What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-08-03 compared with 2023-05-05 · 172 added, 135 removed, 447 unchanged (41% of the section changed)

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Investment Assets

Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is intended to provide information to assist you in better understanding and evaluating our financial condition as of 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.

Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is intended to provide information to assist you in better understanding and evaluating our financial condition as of June 30, 2023, compared with December 31, 2022 and our results of operations for the three and six months ended June 30, 2023, compared with the same periods last year and is intended to help you understand the ongoing trends in our business.

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

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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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potential failure of our prevention, detection and control systems;

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;

unfavorable economic and market conditions, including recent events affecting the financial services industry, 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;

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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.

Prior period Financial highlights and Results of operations have been retrospectively adjusted to conform to this new basis of accounting.

The commentary provided below describes our results for the

three and six months ended June 30, 2023 compared with the same periods in 2022.

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

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

Financial highlights by segment

Three Months Ended March 31,

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

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

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

Adjusted revenues by segment

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Adjusted revenues 48,616 45,429 7 95,095 89,538 6

Net realized investment results from certain equity method investments 38 (103) N/M

Net realized investment results from certain equity method investments (30) 49 N/M 8 (54) N/M

Total revenues $ 48,586 $ 45,478 7 % $ 95,103 $ 89,484 6 %

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Consolidated Results of Operations (GAAP basis)

Three Months Ended

(Dollars in millions) 2023 2022 % Change

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

(Dollars in millions) 2023 2022 % Change 2023 2022 % Change

Pharmacy revenues $ 33,964 $ 31,972 6 % $ 66,108 $ 62,669 5 %

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Interest expense and other (363) (301) (21) (721) (600) (20)

Net realized investment losses

(56) (322) 83

Net realized investment gains (losses)

26 (89) N/M (30) (411) 93

Income before income taxes 1,884 1,981 (5) 3,485 3,548 (2)

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Shareholders' net income $ 1,460 $ 1,557 (6) % $ 2,727 $ 2,754 (1) %

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

Consolidated effective tax rate 19.9 % 20.7 % (80) bps 19.2 % 21.6 % (240) bps

Medical customers (in thousands) 19,506 17,806 10 %

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

Three Months Ended March 31,

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

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

2023 2022 2023 2022

(In millions) Pre-tax After-tax Pre-tax After-tax Pre-tax After-tax Pre-tax After-tax

Shareholders' net income $ 1,460 $ 1,557 $ 2,727 $ 2,754

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Integration and transaction-related costs 6 5 36 26 7 6 88 63

Charge for organizational efficiency plan — — 22 17 — — 22 17

(Benefits) associated with litigation matters — — (28) (20) — — (28) (20)

Total special items $ 6 5 $ 30 23 $ 7 6 $ 82 60

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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

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

2023 2022 2023 2022

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

Shareholders' net income $ 4.92 $ 4.89 $ 9.15 $ 8.61

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Integration and transaction-related costs 0.02 0.01 0.11 0.08 0.02 0.02 0.28 0.20

Charge for organizational efficiency plan — — 0.07 0.05 — — 0.07 0.05

(Benefits) associated with litigation matters — — (0.09) (0.06) — — (0.09) (0.06)

Total special items $ 0.02 0.01 $ 0.09 0.07 $ 0.02 0.02 $ 0.26 0.19

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(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.

Recent Events

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.

Three and Six Months Ended June 30, 2023 versus Three and Six Months Ended June 30, 2022

The commentary presented below, and in the segment discussions that follow, compare results for the three and six months ended June 30, 2023 with results for the three and six months ended June 30, 2022.

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

Shareholders' net income decreased 6% and 1%, respectively, due primarily to lower adjusted income from operations (see below).

For the six months ended June 30, 2023, the decline was substantially offset by improved realized investment results reflecting lower mark-to-market losses on equity securities.

Adjusted income from operations declined 8% and 12%, respectively, 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 customers as well as 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.

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

Pharmacy revenues increased 6% and 5%, respectively, reflecting growth in specialty as well as inflation on 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.

Premiums increased 6% in both periods, reflecting insured customer growth 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.

Fees and other revenues increased 20% in both periods, primarily reflecting client growth from our continued affordability services within Evernorth Health Services.

Net investment income decreased 14% and 25%, respectively, 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 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.

Pharmacy and other service costs increased 7% and 6%, respectively, reflecting growth in specialty as well as inflation on branded drugs.

Medical costs and other benefit expenses increased 10% for both periods, primarily reflecting insured customer growth and trend in Cigna Healthcare, partially offset by the impact of the Chubb transaction.

Selling, general and administrative expenses increased 5% and 7%, respectively, primarily driven by volume-related expenses in Cigna Healthcare and Evernorth Health Services due to business growth, as well as strategic investments in technology to support business growth and continued advancement of our capabilities and solutions 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.

