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Item 2. Management’s Discussion and Analysis

2023-05-05 compared with 2022-11-03 · 234 added, 329 removed, 348 unchanged (62% of the section changed)

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Segment Reporting

Evernorth Health Services

Cigna Healthcare

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Investment Assets

Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is intended to provide information to assist you in better understanding and evaluating our financial condition as of September 30, 2022, compared with December 31, 2021 and our results of operations for the three and nine months ended September 30, 2022, compared with the same periods last year and is intended to help you understand the ongoing trends in our business.

Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is intended to provide information to assist you in better understanding and evaluating our financial condition as of March 31, 2023, compared with December 31, 2022 and our results of operations for the three months ended March 31, 2023, compared with the same period last year and is intended to help you understand the ongoing trends in our business.

We encourage you to read this MD&A in conjunction with our Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2022 ("2022 Form 10-K").

In particular, we encourage you to refer to the "Risk Factors" contained in Part I, Item 1A of the 2021 Form 10-K.

In particular, we encourage you to refer to the "Risk Factors" contained in Part I, Item 1A of our 2022 Form 10-K.

Unless otherwise indicated, financial information in this MD&A is presented in accordance with accounting principles generally accepted in the United States of America ("GAAP").

See Note 2 to the Consolidated Financial Statements in our 2021 Form 10-K for additional information regarding the Company's significant accounting policies and see Note 2 to the Consolidated Financial Statements in this Form 10-Q for updates to those policies resulting from adopting new accounting guidance, if any.

See Note 2 to the Consolidated Financial Statements in our 2022 Form 10-K for additional information regarding the Company's significant accounting policies and see Notes 2 and 9 to the Consolidated Financial Statements in this Form 10-Q for updates to those policies resulting from adopting Accounting Standards Update 2018-12, Targeted Improvements to the Accounting for Long-Duration Contracts ("LDTI"), and related amendments, effective January 1, 2023.

The preparation of interim consolidated financial statements necessarily relies heavily on estimates.

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We define adjusted income from operations as shareholders' net income (or income before income taxes less pre-tax income (loss) attributable to noncontrolling interests for the segment metric) excluding net realized investment results, amortization of acquired intangible assets, and special items.

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.

The Cigna Group's share of certain realized investment results of its joint ventures reported in the Cigna Healthcare segment using the equity method of accounting are also excluded.

Special items are matters that management believes are not representative of the underlying results of operations due to their nature or size.

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The Company defines adjusted revenues as total revenues excluding the following adjustments:

special items and Cigna's share of certain realized investment results of its joint ventures reported in the Cigna Healthcare segment using the equity method of accounting.

special items and The Cigna Group's share of certain realized investment results of its joint ventures reported in the Cigna Healthcare segment using the equity method of accounting.

Special items are matters that management believes are not representative of the underlying results of operations due to their nature or size.

We exclude these items from this measure because management believes they are not indicative of past or future underlying performance of the business.

Adjusted revenues is not determined in accordance with GAAP and should not be viewed as a substitute for the most directly comparable GAAP measure, total revenues.

Adjusted revenues is not determined in accordance with GAAP and should not be viewed as a

substitute for the most directly comparable GAAP measure, total revenues.

See the below Financial Highlights section for a reconciliation of consolidated adjusted revenues to total revenues.

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This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Forward-looking statements are based on Cigna's current expectations and projections about future trends, events and uncertainties.

Forward-looking statements are based on The Cigna Group's current expectations and projections about future trends, events and uncertainties.

These statements are not historical facts.

Forward-looking statements may include, among others, statements concerning future financial or operating performance, including our ability to deliver affordable, predictable and simple solutions for our customers and clients, including in light of the challenges presented by the COVID-19 pandemic;

Forward-looking statements may include, among others, statements concerning future financial or operating performance, including our ability to improve the health and vitality of those we serve;

future growth, business strategy, and strategic or operational initiatives;

economic, regulatory or competitive environments, particularly with respect to the pace and extent of change in these areas and the impact of developing inflationary and interest rate pressures;

the ongoing Russia-Ukraine conflict;

financing or capital deployment plans and amounts available for future deployment;

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strategic transactions;

the impact of the Inflation Reduction Act (as defined below);

the impact of revised accounting rules related to accounting for long-duration contracts;

expectations related to our CMS (as defined below) Star Ratings and Medicare Advantage Capitation Rates;

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

expectations related to our Medicare Advantage Capitation Rates;

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

You may identify forward-looking statements by the use of words such as "believe," "expect," "project," "plan," "intend," "anticipate," "estimate," "predict," "potential," "may," "should," "will" or other words or expressions of similar meaning, although not all forward-looking statements contain such terms.

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changes in drug pricing or industry pricing benchmarks;

our ability to invest in and properly maintain our information technology and other business systems;

our ability to prevent or contain effects of a potential cyberattack or other privacy or data security incident;

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

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

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

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risk of significant disruption within our operations or among key suppliers or third parties;

our ability to invest in and properly maintain our information technology and other business systems;

our ability to prevent or contain effects of a potential cyberattack or other privacy or data security incident;

potential liability in connection with managing medical practices and operating pharmacies, onsite clinics and other types of medical facilities;

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potential failure of our prevention, detection and control systems;

unfavorable economic and market conditions, including the risk of a recession or other economic downturn and resulting impact on employment metrics, stock market or changes in interest rates and risks related to a downgrade in financial strength ratings of our insurance subsidiaries;

unfavorable economic and market conditions, including bank failures, the risk of a recession or other economic downturn and resulting impact on employment metrics, stock market or changes in interest rates and risks related to a downgrade in financial strength ratings of our insurance subsidiaries;

the impact of our significant indebtedness and the potential for further indebtedness in the future;

unfavorable industry, economic or political conditions;

credit risk related to our reinsurers;

as well as more specific risks and uncertainties discussed in Part I, Item 1A – Risk Factors of our 2021 Form 10-K, Part II, Item 7 – Management's Discussion and Analysis of Financial Condition and Results of Operations of our 2021 Form 10-K, and as described from time to time in our future reports filed with the Securities and Exchange Commission.

as well as more specific risks and uncertainties discussed in Part I, Item 1A – Risk Factors in our 2022 Form 10-K, Part II, Item 7 – Management's Discussion and Analysis of Financial Condition and Results of Operations in our 2022 Form 10-K, and as described from time to time in our future reports filed with the Securities and Exchange Commission.

You should not place undue reliance on forward-looking statements, which speak only as of the date they are made, are not guarantees of future performance or results and are subject to risks, uncertainties and assumptions that are difficult to predict or quantify.

Cigna undertakes no obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise, except as may be required by law.

The Cigna Group undertakes no obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise, except as may be required by law.

EXECUTIVE OVERVIEW

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, dental and related products and services.

For further information on our business and strategy, see Item 1, "Business" in our 2021 Form 10-K.

The Cigna Group, together with its subsidiaries (either individually or collectively referred to as the "Company," "we," us" or "our") is a global health company with a mission of helping those we serve improve their health and vitality.

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

For further information on our business and strategy, see Item 1, "Business" of our 2022 Form 10-K.

Financial Highlights

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

The commentary provided below describes our results for the three and nine months ended September 30, 2022 compared with the same periods in 2021.

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

Summarized below are certain key measures of our performance by segment for the three and nine months ended September 30, 2022 and 2021:

Effective January 1, 2023, we adopted amended accounting guidance for long-duration insurance contracts.

Prior period Financial highlights and Results of operations have

been retrospectively adjusted to conform to this new basis of accounting.

For the three months ended March 31, 2023, the impact of this amended guidance is immaterial.

See Note 2 to the Consolidated Financial Statements for additional information.

