarily reported in the Evernorth segment ($ 35.1 billion) and the Cigna Healthcare segment ($ 10.7 billion).

The Company's reporting units are aligned with its operating segments as described in Note 1.

The Company conducts its annual quantitative evaluation for goodwill impairment during the third quarter at the reporting unit level and writes it down through shareholders' net income if impaired.

On a quarterly basis, the Company performs a qualitative impairment assessment to determine if events or changes in circumstances indicate that it is more likely than not that the carrying value of a reporting unit exceeds its estimated fair value.

Fair value of a reporting unit is generally estimated based on either a market approach or a discounted cash flow analysis using assumptions that the Company believes a hypothetical market participant would use to determine a current transaction price.

The significant assumptions and estimates used in determining fair value include the discount rate and future cash flows.

Fair value of a reporting unit is generally estimated based on both a discounted cash flow analysis and a market approach using assumptions that the Company believes a hypothetical market participant would use to determine a current transaction price.

The significant assumptions and estimates used in determining fair value primarily include the discount rate and future cash flows.

Projections of future cash flows for each reporting unit are consistent with our annual planning process for revenues, pharmacy costs, benefits expenses, operating expenses, taxes, capital levels and long-term growth rates.

Projections of future cash flows differ by reporting unit and are consistent with our strategic projection processes.

Future cash flows for Evernorth are primarily driven by the forecasted gross margins of the business, as well as operating expenses and long-term growth rates.

Future cash flows for our other reporting units are primarily driven by forecasted revenues, benefit expenses, operating expenses and long-term growth rates.

Goodwill activity.

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Impact of foreign currency translation ( 31 ) 17

Balance at December 31, $ 44,648 $ 44,602

Goodwill classified as Assets of businesses held for sale ( 234 )

Goodwill per Consolidated Balance Sheets at December 31, $ 45,811 $ 44,648

Other Intangibles

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Other intangible assets 38,844 4,620 34,224

Value of business acquired (reported in Deferred policy acquisition costs) 670 152 518

Total $ 38,977 3,280 35,697

Value of business acquired ("VOBA" reported in Deferred policy acquisition costs) 646 171 475

$ 39,490 4,791 34,699

Customer relationships $ 29,432 3,024 26,408

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Total $ 38,977 3,280 35,697

(1) Includes $ 386 million of VOBA and $ 122 million of Other intangible assets classified as Assets of businesses held for sale.

The Company has indefinite-lived intangible assets totaling $ 8.5 billion at December 31, 2021 and $ 8.5 billion at December 31, 2020, largely consisting of trade names and licenses.

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Other property and equipment 2,839 1,653 1,186

Total property and equipment $ 9,780 $ 5,575 $ 4,205

Total 10,708 6,713 3,995

Property and equipment classified as Assets of businesses held for sale ( 424 ) ( 121 ) ( 303 )

Total Property and equipment per Consolidated Balance Sheets $ 10,284 $ 6,592 $ 3,692

Internal-use software $ 7,061 $ 4,048 $ 3,013

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Total property and equipment $ 9,780 $ 5,575 $ 4,205

Property and equipment classified as Assets held for sale ( 226 ) ( 131 ) ( 95 )

Total property and equipment per Consolidated Balance Sheet $ 8,921 $ 4,504 $ 4,417

Components of depreciation and amortization.

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Note 19 – Leases

Cigna adopted ASU 2016-2, Leases, as of January 1, 2019.

As permitted by the standard, the Company did not restate its Consolidated Financial Statements for periods prior to the adoption date and the required disclosures presented below are prospective from the date of adoption.

The Company's leases are primarily for office space and certain computer and other equipment and have terms of up to 35 years.

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The Company determines if an arrangement is a lease and its lease classification (operating or finance) at inception.

Beginning in the first quarter of 2019, both operating and finance leases result in (1) a right-of-use (“ROU”) asset that represents our right to use the underlying asset for the lease term and (2) a lease liability that represents our obligation to make lease payments arising from the lease.

Both operating and finance leases result in (1) a right-of-use ("ROU") asset that represents our right to use the underlying asset for the lease term and (2) a lease liability that represents our obligation to make lease payments arising from the lease.