Interest expense and other increased 21% and 20%, respectively, primarily reflecting higher interest rates on our indebtedness and increased pension costs.

Realized investment results were substantially improved in both periods, primarily due to lower mark-to-market losses on investments.

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

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.

The effective tax rate decreased by 80 basis points and 240 basis points, respectively, driven by favorable results relative to the Company's foreign operations and the release of uncertain tax positions resulting from favorable audit developments.

Recent Events

Economic Conditions

We continue to monitor global economic conditions, including inflation, labor market dynamics and the recent events affecting the financial services industry.

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 and six months ended June 30, 2023 were not materially impacted by inflation, labor market dynamics, or the recent events affecting the financial services industry.

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.

CarepathRx Health System Solutions

In July 2023, Evernorth Health, Inc.

became a minority owner in CarepathRx Health Systems Solutions ("CHSS"), through a $437 million equity method investment in CHSS JV LLC (a holding company for the CHSS business and a CarepathRx company).

CarepathRx provides integrated hospital pharmacy solutions to support patients across their complete health care journey.

By pairing Evernorth Health Services' diverse specialty and care expertise with CHSS' robust pharmacy and infusion management capabilities, technology solutions and health system relationships, we can further improve, expand and accelerate pharmacy care delivery for the growing number of patients with chronic and complex care needs.

Medicare Advantage Rates

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

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

restrictions.

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.

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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,

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

Six Months Ended June 30,

(In millions) 2023 2022

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Financing activities $ (472) $ (3,087)

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.

The following discussion explains variances in the various categories of cash flows for the six months ended June 30, 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 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.

Operating cash flows for the six months ended June 30, 2023 included the benefits from the early receipt of July Medicare premiums from CMS and a higher CMS Medicare Part D annual settlement.

The remaining increase was driven by timing of accounts receivable and higher insurance liabilities.

Investing activities

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Financing activities

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

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

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

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Dividends from U.S.

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

regulated subsidiaries were $518 million for the six months ended June 30, 2023 and $1.0 billion for the six months ended June 30, 2022.

This decrease was due in part to lower statutory earnings in 2022 and additional capital held at subsidiaries to support business growth

which is in line with our capital planning.

Non-regulated subsidiaries also generate significant cash flow from operating activities, which is typically available immediately to the parent company 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 April 2023, The Cigna Group's revolving credit agreements include:

As of June 30, 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;

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

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.

As of June 30, 2023, 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), $4.8 billion of remaining capacity under our commercial paper program and $9.7 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 42.2% at March 31, 2023 and 41.0% at December 31, 2022.

Our debt-to-capitalization ratio was 41.9% at June 30, 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 $2.8 billion from its subsidiaries without further approvals as of March 31, 2023.

In addition to the sources of liquidity discussed above, the parent company can borrow an additional $2.6 billion from its subsidiaries without further approvals as of June 30, 2023.

Use of Capital Resources

Long-term debt.

In July 2023, we repaid $2.9 billion of senior notes, which were due in July 2023.

Capital expenditures .

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.

Capital expenditures for property, equipment and computer software were $0.8 billion in the six months ended June 30, 2023 compared to $0.6 billion in the six months ended June 30, 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.

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.

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

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

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.

On July 26, 2023, the Board of Directors declared the third quarter cash dividend of $1.23 per share of The Cigna Group common stock to be paid on September 21, 2023 to shareholders of record on September 6, 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.

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The timing and actual number of shares repurchased will depend on a variety of factors including price, general business and market conditions and alternate uses of capital.

The share repurchase program may be effected through open market purchases in compliance with Rule 10b-18 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), including through Rule 10b5-1 trading plans or privately negotiated transactions.

The share repurchase program may be effected through open market purchases in compliance with Rule 10b-18 under the Securities Exchange Act of 1934, as amended (the

"Exchange Act"), including through Rule 10b5-1 trading plans or privately negotiated transactions.

The program may be suspended or discontinued at any time.

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.

We repurchased 3.8 million shares for approximately $1.1 billion during the six months ended June 30, 2023, compared to 9.7 million shares for approximately $2.3 billion during the six months ended June 30, 2022.

There were no share repurchases from July 1, 2023, through August 2, 2023.

Share repurchase authority was $2.5 billion as of August 2, 2023.

Strategic investments.

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.

In 2023, we became a minority owner in VillageMD by investing $2.7 billion in VillageMD preferred equity.

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.

In July 2023, Evernorth Health, Inc.

CarepathRx provides integrated hospital pharmacy solutions to support patients across their complete health care journey.

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.

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

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.