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

Financial highlights by segment

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

(Dollars in millions, except per share amounts) 2022 2021 % Change 2022 2021 % Change

Three Months Ended March 31,

(Dollars in millions, except per share amounts) 2023 2022 % Change

Adjusted revenues by segment

Evernorth $ 35,698 $ 33,614 6 % $ 104,147 $ 96,826 8 %

Evernorth Health Services $ 36,179 $ 33,586 8 %

Cigna Healthcare 12,718 11,393 12

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Pre-tax adjusted income (loss) from operations by segment

Evernorth $ 1,625 $ 1,548 5 % $ 4,402 $ 4,184 5 %

Evernorth Health Services $ 1,320 $ 1,302 1 %

Cigna Healthcare 1,115 1,297 (14)

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Income attributable to noncontrolling interests 43 17 153

Net realized investment (losses) gains (1)

(161) 46 N/M (629) 116 N/M

Net realized investment losses (1)

(18) (425) 96

Amortization of acquired intangible assets (459) (458) —

Special items 1,711 (13) N/M 1,629 (172) N/M

Special items (1) (52) 98

Income before income taxes $ 1,601 $ 1,567 2 %

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Three Months Ended

September 30, Nine Months Ended

September 30,

(Dollars in millions) 2022 2021 % Change 2022 2021 % Change

(Dollars in millions) 2023 2022 % Change

Pharmacy revenues $ 32,144 $ 30,697 5 %

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Interest expense and other (358) (299) (20)

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

Gain on sale of businesses 1,735 — N/M 1,735 — N/M

Net realized investment (losses) gains (81) 68 N/M (495) 128 N/M

Net realized investment losses

(56) (322) 83

Income before income taxes 1,601 1,567 2

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Shareholders' net income $ 1,267 $ 1,197 6 %

Consolidated effective tax rate 20.4 % 20.6 % (20) bps 21.0 % 21.7 % (70) bps

Consolidated effective tax rate 18.4 % 22.7 % (430) bps

Medical customers (in thousands) 19,473 17,779 10 %

Reconciliation of Shareholders' Net Income (GAAP) to Adjusted Income from Operations

Dollars in Millions Diluted Earnings Per Share

Three Months Ended

September 30, Nine Months Ended

September 30, Three Months Ended

September 30, Nine Months Ended

September 30,

Three Months Ended March 31,

(Dollars in millions) Pre-tax After-tax Pre-tax After-tax

Shareholders' net income $ 1,267 $ 1,197

Adjustments to reconcile to adjusted income from operations

Net realized investment losses (1)

$ 18 6 $ 425 358

Amortization of acquired intangible assets 459 344 458 356

Special items

Integration and transaction-related costs 1 1 52 37

Total special items $ 1 1 $ 52 37

Adjusted income from operations $ 1,618 $ 1,948

(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.

Reconciliation of Shareholders' Net Income (GAAP) to Adjusted Income from Operations

Three Months Ended March 31,

(Diluted Earnings Per Share) Pre-tax After-tax Pre-tax After-tax

Shareholders' net income $ 4.24 $ 3.73

After-tax adjustments required to reconcile to adjusted income from operations

Net realized investment losses (gains) (1)

Adjustments to reconcile to adjusted income from operations

Net realized investment losses (1)

$ 0.06 0.02 $ 1.32 1.10

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Special items

Integration and transaction-related costs (benefits) 23 (35) 86 1 0.07 (0.10) 0.27 —

Charge for organizational efficiency plan — — 17 — — — 0.05 —

(Benefits) associated with litigation matters — — (20) (21) — — (0.06) (0.06)

(Gain) on sale of businesses (1,388) — (1,388) — (4.52) — (4.39) —

Debt extinguishment costs — — — 110 — — — 0.32

Integration and transaction-related costs — — 0.16 0.12

Total special items $ — — $ 0.16 0.12

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Recent Events

The United States economy continues to be impacted by rising inflation.

We have not experienced material impacts from inflation on our results of operations or cash flows for the three and nine months ended September 30, 2022.

We are proactively addressing potential impacts from inflation on our workforce, third party relationships (including relationships with vendors and health care providers) and drug pricing.

We are prepared to respond to inflationary pressures.

For further information regarding risks we encounter in our business due to economic conditions including inflationary pressures, see "Risk Factors" contained in Part I, Item 1A of our 2021 Form 10-K.

Russian Invasion of Ukraine

The war in Ukraine has significantly affected individuals, economic activity and financial markets on a global scale.

Cigna does not have operations or employees in Ukraine or Russia and serves a limited number of customers and clients in these countries.

We have not experienced significant impacts to date on our investment portfolio, financial position or results of operations.

For a more complete discussion of the risks we encounter in our business, see "Risk Factors" contained in Part I, Item 1A of our 2021 Form 10-K.

Cigna's commitment to the health, well-being and peace of mind of our employees and the people we serve remains our focus as the pandemic environment evolves.

We continue to leverage our resources, expertise, data and actionable intelligence to assist customers, clients and care providers throughout this time.

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

For further information regarding the potential impact of COVID-19 on the Company, see "Risk Factors" contained in Part I, Item 1A of our 2021 Form 10-K.

Three and Nine Months Ended September 30, 2022 versus Three and Nine Months Ended September 30, 2021

The commentary presented below, and in the segment discussions that follow, compare results for the three and nine months ended September 30, 2022 with results for the three and nine months ended September 30, 2021.

Shareholders' net income increased for the three months ended September 30, 2022, reflecting the gain on the sale of our life, accident and supplemental benefits businesses in six countries (the "Chubb transaction"), partially offset by lower realized investment results due to unfavorable mark to market adjustments in 2022 and lower adjusted income from operations.

For the nine months ended September 30, 2022, the increase in Shareholders' net income was due to the gain associated with the Chubb transaction, higher adjusted income from operations and the absence of debt extinguishment costs.

These favorable effects were partially offset by lower realized investment results due to unfavorable mark to market adjustments in 2022.

Adjusted income from operations decreased for the three months ended September 30, 2022, primarily due to the absence of earnings from the businesses sold on July 1, 2022 in the Chubb transaction, partially offset by increased earnings in Evernorth reflecting continued contract affordability improvements and business growth.

The increase in adjusted income from operations on a per share basis for the three months reflects the favorable effect of purchases of shares under our share repurchase program.

For the nine months ended September 30, 2022, the increase in adjusted income from operations reflects earnings growth in Cigna Healthcare reflecting lower medical care ratios and increased specialty contributions, partially offset by lower net investment income.

Increased earnings in Evernorth reflecting continued contract affordability improvements and business growth also contributed to the increase.

These favorable effects were partially offset by the absence of earnings in the third quarter of 2022 from the businesses sold in the Chubb transaction.

Medical customers increased, reflecting growth in our fee-based products from Middle Market and Select market segments as well as International Health.

See "Cigna Healthcare segment" section of this MD&A for discussion of an update to the definitions of U.S.

Commercial's market segments.

Pharmacy revenues increased, reflecting higher specialty claims volume due in part to Evernorth's collaboration with Prime Therapeutics, as well as increased prices, primarily due to inflation on branded drugs.

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

Premiums declined, reflecting the impact of the Chubb transaction and the disposition of the Medicaid business in Cigna Healthcare.

Partially offsetting these decreases were the impact of increased specialty contributions and premiums rates in Cigna Healthcare due to anticipated underlying medical cost trend.

See "Cigna Healthcare segment" section of this MD&A for further discussion.

Fees and other revenues increased, primarily reflecting customer growth from our continued contract affordability services.

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

Net investment income decreased primarily reflecting lower returns on our partnership investments and the impact of the Chubb transaction.

Economic Conditions

We continue to monitor global economic conditions, including inflation, labor market dynamics and the recent banking failures.

We did not have a material exposure to banks recently impacted by the financial environment.

We continue to proactively address impacts to our pricing with third parties (including vendors, health care providers and drug providers), our investment portfolio and our workforce.

We are also monitoring the potential impact on client and customer health care needs.

Our results of operations or cash flows for the three months ended March 31, 2023, were not materially impacted by inflation, labor market dynamics, or the recent banking failures.

For further information regarding risks we encounter in our business due to economic conditions, see "Risk Factors" contained in Part I, Item 1A of our 2022 Form 10-K.

Three Months Ended March 31, 2023 versus Three Months Ended March 31, 2022

The commentary presented below, and in the segment discussions that follow, compare results for the three months ended March 31, 2023 with results for the three months ended March 31, 2022.

Shareholders' net income increased 6% due primarily to improved realized investment results reflecting lower mark to market losses on equity securities.