ROU assets and lease liabilities are reflected in the following lines in the Company's Consolidated Balance Sheet:

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The Company has lease agreements with lease and non-lease components that are accounted for as a single lease component.

Operating lease ROU assets are amortized on a straight-line basis over the lease term, which is representative of the pattern in which benefit is expected to be derived from the right to use the underlying asset.

Variable lease payments are expensed as incurred and represent amounts that are neither fixed in nature, such as maintenance and other services provided by the lessor, nor tied to an index or rate.

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Total lease cost $ 233 $ 269 $ 269

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

In addition, the Company recognized $ 33 million of one-time selling, general and administrative expenses related to abandonment of leased assets associated with the Organizational Efficiency Plan.

See Note 15 for further information.

Supplemental cash flow information related to leases was as follows:

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Finance leases $ 20 $ 9 $ 68

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

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

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Total finance lease liabilities $ 51 $ 54

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

(1) Operating leases include Assets of $ 27 million and Liabilities of $ 28 million in businesses held for sale.

As of December 31, 2021, the weighted average remaining lease term was 5 years for operating leases and 4 years for finance leases, and the weighted average discount rate was 2.81 % for operating leases and 3.13 % for finance leases.

Maturities of lease liabilities as of December 31, 2021 were as follows:

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imputed interest 46 4

Total $ 643 $ 54

(1) Operating leases include Liabilities of $ 28 million in businesses held for sale.

Note 20 – Shareholders' Equity and Dividend Restrictions

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Restricted GAAP net assets of Cigna Corporation's subsidiaries (5)

(1) Excludes amounts associated with foreign operated equity method joint ventures.

(2) Includes approximately $ 1 billion associated with businesses held for sale.

(3) Includes approximately $ 40 million associated with businesses held for sale.

(4) Includes approximately $ 200 million associated with businesses held for sale.

(5) Includes approximately $ 3.0 billion associated with businesses held for sale.

Permitted practices used by the Company's insurance subsidiaries in 2021 that differed from prescribed regulatory accounting had an immaterial impact on statutory surplus.

Undistributed earnings for equity method subsidiaries are $ 1.1 billion as of December 31, 2021.

Note 21 – Income Taxes

Accounting policy.

Deferred income taxes are reflected in the Consolidated Balance Sheets for differences between the financial and income tax reporting bases of the Company’s underlying assets and liabilities, and established based upon enacted tax rates and laws.

Deferred income taxes are reflected in the Consolidated Balance Sheets for differences between the financial and income tax reporting bases of the Company's underlying assets and liabilities, and are established based upon enacted tax rates and laws.

Deferred income tax assets are recognized when available evidence indicates that realization is more likely than not and a valuation allowance is established to the extent this standard is not met.

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For uncertain positions that management believes are more likely than not to be sustained, the Company recognizes a liability based upon management's estimate of the most likely settlement outcome with the taxing authority.

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

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

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

The liquidity and regulatory capital requirements of our foreign operations and certain international growth initiatives are supported by retaining overseas a significant portion of the earnings generated by our foreign operations.

This strategy does not materially limit Cigna's ability to meet the Company's liquidity and capital needs in the United States.

The Company generally does not intend to repatriate these earnings.

Income Tax Expense

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Tax expense at nominal rate $ 1,424 21.0 % $ 2,282 21.0 % $ 1,380 21.0 %

Effect of U.S.

tax reform legislation — — — — ( 4 ) ( 0.1 )

Impact of sale of business — — 104 1.0 — —

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Total deferred tax liabilities 10,052 10,231

Net deferred income tax (liabilities) assets $ ( 8,939 ) $ ( 9,387 )

Net deferred income tax (liabilities) ( 8,795 )

Net deferred income tax (liabilities) assets classified as Liabilities of businesses held for sale ( 449 )

Net deferred income tax (liabilities) assets per Consolidated Balance Sheets $ ( 8,346 ) $ ( 8,939 )

Management believes that future results will be sufficient to realize a majority of the Company's gross deferred tax assets.

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There are multiple expiration dates associated with these tax attributes.