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

Within our Consolidated Financial Statements, see Note 2 to the Consolidated Financial Statements for a summary of this accounting change and Note 9 to the Consolidated Financial Statements for a summary of the insurance liabilities in 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.

Our long-term debt obligations previously provided in our 2022 Form 10-K have been updated as of June 30, 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.

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• We expect $3.6 billion of long-term debt payments (including scheduled interest payments) to be paid for the remainder of 2023.

As of June 30, 2023, we had a commitment to become a minority owner in CarepathRx Health Systems Solutions ("CHSS").

In July 2023, we invested $437 million in CHSS JV LLC (a holding company for the CHSS business and a CarepathRx company).

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

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

As of June 30, 2023, there were no significant changes to the critical accounting estimates from what was reported in our 2022 Form 10-K.

SEGMENT REPORTING

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

The 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.

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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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.

The key factors that impact Evernorth Health Services' Pharmacy revenues, Fees 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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• 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.

Through these 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 affordability services.

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

Therefore, the rate of inflation for prescription drugs and our efforts to manage this inflation for our clients continues to be a significant driver of our revenues and cost of revenues in the current environment.

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Three Months Ended

March 31, Change Favorable

June 30, Change Favorable

(Unfavorable) Six Months Ended

June 30, Change Favorable

(Unfavorable)

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Pre-tax adjusted income from operations $ 1,516 $ 1,475 3 % $ 2,836 $ 2,777 2 %

Pre-tax adjusted margin 3.6 % 3.9 %

Pre-tax adjusted margin 4.0 % 4.2 % (20) bps 3.8 % 4.1 % (30) bps

Adjusted expense ratio (3)

2.1 % 1.9 % (20) bps 2.2 % 2.0 % (20) bps

Selected Financial Information

Three Months Ended

March 31, Change Favorable

June 30, Change Favorable

(Unfavorable) Six Months Ended

June 30, Change Favorable

(Unfavorable)

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Generic fill rate (5)

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

Network 88.2 % 87.6 % 60 bps 88.2 % 87.4 % 80 bps

Home delivery 85.3 % 85.8 % (50) bps 84.7 % 85.6 % (90) bps

Overall generic fill rate 87.9 % 87.5 % 40 bps 87.8 % 87.2 % 60 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.

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

Three and Six Months Ended June 30, 2023 versus Three and Six Months Ended June 30, 2022

Adjusted network revenues increased 2% in both periods, 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% in both periods, reflecting higher specialty claims volume and inflation on branded drugs, partially offset by lower home delivery claims volume.

Other pharmacy revenues increased 35% and 22%, respectively, reflecting higher volume from our CuraScript Specialty Distribution business.

Adjusted fees and other revenues increased 60% and 57%, respectively, reflecting client growth of our Care Delivery and Management Solutions, including cross-enterprise leverage, and client growth from our continued affordability services.

Adjusted gross profit increased 10% in both periods and pre-tax adjusted income from operations increased 3% and 2%, respectively, reflecting growth in Specialty Pharmacy and continued affordability improvements, partially offset by increased strategic investments in technology to support business growth and continued advancement of our capabilities and solutions.

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

Cigna Healthcare Segment

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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.

For the three and six months ended June 30, 2023, the impact of this amended guidance is immaterial.

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

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Financial Summary

Three Months Ended March 31, Change Favorable

Three Months Ended

June 30, Change Favorable

(Unfavorable) Six Months Ended

June 30, Change Favorable

(Unfavorable)

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Pre-tax adjusted income from operations $ 1,172 $ 1,235 (5) % $ 2,287 $ 2,532 (10) %

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.

Pre-tax adjusted margin 9.2 % 10.9 % (170) bps 9.0 % 11.1 % (210) bps

Medical care ratio 81.2 % 80.7 % (50) bps 81.2 % 81.1 % (10) bps

Adjusted expense ratio 20.9 % 20.7 % (20) bps 21.1 % 20.6 % (50) bps

Three and Six Months Ended June 30, 2023 versus Three and Six Months Ended June 30, 2022

Adjusted revenues increased 12% in both periods, reflecting customer growth and higher premium rates due to anticipated underlying medical cost trend.

Pre-tax adjusted income from operations decreased 5% and 10%, respectively, primarily due to lower net investment income, a higher adjusted expense ratio and a higher medical care ratio, partially offset by increased specialty contributions in U.S.

The medical care ratio increased 50 bps and 10 bps, respectively, primarily due to an increased risk adjustment payable in our Individual business, partially offset by a lower U.S.

Commercial medical care ratio reflecting effective pricing execution and affordability initiatives.

The six months ended June 30, 2023 also reflects lower COVID-19 costs.