This favorable effect was partially offset by lower adjusted income from operations.

Adjusted income from operations declined 17%, driven primarily by the absence of earnings from our life, accident and supplemental health benefits business in six countries sold in 2022 (the "Chubb transaction") and lower net investment income (see below).

Medical customers increased 10%, reflecting growth in fee-based products as well as a higher customer base in our Individual and Medicare Advantage businesses.

See Part I, Item 1 of our 2022 Form 10-K for definitions of Cigna Healthcare's market segments.

Pharmacy revenues increased 5%, reflecting higher specialty claims volume as well as inflation on, and higher sales of, branded drugs.

See the "Segment Reporting - Evernorth Health Services Segment" section of this MD&A for further discussion.

Premiums increased 6%, reflecting growth in the insured customer base (primarily within our Individual business), the favorable impact of increased specialty contributions and higher premium rates in Cigna Healthcare due to anticipated underlying medical cost trend.

See the "Segment Reporting - Cigna Healthcare Segment" section of this MD&A for further discussion.

These favorable effects were partially offset by a decline in premiums due to the Chubb transaction.

Fees and other revenues increased 21%, primarily reflecting client growth from our continued contract affordability services within Evernorth Health Services and higher net realized investment results in certain equity method investments within Cigna Healthcare.

Net investment income decreased 33%, primarily reflecting lower returns on our partnership investments and the unfavorable impact of the Chubb transaction.

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

Pharmacy and other service costs increased, reflecting higher specialty claims volume due in part to Evernorth's collaboration with Prime Therapeutics, as well as increased prices, primarily due to inflation on branded drugs.

Medical costs and other benefit expenses decreased, primarily reflecting the impact of the Chubb transaction and the disposition of the Medicaid business.

Decreases also reflect lower direct COVID-19 testing, treatment and vaccine costs and are partially offset by medical cost trend.

See "Cigna Healthcare segment" section of this MD&A for further discussion.

Selling, general and administrative expenses increased, primarily driven by strategic investments in expanding our services portfolio and digital capabilities in Evernorth, as well as higher expenses in Cigna Healthcare, partially offset by decreased expenses in Other Operations driven by the impact of the Chubb transaction.

Interest expense and other was essentially flat.

Debt extinguishment costs declined as no debt was retired early in the first nine months of 2022.

Gain on sale of businesses reflects the Chubb transaction, which closed on July 1, 2022.

Realized investment results were lower, primarily due to unfavorable mark-to-market adjustments on investments in 2022.

Pharmacy and other service costs increased 6%, reflecting higher specialty claims volume as well as inflation on, and higher sales of, branded drugs.

Medical costs and other benefit expenses increased 9%, primarily reflecting an increased insured customer base (primarily within our Individual business) and trend in Cigna Healthcare, partially offset by the impact of the Chubb transaction.

Selling, general and administrative expenses increased 8%, primarily driven by volume-related expenses in Cigna Healthcare and Evernorth Health Services due to business growth, as well as strategic investments to support business growth and continued advancement of our capabilities in Evernorth Health Services and Cigna Healthcare.

These increases were partially offset by the impact of the Chubb transaction.

Interest expense and other increased 20%, primarily reflecting higher interest rates on our indebtedness and increased pension costs.

Realized investment results were substantially improved, primarily due to lower mark to market losses on equity securities.

See Note 11 to the Consolidated Financial Statements for further discussion.

The effective tax rate decreased, driven largely by foreign tax rate differential, including the impact of the Chubb transaction.

Risk Adjustment Data Validation ("RADV") Audit Rule

On November 1, 2018, the Centers for Medicare and Medicaid Services ("CMS") released a proposed rule titled "Medicare and Medicaid Programs;

Policy and Technical Changes to the Medicare Advantage, Medicare Prescription Drug Benefit, Program for All-inclusive Care for the Elderly (PACE), Medicaid Fee-For-Service, and Medicaid Managed Care Programs for Years 2020 and 2021" that would revise its RADV audit methodology for contract year 2011 and all subsequent years by, among other things, extrapolating the error rate related to RADV audit findings without applying the Medicare Fee for Service adjuster to audit findings.

In October 2022, CMS delayed the timeline to finalize the proposed rule until February 1, 2023.

Centene Corporation

In October 2022, Evernorth and Centene Corporation ("Centene") announced a multi-year agreement effective January 2024 to manage pharmacy benefit services and make prescription medications more accessible and affordable for Centene's approximately 20 million customers.

In addition to greater savings on prescription drugs, Centene customers will also have access to Express Scripts' extensive national network of retail pharmacies.

Inflation Reduction Act

The Inflation Reduction Act of 2022, which was signed into law in August 2022, contains a variety of provisions that impact our business, including:

• providing a one percent excise tax on repurchases of stock made after December 31, 2022;

• extending the American Rescue Plan Act of 2021's enhanced Premium Tax Credits for three years from January 2023 to January 2026;

• instituting caps on insulin cost sharing in federal Medicare Part B medical insurance ("Part B") and federal Medicare Part D prescription drug program ("Part D") beginning in 2023 and removing deductibles for insulin provided via durable medical equipment under Part B beginning in July 2023;

• adding a requirement that drug manufacturers pay rebates beginning in 2023 if prescription drug prices for certain Part B and Part D drugs increase beyond inflation;

• redesigning of the Part D benefit in 2024 and capping of annual out-of-pocket costs starting in 2025;

• allowing CMS to select Part D and Part B drugs for the drug price negotiation program beginning in 2023 and 2026, respectively, with the maximum fair prices for select Part D drugs taking effect in 2026;

• delaying implementation of the 2020 Medicare drug rebate rule to 2032.

Kaiser Permanente

In April 2022, we entered into a five-year agreement with Kaiser Permanente.

Initially, the agreement will focus on providing Kaiser Permanente and its members access to Cigna's Preferred Provider Organization ("PPO") provider network for Kaiser Permanente members who need urgent or emergency care and are traveling outside of Kaiser Permanente's service areas and specialty pharmacy services through Evernorth.

The agreement has the potential to extend in additional areas.

Organizational Efficiency Plan

As discussed in Note 15 to the Consolidated Financial Statements, during the fourth quarter of 2021, the Company approved a strategic plan to drive operational efficiencies.

We believe this plan, coupled with the divestiture of the international life, accident and supplemental health benefits businesses (described below), will further leverage the Company's ongoing growth to drive operational efficiency through enhancements to organizational structure and increased use of automation and shared services.

In connection with these plans, Cigna updated its reporting segments to align with the new business reporting structure and recognized a charge in the fourth quarter of 2021 in the amount of $168 million, pre-tax ($119 million, after-tax).

As previously anticipated, during the second quarter of 2022, the Company updated its strategic plan, primarily for severance costs, and recognized a charge in the amount of $22 million, pre-tax ($17 million, after-tax).

As a result of our Organizational Efficiency Plan, we expect to realize annualized after-tax savings of $184 million.

A substantial amount of the savings is expected to be realized in 2022.

See Note 15 to the Consolidated Financial Statements for further information regarding our organizational efficiency charge.

Sale of International Life, Accident and Supplemental Benefits Businesses in Six Countries

As discussed in Notes 4 and 5 to the Consolidated Financial Statements, on July 1, 2022, we completed the sale of our life, accident and supplemental benefits businesses in six countries (Hong Kong, Indonesia, New Zealand, South Korea, Taiwan and Thailand) to Chubb INA Holdings, Inc.

("Chubb") for approximately $5.4 billion in cash (the "Chubb transaction").

The "Liquidity and Capital Resources" section of this MD&A provides further information on the impact of this transaction to liquidity.

See "Other Operations" section of this MD&A for further information on the results of these businesses prior to the divestiture.

Purchase of MDLIVE

As discussed in Note 4 to the Consolidated Financial Statements, on April 19, 2021, Cigna's Evernorth segment completed the acquisition of MDLIVE, Inc.

("MDLIVE"), a 24/7 virtual care platform (the "MDLIVE Acquisition") for $2.0 billion cash consideration.

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

Medicare Star Quality Ratings ("Star Ratings")

CMS uses a Star Rating system to measure how well Medicare Advantage ("MA") plans perform.