Uncertain Tax Positions and Other Tax Matters

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

Uncertain Tax Positions

Reconciliations of unrecognized tax benefits for the years ended December 31 were as follows:

(In millions) 2021 2020 2019

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Increase due to prior year positions 21 128 68

Increase due to business combinations — — 860

Increase due to current year positions 31 88 29

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The Company classifies net interest expense on uncertain tax positions as a component of income tax expense and in Accrued expenses and other liabilities on the balance sheet.

In addition to the amounts in the table above, the liability for net interest expense on uncertain tax positions was approximately $ 127 million as of December 31, 2020, $ 100 million as of December 31, 2019 and immaterial for 2018.

In addition to the amounts in the table above, the liability for net interest expense on uncertain tax positions was approximately $ 148 million as of December 31, 2021, $ 127 million as of December 31, 2020 and $ 100 million as of December 31, 2019.

Other Tax Matters

The statute of limitations for Cigna's consolidated federal income tax returns through 2016 have closed.

However, Cigna filed an amended return for the 2015 tax year, and it is being reviewed by the Internal Revenue Service (IRS).

Additionally, the IRS has opened an examination of Cigna's 2017 return.

It is expected that the IRS will add tax years 2016 and 2018 to the existing Cigna cycle.

The IRS has examined Express Scripts’ tax returns for 2010 through 2012, for which there is a significant disputed tax matter, and is currently examining returns for 2013 through 2017.

In addition, the Company has pending refund claims for various years.

However, Cigna filed amended returns for both the 2015 and 2016 tax years, which are under review by the Internal Revenue Service ("IRS").

Additionally, the IRS is examining Cigna's returns for 2017 and 2018.

The statute of limitations for Express Scripts' consolidated federal income tax returns through 2012 has closed.

However, for 2010 through 2012 tax years, there remains a significant disputed matter.

The IRS is also examining Express Scripts' consolidated federal income tax returns for 2013 through 2018.

The Company has established adequate reserves for these matters.

The Company conducts business in a number of state and foreign jurisdictions and may be engaged in multiple audit proceedings at any given time.

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The Company's exposure to assessments for certain obligations of insolvent insurance companies to policyholders and claimants is based on its share of business written in the relevant jurisdictions.

There were no material effects for existing or new guaranty fund assessments for the year ended December 31, 2020.

There were no material charges or credits resulting from existing or new guaranty fund assessments for the year ended December 31, 2021.

Legal and Regulatory Matters

The Company is routinely involved in numerous claims, lawsuits, regulatory inquiries and audits, government investigations, including under the federal False Claims Act and state false claims acts initiated by a government investigating body or by a qui tam relator’s filing of a complaint under court seal, and other legal matters arising, for the most part, in the ordinary course of managing a global health service business.

The Company is routinely involved in numerous claims, lawsuits, regulatory inquiries and audits, government investigations, including under the federal False Claims Act and state false claims acts initiated by a government investigating body or by a qui tam relator's filing of a complaint under court seal and other legal matters arising, for the most part, in the ordinary course of managing a global health services business.

Additionally, the Company has received and is cooperating with subpoenas or similar processes from various governmental agencies requesting information, all arising in the normal course of its business.

Disputed tax matters arising from audits by the Internal Revenue Service or other state and foreign jurisdictions, including those resulting in litigation, are accounted for under GAAP guidance for uncertain tax positions.

See Note 20 for additional information on income tax matters.

See Note 21 for additional information on tax matters.

Pending litigation and legal or regulatory matters that the Company has identified with a reasonably possible material loss and certain other material litigation matters are described below.

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The Company's accruals for the matters discussed below under "Litigation Matters" and "Regulatory Matters" are not material.

Due to numerous uncertain factors presented in these cases, it is not possible to estimate an aggregate range of loss (if any) for these matters at this time.

In light of the uncertainties involved in these matters, there is no assurance that their ultimate

resolution will not exceed the amounts currently accrued by the Company.

Due to numerous uncertain factors presented in these cases, it is not possible to estimate an aggregate range of loss (if

any) for these matters at this time.