The adjusted expense ratio increased 20 bps and 50 bps, respectively, primarily due to volume-related expenses and higher spend on strategic investments in technology to support growth, partially offset by revenue growth across all segments.

Medical Customers

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Cigna Healthcare Medical Customers

As of March 31,

As of June 30,

(In thousands) 2023 2022 % Change

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Total 19,506 17,806 10 %

(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.

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

International Health customers as of June 30, 2023 reflect the transition of certain run-off business to Other Operations beginning January 1, 2023.

Total medical customers increased 10%, primarily driven by growth in fee-based customers as well as 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 March 31, 2023 As of December 31, 2022 % Change

(In millions) As of June 30, 2023 As of December 31, 2022 % Change

Unpaid claims and claim expenses – Cigna Healthcare

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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.

See Note 1 to the Consolidated Financial Statements for additional information regarding these operations.

In the prior periods, 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.

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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.

For the three and six months ended June 30, 2023, the impact of this amended guidance is immaterial.

Prior period results related to long-duration contracts sold in the Chubb transaction and our divested interest in a joint venture in Türkiye were not adjusted (as permitted by ASU 2022-05).

See Note 9 to the Consolidated Financial Statements for additional disclosure of our long-duration insurance contracts and Note 2 to the Consolidated Financial Statements for additional information regarding the adoption of this amended guidance.

Results of Operations

Financial Summary Three Months Ended

March 31, Change

Financial Summary Three Months Ended June 30, Change

(Unfavorable) Six Months Ended

June 30, Change

(Unfavorable)

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Pre-tax adjusted income from operations $ 29 $ 228 (87) % $ 44 $ 457 (90) %

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.

Pre-tax adjusted margin 18.4 % 24.1 % (570) bps 14.0 % 23.7 % (970) bps

Three and Six Months Ended June 30, 2023 versus Three and Six Months Ended June 30, 2022

Adjusted revenues and pre-tax adjusted income from operations decreased for both periods 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)

Financial Summary Three Months Ended

June 30, Change Favorable (Unfavorable) Six Months Ended

June 30, Change Favorable (Unfavorable)

(In millions) 2023 2022 2023 2022

Pre-tax adjusted loss from operations $ (423) $ (401) (5) % $ (837) $ (744) (13) %

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.

Three and Six Months Ended June 30, 2023 versus Three and Six Months Ended June 30, 2022

Pre-tax adjusted loss from operations increased 5% and 13% respectively, primarily due to higher interest rates on our indebtedness and increased pension costs due to lower expected asset returns and a higher discount rate.

These increases were partially offset by lower operating expenses.

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

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

(In millions) March 31,

(In millions) June 30,

2023 December 31,

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Investment Outlook

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.

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

Although there has been very limited impact to date on our investment portfolio as a result of the banking system stress that emerged in early 2023, we are also monitoring the ongoing developments of 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.

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

(In millions) March 31,

(In millions) June 30,

2023 December 31,

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Total $ 9,468 $ 9,872

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 debt securities portfolio decreased during the six months ended June 30, 2023 primarily due to net sales activity .

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.

As of June 30, 2023, $7.8 billion, or 82%, of the debt securities in our investment portfolio were investment grade (Baa and above, or equivalent) and the remaining $1.7 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.

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Commercial Mortgage Loans

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.

As of June 30, 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.

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 June 30, 2023.

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

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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, generally in the second fiscal quarter 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 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 2023 confirmed ongoing strong overall credit quality in line with the previous year's results.

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

See Note 11 to the Consolidated Financial Statements for further information regarding our key credit quality indicators for commercial mortgage loans.

Office sector

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

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

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Other Long-term Investments

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.

Other long-term investments of $4.0 billion as of June 30, 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.

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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 first quarter largely reflects the underlying financial information from the fourth quarter of 2022.

Accordingly, our net investment income in the second quarter largely reflects the underlying financial information from the first quarter of 2023.

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.

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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 $10.3 billion as of March 31, 2023.

Our 50% share of the investment portfolio supporting the joint venture's liabilities is approximately $10.5 billion as of June 30, 2023.

These investments were comprised of approximately 75% 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 March 31, 2023.

There were no investments with a material unrealized loss as of June 30, 2023.

Financial Instruments

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

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

As of June 30, 2023, there were no material changes in our risk exposures as reported in our 2022 Form 10-K;

however, following increased investments in equity securities in 2023, we have increased risk regarding market prices for equity securities.

If the market price for all equity securities declined by 10%, Cigna would recognize a loss of approximately $340 million as of June 30, 2023 compared to an insignificant exposure as of December 31, 2022.

See Note 11 to the Consolidated Financial Statements for more information about our investments in equity securities.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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What changed 10-Q

Item 2. Management’s Discussion and Analysis