Categories of measurement include quality of care and customer service.

Star Ratings range from one to five stars.

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

Approximately 89% of our MA customers were in four star or greater plans for bonus payments to be received in 2022 and we expect 84% to be in four star or greater plans for bonus payments to be received in 2023.

On October 7, 2022, CMS announced Medicare Star ratings for bonus payments to be received in 2024.

Based upon the current customer mix associated with the announced star ratings, we estimate 67% of our MA customers will be in four star or greater plans.

The effective tax rate decreased by 430 basis points, driven by favorable results relative to the Company's foreign operations, partially offset by an increase pertaining to the year over year impact of remeasurement of deferred taxes.

Medicare Advantage Rates

On April 4, 2022, CMS released the final Calendar Year 2023 Medicare Advantage Capitation Rates and Part C and Part D Payment Policies (the "2023 Final Notice").

While the 2023 Final Notice rates are modestly higher than the advance notice rates (previously

released on February 2, 2022), we do not expect the final rates to have a material impact on our consolidated results of operations in 2023.

On March 31, 2023, Centers for Medicare and Medicaid Services ("CMS") released the final Calendar Year 2024 Medicare Advantage Program and Part D Payment Policies (the "2024 Final Notice").

The 2024 Final Notice rates were improved from the advance notice rates (previously released on February 1, 2023).

We do not expect the final rates to have a material impact on our consolidated results of operations in 2024.

LIQUIDITY AND CAPITAL RESOURCES

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Dividends from our insurance, Health Maintenance Organization ("HMO") and certain foreign subsidiaries are subject to regulatory restrictions.

See Note 20 to the Consolidated Financial Statements in our 2021 Form 10-K for additional information regarding these restrictions.

Most of the Evernorth segment operations are not subject to regulatory restrictions regarding dividends and therefore provide significant financial flexibility to Cigna.

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

Nine Months Ended September 30,

See Note 21 to the Consolidated Financial Statements in our 2022 Form 10-K for additional information regarding these

restrictions.

Most of the Evernorth Health Services segment operations are not subject to regulatory restrictions regarding dividends and therefore provide significant financial flexibility to The Cigna Group.

With respect to our investment portfolio, we support the liquidity needs of our businesses by managing the duration of assets to be consistent with the duration of liabilities.

We manage the portfolio to both optimize returns in the current economic environment and meet our liquidity needs.

Cash flows for the three months ended March 31 were as follows:

Three Months Ended March 31,

(In millions) 2023 2022

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Financing activities $ (37) $ (2,171)

The following discussion explains variances in the various categories of cash flows for the nine months ended September 30, 2022 compared with the same period in 2021.

The following discussion explains variances in the various categories of cash flows for the three months ended March 31, 2023 compared with the same period in 2022.

Operating activities

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

Operating cash flows for the nine months ended September 30, 2022 include the benefits from the early receipt of October 2022 monthly payments from CMS and the delayed 2021 CMS Part D settlement.

The remaining benefits were driven by timing of accounts receivable and accrued liabilities as well as lower income tax payments, partially offset by lower insurance liabilities and higher inventories.

Investing and Financing activities

In 2022, the Company received cash proceeds from the Chubb transaction.

In 2021, the Company had cash outflows related to the acquisition of MDLIVE.

These factors, along with lower net purchases of investments in 2022, resulted in higher cash inflow from investing activities in 2022 compared with 2021.

The Company repaid more debt, partially offset by lower stock repurchases, which resulted in an increase in cash used in financing activities in 2022.

Operating cash flows for the three months ended March 31, 2023 included the benefits from the early receipt of April Medicare premiums from CMS and a higher CMS Medicare Part D annual settlement.

The remaining increase was driven by higher insurance liabilities, timing of pharmacy and services cost payable and lower inventory purchases.

Investing activities

The Company invested $2.5 billion in VillageMD in 2023, which resulted in an increase in cash used in investing activities.

Financing activities

The Company issued new debt, had lower payments for commercial paper and lower share repurchases.

These factors resulted in a decrease in cash used in financing activities in 2023.

Capital Resources

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Dividends from U.S.

regulated subsidiaries were $1.4 billion for the nine months ended September 30, 2022 and $2.1 billion for the nine months ended September 30, 2021.

regulated subsidiaries were $258 million for the three months ended March 31, 2023 and $475 million for the three months ended March 31, 2022.

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

We prioritize our use of capital resources to:

• invest in capital expenditures, primarily related to technology to support innovative solutions for our customers, provide the capital necessary to maintain or improve the financial strength ratings of subsidiaries and to repay debt and fund pension obligations if necessary;

• invest in capital expenditures, primarily related to technology to support innovative solutions for our clients and customers, provide the capital necessary to maintain or improve the financial strength ratings of subsidiaries and to repay debt and fund pension obligations if necessary;

• pay dividends to shareholders;

• consider acquisitions that are strategically and economically advantageous;

• consider acquisitions and investments that are strategically and economically advantageous;

• return capital to shareholders through share repurchases.

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Commercial Paper Program .

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

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

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

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

As of September 30, 2022, Cigna's revolving credit agreements include:

As of April 2023, The Cigna Group's revolving credit agreements include:

a $4.0 billion five-year revolving credit and letter of credit agreement that expires in April 2028;

a $1.0 billion three-year revolving credit agreement that expires in April 2025;

and a $1.0 billion 364-day revolving credit agreement that expires in April 2024.

As of September 30, 2022, we had $5.0 billion of undrawn committed capacity under our revolving credit agreements (these amounts are available for general corporate purposes, including providing liquidity support for our commercial paper program), $5.0 billion of remaining capacity under our commercial paper program and $7.2 billion in cash and short-term investments, approximately $0.8 billion of which was held by the parent company or certain non-regulated subsidiaries.

As of March 31, 2023, we had $5.0 billion of undrawn committed capacity under our revolving credit agreements that have since been replaced with the revolving credit agreements described above (these amounts are available for general corporate purposes, including providing liquidity support for our commercial paper program), $5.0 billion of remaining capacity under our commercial paper program and $8.1 billion in cash and short-term investments, approximately $1.1 billion of which was held by the parent company or certain non-regulated subsidiaries.

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

Our debt-to-capitalization ratio was 41.2% at September 30, 2022 and 41.7% at December 31, 2021.

Our debt-to-capitalization ratio was 42.2% at March 31, 2023 and 41.0% at December 31, 2022.

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

Subsidiary Borrowings.

In addition to the sources of liquidity discussed above, the parent company can borrow an additional $3.5 billion from its subsidiaries without further approvals as of September 30, 2022.

In addition to the sources of liquidity discussed above, the parent company can borrow an additional $2.8 billion from its subsidiaries without further approvals as of March 31, 2023.

Use of Capital Resources

Capital expenditures .

Capital expenditures for property, equipment and computer software were $950 million in the nine months ended September 30, 2022 compared to $850 million in the nine months ended September 30, 2021.

Capital expenditures for property, equipment and computer software were $0.4 billion in the three months ended March 31, 2023 compared to $0.3 billion in the three months ended March 31, 2022.

This increase reflects our continued strategic investment in technology for future growth.

We expect to deploy approximately $1.4 billion to capital expenditures in 2023.

Anticipated capital expenditures will be funded primarily from operating cash flow.

During the first nine months of 2022, Cigna declared and paid quarterly cash dividends of $1.12 per share of Cigna common stock.

In the first quarter of 2023, The Cigna Group declared and paid quarterly cash dividends of $1.23 per share of its common stock, compared to $1.12 per share in first quarter 2022.

See Note 8 to the Consolidated Financial Statements for further information on our dividend payments.

On October 26, 2022, the Board of Directors declared the fourth quarter cash dividend of $1.12 per share of Cigna common stock to be paid on December 21, 2022 to shareholders of record on December 6, 2022.

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 April 26, 2023, the Board of Directors declared the second quarter cash dividend of $1.23 per share of The Cigna Group common stock to be paid on June 22, 2023 to shareholders of record on June 7, 2023.

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

Share repurchases .

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The program may be suspended or discontinued at any time.