In light of the uncertainties involved in these matters, there is no assurance that their ultimate resolution will not exceed the amounts currently accrued by the Company.

An adverse outcome in one or more of these matters could be material to the Company's results of operations, financial condition or liquidity for any particular period.

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Litigation Matters

Risk Corridors and CSR Litigation with the Federal Government .

As a result of a Supreme Court decision in April 2020, the Company filed suit in early May 2020 against the United States in the U.S.

Court of Federal Claims seeking to recover two types of payments the Federal Government owes Cigna under the risk corridors and cost-sharing reduction (“CSR”) programs of The Patient Protection and Affordable Care Act.

In aggregate, the complaint seeks to recover more than $ 315 million:

$ 120 million in risk corridors payments and more than $ 195 million in CSR payments.

We received $ 120 million in payments in September 2020, which resolved our risk corridors claim.

Our claim seeking recovery for CSR payments is stayed until either the Federal Circuit’s judgments in the CSR appeals become final and non-appealable or the Supreme Court resolves any petition for writ of certiorari.

Cigna Litigation with Anthem .

In February 2017, the Company filed suit against Anthem, Inc.

in the Delaware Court of Chancery (the “Chancery Court”) seeking, among other relief, payment of the $ 1.85 billion reverse termination fee under the parties’ 2015 merger agreement and damages.

Anthem countersued, alleging its own claims for damages.

A trial was held during the first quarter of 2019.

In August 2020, the Chancery Court issued an opinion finding that, although Cigna breached its contractual obligation to use reasonable best efforts to support the Anthem/Cigna merger, its actions did not cause the merger to fail.

The Court denied claims by both parties for damages and further denied Cigna’s claim for the reverse termination fee.

The Company filed a Notice of Appeal with the Delaware Supreme Court on October 30, 2020, and seeks reversal of the portion of the Chancery Court’s decision denying Cigna the reverse termination fee.

Briefing on the appeal was completed on January 29, 2021 and oral arguments are scheduled for April 14, 2021.

Express Scripts Litigation with Anthem .

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The court subsequently granted Anthem's motion to dismiss two of six counts of Express Scripts' amended counterclaims.

The current scheduling order runs through the completion of summary judgment briefing in August 2021.

Express Scripts filed its Motion for Summary Judgment on August 27, 2021.

Anthem completed filing of its Response to Express Scripts' Motion for Summary Judgment on October 16, 2021.

Express Scripts filed its Reply in Support of its Motion for Summary Judgment on November 19, 2021.

There is no tentative trial date.

Medicare Advantage.

A qui tam action that was filed by a relator in the United States District Court for the Southern District of New York in 2017 was unsealed on August 6, 2020.

The action asserts claims related to risk adjustment practices arising from certain health exams conducted as part of the Company's Medicare Advantage business.

In September 2021, the qui tam action was transferred to the United States District Court for the Middle District of Tennessee.

On January 11, 2022, the U.S.

Department of Justice ("DOJ") (U.S.

Attorney's Offices for the Southern District of New York and the Middle District of Tennessee) filed a motion to partially intervene which is pending before the court.

The Company has opposed the DOJ's motion to intervene and the government filed its reply brief on February 1, 2022.

The motion has been fully briefed and is under the court's review.

Regulatory Matters

Civil Investigative Demand .

Department of Justice (“DOJ”) is conducting an industry-wide investigation of Medicare Advantage organizations’ risk adjustment practices under Medicare Parts C and D including medical chart reviews and health exams.

For certain other Medicare Advantage organizations, the investigation has resulted in litigation.

The Company is currently responding to information requests (civil investigative demands) received from the DOJ (U.S.

Attorney’s Offices for the Eastern District of Pennsylvania and the Southern District of New York ("SDNY")).

We will continue to cooperate with the DOJ’s investigation.

Additionally, in relation to the SDNY’s pending investigation, a qui tam action that was filed by a relator in the United States District Court for the Southern District of New York in 2017 was unsealed on August 6, 2020.

The action asserts claims related to risk adjustment practices arising from certain health exams conducted as part of Cigna’s Medicare Advantage business.

The DOJ has not intervened in the case at this time.