In February 2022, the Board increased repurchase authority by an additional $6.0 billion.

We repurchased 20.1 million shares for approximately $5.8 billion during the nine months ended September 30, 2022, compared to 26.5 million shares for approximately $6.3 billion during the nine months ended September 30, 2021.

From October 1, 2022, through November 2, 2022, we did not repurchase shares except for the accelerated share repurchases discussed below.

Share repurchase authority was $5.3 billion as of November 2, 2022.

As part of our existing share repurchase program, we entered into separate accelerated share repurchase agreements ("ASR agreements") with Mizuho Markets Americas LLC and Morgan Stanley & Co.

LLC (collectively, the "Counterparties") to repurchase $3.5 billion of common stock in aggregate.

In July 2022, in accordance with the ASR agreements we remitted $3.5 billion to the Counterparties and received an initial delivery of 10.4 million shares of our common stock.

The final Volume-Weighted Average Share Price calculation dates of the ASR agreements are November 2, 2022 and November 3, 2022.

In aggregate, we expect to receive an additional 1.9 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.

See Note 8 to the Consolidated Financial Statements for further information on our ASR agreements.

We repurchased 3.2 million shares for approximately $1.0 billion during the three months ended March 31, 2023, compared to 5.8 million shares for approximately $1.3 billion during the three months ended March 31, 2022.

From April 1, 2023, through May 4, 2023, we repurchased 0.5 million shares for approximately $139 million.

Share repurchase authority was $2.5 billion as of May 4, 2023.

Strategic investments.

In 2022, we committed an additional $450 million (which in aggregate represents a $700 million commitment) to Cigna Ventures, our strategic corporate venture fund.

Cigna Ventures will use this funding to drive continuous health care transformation, innovation and growth.

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

On July 1, 2022, we completed the sale of our life, accident and supplemental benefits businesses in six countries (Hong Kong, Indonesia, New Zealand, South Korea, Taiwan and Thailand) to Chubb for approximately $5.4 billion in cash.

Net after-tax proceeds of approximately $5.1 billion were utilized primarily for share repurchases, with $3.5 billion used to fund the purchases of our common stock pursuant to the ASR agreements (as described above).

In January 2023, we became a minority owner in VillageMD by investing $2.5 billion in VillageMD preferred equity.

In April 2023, the Company invested an additional $200 million for a total investment of $2.7 billion.

VillageMD provides health care services for individuals and communities across the United States, with primary, multi-specialty and urgent care providers serving patients in traditional clinic settings, in patients' homes and online appointments.

Risks to our liquidity and capital resources outlook include cash projections that may not be realized and the demand for funds could exceed available cash if our ongoing businesses experience unexpected shortfalls in earnings or we experience material adverse effects from one or more risks or uncertainties described more fully in the "Risk Factors" section of our 2022 Form 10-K.

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

Supply Chain Financing Program

We facilitate a voluntary supply chain finance program (the "program") that provides suppliers the opportunity to sell their receivables due from us (i.e., our payment obligations to the suppliers) to a financial institution, on a non-recourse basis in order to be paid earlier than our payment terms provide.

Cigna is not a party to the program and agrees to commercial terms with its suppliers independently of their participation in the program.

A supplier's participation in the program has no impact on our payment terms and Cigna has no economic interest in a supplier's decision to participate in the program.

The suppliers, at their sole discretion, determine which invoices, if any, to sell to the financial institution.

No guarantees are provided by Cigna or any of our subsidiaries under the program.

We have been informed by the financial institution that less than $1 million as of September 30, 2022 and $331 million as of December 31, 2021 of our outstanding payment obligations were voluntarily elected by suppliers to be sold to the financial institution under the program.

These amounts are reflected in Accounts payable in Cigna's Consolidated Balance Sheets.

Guarantees and Contractual Obligations

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See Note 16 to the Consolidated Financial Statements for discussion of various guarantees.

As reported in our 2021 Form 10-K contractual obligations for insurance liabilities, we had $22.3 billion of undiscounted obligations related to contractholder deposit funds, future policy benefits and unpaid claims and claim expenses.

As a result of the Chubb transaction our undiscounted obligations decreased by approximately $6.1 billion to $16.2 billion.

See Note 9 to the Consolidated Financial Statements for additional information regarding insurance liabilities.

There was no material change to any other obligations reported in our 2021 Form 10-K during the nine months ended September 30, 2022.

The Company adopted amended accounting guidance for long-duration insurance contracts effective January 1, 2023, which impacted the amounts presented on our Consolidated Balance Sheets.

Within our Consolidated Financial Statements, see Note 2 for a summary of this accounting change and Note 9 for a summary of the insurance liabilities on our Consolidated Balance Sheets as well as future expected cash flow information.

With the adoption of amended accounting guidance for long-duration insurance contracts and enhanced disclosure within Note 9 to the Consolidated Financial Statements, we will no longer present additional information regarding insurance liabilities within this section.

Our long-term debt obligations previously provided in our 2022 Form 10-K have been updated as of March 31, 2023 due to the issuance of $700 million in aggregate principal amount of our 5.685% senior notes due March 2026 and $800 million in aggregate principal amount of our 5.400% senior notes due March 2033.

See Note 7 to the Consolidated Financial Statements for a discussion of the debt issuance.

• Total scheduled payments on long-term debt are $48.5 billion through March 2051, which include scheduled interest payments and maturities of long-term debt.

• We expect $3.9 billion of long-term debt payments (including scheduled interest payments) to be paid for the remainder of 2023.

There have been no other material changes to other information presented in guarantees and contractual obligations set forth in our 2022 Form 10-K.

CRITICAL ACCOUNTING ESTIMATES

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We regularly evaluate items that may impact critical accounting estimates.

Our most critical accounting estimates, as well as the effect of hypothetical changes in material assumptions used to develop each estimate, are described in the 2021 Form 10-K.

As of September 30, 2022, there were no significant changes to the critical accounting estimates from what was reported in our 2021 Form 10-K.

Goodwill and Other intangible assets

Our annual evaluations of goodwill and other intangible assets for impairments were completed during the third quarter of 2022.

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

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

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

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

Our most critical accounting estimates, as well as the effect of hypothetical changes in material assumptions used to develop each estimate, are described in our 2022 Form 10-K.

As of March 31, 2023, there were no significant changes to the critical accounting estimates from what was reported in our 2022 Form 10-K.

SEGMENT REPORTING

The following section of this MD&A discusses the results of each of our segments.

During the fourth quarter of 2021, in connection with the Chubb transaction, we revised our business reporting structure and adjusted our segment reporting accordingly.

Segment results for the three and nine months ended September 30, 2021 have been restated to conform to the new segment presentation.

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

In segment discussions, we present "adjusted revenues" and "pre-tax adjusted income (loss) from operations," defined as income (loss) before income taxes excluding pre-tax income (loss) attributable to noncontrolling interests, net realized investment results, amortization of acquired intangible assets and special items.

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.

The Cigna Group's share of certain realized investment results of its joint

ventures reported in the Cigna Healthcare segment using the equity method of accounting are also excluded.

Special items are matters that management believes are not representative of the underlying results of operations due to their nature or size.

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In these segment discussions, we also present "pre-tax adjusted margin," defined as pre-tax adjusted income (loss) from operations divided by adjusted revenues.

Evernorth Segment

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 benefits services, specialty pharmacy and care services.

As described in the introduction to Segment Reporting, Evernorth's performance is measured using adjusted revenues and pre-tax adjusted income (loss) from operations.

The key factors that impact Evernorth's Pharmacy revenues and Pharmacy and other service costs are volume, mix of claims and price.

Evernorth Health Services Segment

Evernorth Health Services includes a broad range of coordinated and point solution health services and capabilities, as well as those from partners across the health care system, in Pharmacy Benefits, Home Delivery Pharmacy, Specialty Pharmacy, Distribution and Care Delivery and Management Solutions.

As described in the introduction to Segment Reporting, Evernorth Health Services' performance is measured using adjusted revenues and pre-tax adjusted income (loss) from operations.

The key factors that impact Evernorth Health Services' Pharmacy revenues, Fee and other revenues and Pharmacy and other service costs are volume, mix of claims and price.