The DOJ is conducting industry-wide investigations of Medicare Advantage organizations' risk adjustment practices.

For certain Medicare Advantage organizations, including Cigna, those investigations have resulted in litigation (see above).

The Company is currently responding to information requests (civil investigative demand) from the DOJ (U.S.

Attorney's Office for the Eastern District of Pennsylvania).

The Company is cooperating with the DOJ and has responded and continues to respond to its requests.

Note 23 – Segment Information

See Note 1 for a description of our segments.

A description of our basis for reporting segment operating results is outlined below.

Intersegment revenues primarily reflect pharmacy related transactions between the Evernorth and U.S.

Medical segments.

Effective with the first quarter of 2019, the Company began allocating compensation cost for stock options to segments.

Prior year segment information was not restated for this change.

A description of our basis for reporting segment operating results is outlined below.

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

analysis of trends in underlying revenue, expenses and profitability.

Pre-tax adjusted income from operations is defined as income before taxes excluding realized investment results, amortization of acquired intangible assets, special items and, for periods prior to 2020, earnings contribution from transitioning clients Anthem Inc.

and Coventry Health Care, Inc.

(the “transitioning clients”).

As of December 31, 2019, the transition of these clients was substantially complete;

therefore, beginning in 2020, we no longer exclude results of transitioning clients from our adjusted revenues and adjusted income from operations.

Income or expense amounts that are excluded from adjusted income from operations because they are not indicative of underlying performance or the responsibility of operating segment management include:

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

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

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

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

See Note 1 for a description of our segments, including the segment change effective in the fourth quarter of 2021.

Prior year segment information has been adjusted to reflect the segment change and a description of our basis of reporting segment operating results is outlined below.

Intersegment revenues primarily reflect pharmacy related transactions between the Evernorth and Cigna Healthcare segments.

The Company uses "pre-tax adjusted income (loss) from operations" and "adjusted revenues" as its principal financial measures of segment operating performance because management believes these metrics best reflect the underlying results of business operations and permit analysis of trends in underlying revenue, expenses and profitability.

We define pre-tax adjusted income from operations as income before income taxes excluding net realized investment results, amortization of acquired intangible assets, results of transitioning clients prior to 2020, and special items.

Cigna's share of certain realized investment results of its joint ventures reported in the Cigna Healthcare segment using the equity method of accounting are also excluded.

Special items are matters that management believes are not representative of the underlying results of operations due to their nature or size.

Adjusted income (loss) from operations is measured on an after-tax basis for consolidated results and on a pre-tax basis for segment results.

The Company defines adjusted revenues as total revenues excluding the following adjustments:

special items, revenue contribution from transitioning clients prior to 2020, and Cigna's share of certain realized investment results of its joint ventures reported in the Cigna Healthcare segment using the equity method of accounting.

Special items are matters that management believes are not representative of the underlying results of operations due to their nature or size.

We exclude these items from this measure because management believes they are not indicative of past or future underlying performance of the business.

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

Adjusted revenues is defined as revenues excluding:

1) revenue contribution from transitioning clients for periods prior to 2020;

2) the Company’s share of certain realized investment results of its joint ventures reported in the International Markets segment using the equity method of accounting;

and 3) special items, if any.

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

Three Months Ended

The following tables present the special items recorded by the Company for the year ended December 31, 2021, 2020 and 2019:

(In millions) 2021 2020 2019

Description of Special Item Charges (Benefits) and Financial Statement Line Item(s) After-tax Before-tax After-tax Before-tax After-tax Before-tax

Integration and transaction-related costs:

Charge for organizational efficiency plan

(Selling, general and administrative expenses) $ 119 $ 168 $ 24 $ 31 $ 162 $ 207

- Interest expense and other — — — — 179 227

- Net investment income — — — — ( 97 ) ( 123 )

Integration and transaction-related costs $ 404 $ 527 $ 427 $ 552 $ 669 $ 852

Debt extinguishment costs

Charge for organizational efficiency plan (Selling, general and administrative expenses) 24 31 162 207 — —

Charges associated with litigation matters (Selling, general and administrative expenses) 19 25 41 51 19 25