These key factors are discussed further below.

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Furthermore, our gross profit differs among network, home delivery and specialty distribution methods and can impact our profitability.

• Our client contract pricing is impacted by our ongoing ability to negotiate favorable contracts for pharmacy network, pharmaceutical and wholesaler purchasing and manufacturer rebates.

As we seek to improve the effectiveness of our integrated solutions for the benefit of our clients, we are continuously innovating and improving affordability.

Our gross profit could also increase or decrease as a result of drug purchasing contract initiatives implemented.

• Our client contract pricing is impacted by our ongoing ability to negotiate favorable contracts for pharmacy network, pharmaceutical and wholesaler purchasing and manufacturer rebates on our clients' behalf.

Through these contract affordability services, we seek to improve the effectiveness of our integrated solutions for the benefit of our clients by continuously innovating, improving affordability and implementing drug purchasing contract initiatives.

Our revenues, cost of revenues and gross profit could increase or decrease as a result of these contract affordability services.

Inflation also impacts our pricing because most of our contracts provide that we bill clients and pay pharmacies based on a generally recognized price index for pharmaceuticals.

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Results of Operations

Financial Summary Three Months Ended

September 30, Change Favorable

(Unfavorable) Nine Months Ended

September 30, Change Favorable

Financial Summary

Three Months Ended

March 31, Change Favorable

(Unfavorable)

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$ 36,179 $ 33,586 8 %

Pharmacy and other service costs $ 33,973 $ 31,575 8 %

Gross profit (2)

$ 2,206 $ 2,011 10 %

Adjusted gross profit (1),(2)

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Pre-tax adjusted income from operations $ 1,320 $ 1,302 1 %

Pre-tax adjusted margin 4.6 % 4.6 % — bps 4.2 % 4.3 % (10) bps

Pre-tax adjusted margin 3.6 % 3.9 %

Adjusted expense ratio (3)

2.0 % 1.8 % (20) bps 2.0 % 1.9 % (10) bps

Selected Financial Information

Three Months Ended

September 30, Change Favorable

(Unfavorable) Nine Months Ended

September 30, Change Favorable

March 31, Change Favorable

(Unfavorable)

(Dollars and adjusted scripts in millions) 2023 2022

Selected Financial Information

Pharmacy revenue by distribution channel

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2,489 1,634 52

Net investment income 25 4 N/M 51 12 N/M

Net investment income 50 10 N/M

Adjusted revenues (1)

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Generic fill rate (5)

Network 86.6 % 86.3 % 30 bps 87.1 % 86.3 % 80 bps

Home delivery 84.7 % 85.9 % (120) bps 85.3 % 85.8 % (50) bps

Overall generic fill rate 86.4 % 86.3 % 10 bps 87.0 % 86.3 % 70 bps

Network 88.2 % 87.2 % 100 bps

Home delivery 84.0 % 85.4 % (140) bps

Overall generic fill rate 87.8 % 87.0 % 80 bps

(1) Total revenues and gross profit were equal to adjusted revenues and adjusted gross profit as there were no special items in the periods presented.

(2) Gross profit and adjusted gross profit are calculated as total revenues or adjusted total revenues less pharmacy and other services costs.

(3) Adjusted expense ratio is calculated as selling, general and administrative expenses as a percentage of adjusted revenues.

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(5) Generic fill rate is defined as the total number of generic scripts divided by the total overall scripts filled.

Three and Nine Months Ended September 30, 2022 versus Three and Nine Months Ended September 30, 2021

Adjusted network revenues increased for the three months ended September 30, 2022, reflecting an increase in claims mix and increased prices due to inflation on branded drugs;

partially offset by lower claims volume.

Adjusted network revenues increased for the nine months ended September 30, 2022, reflecting increased prices due to inflation on branded drugs, partially offset by lower claims volume.

Adjusted home delivery and specialty revenues increased for the three months ended September 30, 2022, reflecting higher specialty claims volume due in part to our collaboration with Prime Therapeutics.

Adjusted home delivery and specialty revenues increased for the nine months ended September 30, 2022, reflecting higher specialty claims volume due in part to our collaboration with Prime Therapeutics, and increased prices, primarily due to inflation on branded drugs;

partially offset by lower home delivery claims volume.

Other pharmacy revenues decreased for the three months ended September 30, 2022, reflecting lower volume from our CuraScript SD business.

Other pharmacy revenues increased for the nine months ended September 30, 2022, reflecting higher volume from our CuraScript SD business.

Adjusted fees and other revenues increased, reflecting customer growth from our continued contract affordability services and the growth of the Care Plus services.

Adjusted gross profit and pre-tax adjusted income from operations increased, reflecting continued contract affordability improvements and business growth, partially offset by strategic investments in expanding our services portfolio and digital capabilities.

The adjusted expense ratio increased, reflecting higher revenues and expense discipline which enabled us to increase strategic investments in expanding our services portfolio and digital capabilities.

Three Months Ended March 31, 2023 versus Three Months Ended March 31, 2022

Adjusted network revenues slightly increased, reflecting inflation on branded drugs, partially offset by a decrease in mix and an increase in the generic fill rate.

Adjusted home delivery and specialty revenues increased 9%, reflecting higher specialty claims volume and inflation on, and higher sales of, branded drugs.

These increases were partially offset by lower home delivery claims volume.

Other pharmacy revenues increased 9%, reflecting higher volume from our CuraScript Specialty Distribution business.

Adjusted fees and other revenues increased 52%, reflecting client growth of our Care Delivery and Management Solutions, including cross-enterprise leverage, and client growth from our continued contract affordability services.

Adjusted gross profit and pre-tax adjusted income from operations increased 10% and 1%, respectively, reflecting growth in specialty pharmacy, partially offset by strategic investments to support business growth and continued advancement of our capabilities.

The adjusted expense ratio increased 20 bps, reflecting increased strategic investments to support business growth and continued advancement of our capabilities.

Cigna Healthcare Segment

Cigna Healthcare includes Cigna's U.S.

Cigna Healthcare includes the U.S.

Commercial, U.S.

Government and International Health businesses, which provide comprehensive medical and coordinated solutions to clients and customers to support whole-person health needs.

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.

Government and International Health businesses, which provide comprehensive medical and coordinated solutions to clients and customers.

As described in the introduction to Segment Reporting, performance of the Cigna Healthcare segment is measured using adjusted revenues and pre-tax adjusted income from operations.

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• selling, general and administrative expenses as a percentage of adjusted revenues (adjusted expense ratio).

Effective January 1, 2023, we adopted amended accounting guidance for long-duration insurance contracts.

For the Cigna Healthcare segment, prior period results of operations have been retrospectively adjusted to conform to this new basis of accounting.

For the three months ended March 31, 2023, the impact of this amended guidance is immaterial.

See Note 2 to the Consolidated Financial Statements for additional information.

Results of Operations

Financial Summary Three Months Ended September 30, Change Favorable

(Unfavorable) Nine Months Ended September 30, Change Favorable

Financial Summary

Three Months Ended March 31, Change Favorable

(Unfavorable)

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Pre-tax adjusted income from operations $ 1,115 $ 1,297 (14) %

Pre-tax adjusted margin 9.4 % 9.3 % 10 bps 10.5 % 9.4 % 110 bps

Medical care ratio 80.8 % 83.5 % 270 bps 81.0 % 83.0 % 200 bps

Adjusted expense ratio 21.9 % 20.7 % (120) bps 21.0 % 20.6 % (40) bps

Three and Nine Months Ended September 30, 2022 versus Three and Nine Months Ended September 30, 2021

Adjusted revenues were essentially flat for the three months and nine months ended September 30, 2022, primarily reflecting increased specialty contributions, higher premium rates due to anticipated underlying medical cost trend and customer growth in U.S.

Commercial, mostly offset by a decrease in U.S.

Government customers, including the disposition of the Medicaid business, as well as lower net investment income.

Pre-tax adjusted income from operations increased for the three months and nine months ended September 30, 2022, primarily due to lower medical care ratios in U.S.

Commercial and U.S.

Government and increased specialty contributions in U.S.

Commercial, offset by lower net investment income.

The medical care ratio decreased for the three months and nine months ended September 30, 2022, reflecting lower medical costs, primarily due to decreased direct COVID-19 testing, treatment and vaccine costs in U.S.

Commercial and U.S.

Government, as well as for the nine months ended September 30, 2022, effective execution in pricing and affordability initiatives.

The adjusted expense ratio increased for the three months and nine months ended September 30, 2022, due to a higher expense ratio in U.S.

Government reflecting a change in mix and increased costs to support future growth as well as lower net investment income.

These increases were partially offset by revenue growth and expense efficiencies in U.S.

Commercial and International Health.

Pre-tax adjusted margin 8.8 % 11.4 % (260) bps

Medical care ratio 81.3 % 81.5 % 20 bps

Adjusted expense ratio 21.4 % 20.5 % (90) bps

Three Months Ended March 31, 2023 versus Three Months Ended March 31, 2022

Adjusted revenues increased 12%, reflecting customer growth in U.S.

Government and U.S.

Commercial mostly driven by our Individual business, increased specialty contributions and higher premium rates due to anticipated underlying medical cost trend, partially offset by lower net investment income.

Pre-tax adjusted income from operations decreased 14%, primarily due to a higher adjusted expense ratio and lower net investment income, partially offset by a lower medical care ratio.

The medical care ratio decreased 20 bps, reflecting effective pricing execution and favorable cost trends, inclusive of lower COVID-19 costs.

The adjusted expense ratio increased 90 bps, primarily due to volume-related expenses, higher spend on investments to support growth and lower net investment income, partially offset by revenue growth across all segments.

Medical Customers

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• has medical claims that are administered by us.

Effective in the second quarter of 2022, the Company updated its U.S.

Commercial market segments as follows:

the National segment comprises employers with 3,000 or more eligible employees, and the Middle Market segment comprises employers with 500 to 2,999 eligible employees, Taft-Hartley plans, and other groups.

Previously, the National segment comprised multi-state employers with 5,000 or more eligible employees and the Middle Market segment comprised employers with 500 to 4,999 eligible employees, single-site employers with more than 5,000 employees, Taft-Hartley plans and other groups.

There have been no updates to the Select (employers generally with 51 to 499 eligible employees) or Small Group (employers generally with 2 to 50 eligible employees) market segments.

As of September 30,

(In thousands) 2022 2021 % Change

Cigna Healthcare Medical Customers

As of March 31,

(In thousands) 2023 2022 % Change

Insured 5,205 4,682 11 %

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Total 19,473 17,779 10 %

(1) International Health excludes medical customers served by less than 100% owned subsidiaries and customers that are part of the businesses sold pursuant to the Chubb transaction.

Our medical customer base increased at September 30, 2022, reflecting growth in our fee-based products from Middle Market and Select market segments as well as International Health, partially offset by the disposition of the Medicaid business.

(1) International Health excludes medical customers served by less than 100% owned subsidiaries.

International Health lives as of March 31, 2023 reflect the transition of certain run-off business to Other Operations beginning January 1, 2023.

Our medical customer base increased 10%, primarily driven by growth in fee-based customers as well as growth in Individual and Medicare Advantage customers.

See Part I, Item 1 of our 2022 Form 10-K for definitions of Cigna Healthcare's market segments.

Unpaid Claims and Claim Expenses

(In millions) As of September 30, 2022 As of December 31, 2021 % Change

(In millions) As of March 31, 2023 As of December 31, 2022 % Change

Unpaid claims and claim expenses – Cigna Healthcare

$ 4,959 $ 4,176 19 %

Our unpaid claims and claim expenses liability was slightly lower as of September 30, 2022, primarily driven by timing of payments in U.S.

Government as well as the disposition of Medicaid, offset by stop loss seasonality.

Our unpaid claims and claim expenses liability increased 19%, driven by stop loss seasonality and higher volumes in our Individual and Medicare Advantage businesses.

Other Operations

Other Operations includes the International businesses sold to Chubb on July 1, 2022, Corporate Owned Life Insurance ("COLI"), our interest in a joint venture in Türkiye and the Company's run-off operations.

Other Operations includes corporate owned life insurance ("COLI") and the Company's run-off operations.

In the prior period, Other Operations also included the International businesses sold in July 2022 and our interest in a joint venture in Türkiye sold in December 2022.

As described in the introduction of Segment Reporting, performance of Other Operations is measured using adjusted revenues and pre-tax adjusted income from operations.

Effective January 1, 2023, we adopted amended accounting guidance for long-duration insurance contracts.

For the Other Operations segment, prior period results of operations have been retrospectively adjusted to conform to this new basis of accounting.

For the three months ended March 31, 2023, the impact of this amended guidance is immaterial.

See Note 2 to the Consolidated Financial Statements for additional information.

Results of Operations

Financial Summary Three Months Ended September 30, Change

(Unfavorable) Nine Months Ended

September 30, Change

Financial Summary Three Months Ended

March 31, Change

(Unfavorable)

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Pre-tax adjusted income from operations $ 15 $ 229 (93) %

Pre-tax adjusted margin 11.1 % 22.5 % (1140) bps 22.9 % 22.4 % 50 bps

Three and Nine Months Ended September 30, 2022 versus Three and Nine Months Ended September 30, 2021

Adjusted revenues and Pre-tax adjusted income from operations decreased primarily due to the absence of revenues and earnings from the businesses divested in the Chubb transaction.

Other Items Related to International Businesses Sold to Chubb

For the nine months ended September 30, 2022, 78% of Other Operations' adjusted revenues and 85% of its pre-tax adjusted income from operations was associated with sold International 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 enterprise-wide project costs and intersegment eliminations for products and services sold between segments.

Financial Summary Three Months Ended

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

Pre-tax adjusted margin 9.6 % 23.4 % (1,380) bps

Three Months Ended March 31, 2023 versus Three Months Ended March 31, 2022

Adjusted revenues and pre-tax adjusted income from operations decreased 84% and 93%, respectively, primarily due to the absence of revenues and earnings from the businesses divested in the Chubb transaction.

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, operating severance, certain overhead and enterprise-wide project costs and intersegment eliminations for products and services sold between segments.

Financial Summary Three Months Ended March 31, Change Favorable (Unfavorable)

(In millions) 2023 2022

Pre-tax adjusted loss from operations $ (414) $ (343) (21) %

Three and Nine Months Ended September 30, 2022 versus Three and Nine Months Ended September 30, 2021

Pre-tax adjusted loss from operations increased, reflecting an increase in operating expenses for enterprise-wide initiatives.

Three Months Ended March 31, 2023 versus Three Months Ended March 31, 2022

Pre-tax adjusted loss from operations increased 21%, primarily due to higher interest rates on our indebtedness and increased pension costs due to lower asset returns and a higher discount rate.

While our pension expense has increased year-over-year, we continue to expect the required contributions for 2023 to be immaterial.

INVESTMENT ASSETS

The following table presents our investment asset portfolio excluding separate account assets as of September 30, 2022 and December 31, 2021.

The following table presents our investment asset portfolio excluding separate account assets.

Additional information regarding our investment assets is included in Notes 11, 12, 13 and 14 to the Consolidated Financial Statements.

(In millions) September 30,

(In millions) March 31,

2023 December 31,

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Short-term investments 141 139

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

Investments per Consolidated Balance Sheets $ 17,056 $ 19,358

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

See Note 4 to the Consolidated Financial Statements for additional information.

Total $ 19,924 $ 17,193

Investment Outlook

We continue to actively monitor current economic conditions driven by geopolitical events and fiscal and monetary policy responses (including the resulting supply chain and labor market dynamics), and the portfolio impact of ongoing higher levels of both interest rates and inflation.

We continue to actively monitor economic conditions including the impact of inflation, higher interest rates and the potential for a recession in 2023 on the investment portfolio.

Although there has been very limited impact to date on our investment portfolio as a result of recent banking failures, we are also monitoring this situation and any potential impacts on our investments.

Future realized and unrealized investment results will be driven largely by market conditions and these future conditions are not reasonably predictable.

We believe that the vast majority of our investments will continue to perform under their contractual terms.