Risk corridors recovery (Selling, general and administrative expenses) ( 76 ) ( 101 ) — — — —

Contractual adjustment for a former client (Pharmacy revenues) ( 155 ) ( 204 ) — — — —

(Gain) on sale of business ( 3,217 ) ( 4,203 ) — — — —

Charges (benefits) associated with tax reform:

110 141 151 199 — —

Integration and transaction-related (benefits) costs

(Selling, general and administrative expenses) 71 169 404 527 427 552

- Tax (benefit) — — — — ( 3 ) —

Charges (benefits) associated with tax reform $ — $ — $ — $ — $ ( 2 ) $ 2

(Benefits) charges associated with litigation matters

(Selling, general and administrative expenses) ( 21 ) ( 27 ) 19 25 41 51

Risk corridors recovery

(Selling, general and administrative expenses) — — ( 76 ) ( 101 ) — —

Contractual adjustment for a former client

(Pharmacy revenues) — — ( 155 ) ( 204 ) — —

(Gain) on sale of business — — ( 3,217 ) ( 4,203 ) — —

Total impact from special items $ 279 $ 451 $ ( 2,850 ) $ ( 3,726 ) $ 630 $ 810

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

(In millions) Evernorth

International Markets

Group Disability and Other

Summarized segment financial information was as follows:

(In millions) Evernorth Cigna Healthcare

Other Operations

Corporate and Eliminations

4 unchanged sentences

Net realized investment results from certain equity method investments

— — ( 130 ) — — ( 130 )

Special item related to contractual adjustment for a former client ( 204 ) — — — — ( 204 )

Adjusted revenues $ 131,912 $ 44,652 $ 3,989 $ ( 6,475 ) $ 174,078

7 unchanged sentences

Special items

Integration and transaction-related costs — — — — 527 527

Debt extinguishment costs — — — — 199 199

Charge for organizational efficiency plan — — — 168 168

Charges associated with litigation matters — — — — 25 25

Risk corridors recovery — ( 101 ) — — — ( 101 )

Contractual adjustment for a former client ( 204 ) — — — — ( 204 )

(Gain) on sale of business — — — ( 4,203 ) — ( 4,203 )

Debt extinguishment costs — — — 141 141

Integration and transaction-related (benefits) costs — — — 169 169

(Benefits) charges associated with litigation matters — — — ( 27 ) ( 27 )

Pre-tax adjusted income (loss) from operations $ 5,818 $ 3,609 $ 889 $ ( 1,339 ) $ 8,977

(In millions) Evernorth

International Markets

Group Disability and Other

Cigna Healthcare

Other Operations

Corporate and Eliminations

2 unchanged sentences

Inter-segment revenues 3,655 1,966 23 ( 5,644 )

Net investment income (loss) 60 478 159 695 ( 2 ) 1,390

Net investment income 32 473 739 — 1,244

Total revenues 116,334 41,265 8,446 ( 5,644 ) 160,401

Revenue contribution from transitioning clients ( 13,347 ) — — — — ( 13,347 )

Net realized investment results from certain equity method investments — ( 130 ) — — ( 130 )

Special item related to contractual adjustment for a former client ( 204 ) — — — ( 204 )

Adjusted revenues $ 116,130 $ 41,135 $ 8,446 $ ( 5,644 ) $ 160,067

2 unchanged sentences

Pre-tax adjustments to reconcile to adjusted income from operations

Adjustment for transitioning clients ( 1,726 ) — — — — ( 1,726 )

(Income) attributable to noncontrolling interests ( 17 ) ( 1 ) ( 19 ) — ( 37 )

3 unchanged sentences

Special items

Integration and transaction-related costs — — — — 552 552

Charge for organizational efficiency plan — — — 31 31

Charges associated with litigation matters — ( 30 ) — — 81 51

Debt extinguishment costs — — — 199 199

Integration and transaction-related (benefits) costs — — — 527 527

(Benefits) charges associated with litigation matters — — — 25 25

Risk corridors recovery — ( 101 ) — — ( 101 )

Contractual adjustment for a former client ( 204 ) — — — ( 204 )

(Gain) on sale of business — — ( 4,203 ) — ( 4,203 )

Pre-tax adjusted income (loss) from operations $ 5,363 $ 4,031 $ 966 $ ( 1,552 ) $ 8,808

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

(In millions) Evernorth U.S.