Based on our strategy to match the duration of invested assets to the duration of insurance and contractholder liabilities, we expect to hold a significant portion of these assets for the long-term.

We manage the portfolio for long-term economics and therefore we expect to hold a significant portion of these assets for the long term.

The following discussion addresses the strategies and risks associated with our various classes of investment assets.

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Investments in debt securities include publicly traded and privately placed bonds, mortgage and other asset-backed securities and preferred stocks redeemable by the investor.

These investments are classified as available for sale and are carried at fair value on our balance sheet.

These investments are classified as available for sale and are carried at fair value in our Consolidated Balance Sheets.

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

More detailed information about debt securities by type of issuer and maturity dates is included in Note 11 to the Consolidated Financial Statements.

The following table reflects our portfolio of debt securities by type of issuer as of September 30, 2022 and December 31, 2021:

(In millions) September 30,

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

(In millions) March 31,

2023 December 31,

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Total $ 9,909 $ 9,872

Our debt securities portfolio decreased during the nine months ended September 30, 2022 primarily due to the completion of our transaction with Chubb during the third quarter (see Note 4 to the Consolidated Financial Statements) and a decrease in valuations due to a significant rise in interest rates.

As of September 30, 2022, $7.9 billion, or 81% of the debt securities in our investment portfolio were investment grade (Baa and above, or equivalent) and the remaining $1.9 billion were below investment grade.

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

Our debt securities portfolio increased during the three months ended March 31, 2023 primarily due to an increase in valuations due to a slight decrease in interest rates.

Our portfolio remains in a net unrealized depreciation position due to generally increasing interest rates over the last several quarters.

More detailed information about debt securities by type of issuer, maturity dates and net unrealized position is included in Note 11 to the Consolidated Financial Statements.

As of March 31, 2023, $8.1 billion, or 82%, of the debt securities in our investment portfolio were investment grade (Baa and above, or equivalent) and the remaining $1.8 billion were below investment grade.

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

These quality characteristics have not materially changed since the prior year and remain consistent with our investment strategy.

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Investments in debt securities are diversified by issuer, geography and industry.

On an aggregate basis, the debt securities portfolio continues to perform according to original investment expectations.

Elevated global inflation and rising interest rates experienced during 2022, as well as continuing supply chain disruptions are the primary risks that many of the issuers in our portfolio are facing.

On an aggregate basis, the debt securities portfolio continues to perform according to original expectations, which includes a long-term economic investment strategy.

Elevated global inflation, higher interest rates, continuing supply chain disruptions and potential fallout from the current stress in the banking system are the primary risks that many of the issuers in our portfolio are facing.

To date, most issuers have been successful in managing the cost escalation and product shortages without undue margin pressure.

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Commercial Mortgage Loans

As of September 30, 2022, the $1.6 billion commercial mortgage loan portfolio consisted of approximately 50 fixed rate loans, diversified by property type, location and borrower.

As of March 31, 2023, our $1.6 billion commercial mortgage loan portfolio consisted of approximately 50 fixed-rate loans, diversified by property type, location and borrower.

These loans are carried in our Consolidated Balance Sheets at their unpaid principal balance, net of an allowance for expected credit losses.

As a result of increasing market interest rates since the majority of these loans were made, the carrying value exceeds the market value of these loans as of March 31, 2023.

See Note 12 to the Consolidated Financial Statements for further details.

Given the quality and diversity of the underlying real estate, positive debt service coverage and significant borrower cash invested in the property generally ranging between 30 and 40%, we remain confident that the vast majority of borrowers will continue to perform as expected under their contract terms.

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We hold no direct residential mortgage loans and do not originate or service securitized mortgage loans.

We assess the credit quality of our commercial mortgage loan portfolio annually by reviewing each holding's most recent financial statements, rent rolls, budgets and relevant market reports.

We assess the credit quality of our commercial mortgage loan portfolio annually, generally in the second fiscal quarter by reviewing each holding's most recent financial statements, rent rolls, budgets and relevant market reports.

The review performed in the second quarter of 2022 confirmed ongoing strong overall credit quality in line with the previous year's results.

We continue to monitor the long-term impacts of COVID-19 on office sector fundamentals due to multiple headwinds that may impact future valuations:

Office sector fundamentals have been and continue to be weak and values are experiencing stress due to multiple headwinds:

expanded work from home flexibility, shorter term leases, elevated tenant improvement allowances and corporate migration to lower cost states.

Additionally, the current macroeconomic headwinds are impacting capital markets and reducing investor appetite for capital intensive assets (e.g., office and regional shopping malls).

Additionally, the current macroeconomic headwinds are impacting capital markets and reducing investor appetite for capital intensive assets (e.g., offices and regional shopping malls).

Our commercial mortgage loan portfolio has no exposure to regional shopping malls and less than 30% exposure to office properties.

Other Long-term Investments

Other long-term investments of $3.6 billion as of September 30, 2022 included investments in securities limited partnerships and real estate limited partnerships, direct investments in real estate joint ventures and other deposit activity that is required to support various insurance and health services businesses.

The balance of other long-term investments is flat with December 31, 2021 reflecting net additional funding activity offset by the effects of completing our transaction with Chubb during the third quarter (see Note 4 to the Consolidated Financial Statements) .

Other long-term investments of $3.9 billion as of March 31, 2023 included investments in securities limited partnerships and real estate limited partnerships, direct investments in real estate joint ventures and other deposit activity that is required to support various insurance and health services businesses.

Accounting policies for these investments are discussed in Note 11 to the Consolidated Financial Statements.

The increase in other long-term investments of $0.2 billion since December 31, 2022 is primarily driven by net additional funding activity.

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

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

Accordingly, our net investment income in the third quarter largely reflects the underlying financial information from the second quarter of 2022.

Accordingly, our net investment income in the first quarter largely reflects the underlying financial information from the fourth quarter of 2022.

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

Less than 5% of our other long-term investments are exposed to real estate in the office sector.

We participate in an insurance joint venture in China with a 50% ownership interest.

We account for this joint venture under the equity method of accounting and report our share of the net assets of $0.4 billion in Other assets.

Our 50% share of the investment portfolio supporting the joint venture's liabilities is approximately $9.0 billion as of September 30, 2022.

Our 50% share of the investment portfolio supporting the joint venture's liabilities is approximately $10.3 billion as of March 31, 2023.

These investments were comprised of approximately 70% debt securities, including government and corporate debt diversified by issuer, industry and geography;

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

There were no investments with a material unrealized loss as of September 30, 2022.

There were no investments with a material unrealized loss as of March 31, 2023.

Financial Instruments

Our assets and liabilities include financial instruments subject to the risk of potential losses from adverse changes in market rates and prices.

Our primary market risk exposures are interest rate risk and foreign currency exchange rate risk.

Our primary market risk exposure is interest rate risk.

We encourage you to read this in conjunction with "Market Risk – Financial Instruments" included in the MD&A section of our 2022 Form 10-K.

As a result of decreases in the fair value of our debt securities and long-term debt since December 31, 2021, as well as the effect of completing the Chubb transaction as described in Note 4 to the Consolidated Financial Statements, the effect of hypothetical changes in market rates or prices on the fair value of certain financial instruments has changed.

In the event of a hypothetical 100 basis point increase in interest rates, the fair value of certain non-insurance financial instruments would decrease approximately $0.7 billion at September 30, 2022 compared to $1.4 billion at December 31, 2021.

Further, under the same hypothetical 100 basis point increase in interest rates scenario, the fair value of the Company's long-term debt would decrease approximately $1.8 billion at September 30, 2022 compared to approximately $2.9 billion at December 31, 2021.

Changes in the fair value of our long-term debt do not impact our financial position or operating results since long-term debt is not required to be recorded at fair value.

In addition, the impact of a hypothetical 10% strengthening in the U.S.

dollar to foreign currencies would be an insignificant amount as of September 30, 2022 as compared to a decrease of approximately $0.3 billion as of December 31, 2021.

As of March 31, 2023, there were no material changes in our risk exposures from those reported in our 2022 Form 10-K.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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What changed 10-Q

Item 2. Management’s Discussion and Analysis