Medical International Markets Group Disability and Other Corporate and Eliminations Total

(1) Includes the Company's share of certain realized investment results of its joint ventures reported in the Cigna Healthcare segment using the equity method of accounting.

(In millions) Evernorth

Cigna Healthcare

Other Operations

Corporate and Eliminations

Revenues from external customers $ 107,354 $ 37,455 $ 7,367 $ — $ 152,176

4 unchanged sentences

Net realized investment results from certain equity method investments — ( 44 ) — — ( 44 )

Special items reported in integration and transaction-related costs — — — — ( 123 ) ( 123 )

Adjusted revenues $ 96,447 $ 39,089 $ 8,215 $ ( 3,576 ) $ 140,175

8 unchanged sentences

Special items

Integration and transaction-related costs — — — — 852 852

Charges associated with litigation matters — 25 — — — 25

Charges (benefits) associated with tax reform — — — 2 — 2

Charge for organizational efficiency plan — — — 207 207

Integration and transaction-related (benefits) costs — — — 552 552

(Benefits) charges associated with litigation matters — ( 30 ) — 81 51

Pre-tax adjusted income (loss) from operations $ 5,092 $ 3,963 $ 1,131 $ ( 1,824 ) $ 8,362

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

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

Revenue from external customers includes Pharmacy revenues, Premiums and Fees and other revenues.

The following table presents these revenues by product, premium and service type for the years ended December 31:

The following table presents these revenues by product, premium and service type for the year ended December 31:

(In millions) 2021 2020 2019

3 unchanged sentences

Other 6,428 5,403 4,900

Intercompany eliminations ( 4,398 ) ( 3,905 ) ( 2,457 )

Total pharmacy revenues 121,413 107,769 103,099

Insurance premiums (ASC 944)

Medical premiums

Health Insurance 13,389 12,523 10,710

Cigna Healthcare

Insured 14,315 13,389 12,523

Stop loss 4,868 4,614 4,328

3 unchanged sentences

Other 4,815 4,301 4,185

Medical premiums

International Health 2,588 2,472 2,382

Total Cigna Healthcare 37,737 35,069 32,471

International businesses held for sale 3,205 3,039 2,884

Domestic disability, life and accident — 4,423 4,225

Other 221 124 147

Intercompany eliminations ( 9 ) ( 28 ) ( 13 )

Total premiums 41,154 42,627 39,714

Services (Fees) (ASC 606)

6,070 4,611 4,165

International Markets premiums

Cigna Healthcare

5,743 5,491 6,022

Domestic disability, life and accident premiums 4,423 4,225 4,000

Other premiums 96 134 222

Total premiums 42,627 39,714 36,113

Services (ASC 606)

Fees 8,532 9,229 5,558

Other external revenues 229 134 20

Total services 8,761 9,363 5,578

Other Operations

Other revenues 197 254 157

Intercompany eliminations ( 2,067 ) ( 1,711 ) ( 1,104 )

Total fees and other revenues 9,962 8,761 9,363

Total revenues from external customers $ 172,529 $ 159,157 $ 152,176

5 unchanged sentences

United States $ 166,626 $ 154,042 $ 147,332

South Korea 2,123 2,022 2,093

All other foreign countries 2,992 2,822 2,304

Foreign countries (1)

5,903 5,115 4,844

Total $ 172,529 $ 159,157 $ 152,176

(1) International life, accident and supplemental benefits businesses in seven countries to be sold pursuant to the Chubb Transaction as described in Note 1 comprised of $ 3.2 billion, $ 3.1 billion and $ 2.9 billion in 2021, 2020 and 2019, respectively.

Revenues from U.S.

Federal Government agencies, under a number of contracts, were 14 % of consolidated revenues in 2021, 15 % in 2020 and 14 % in 2019.

These amounts were reported in the Evernorth and Cigna Healthcare segments.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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-K

Item 8. Financial Statements and Supplementary Data