What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-11-02 compared with 2023-08-03 · 174 added, 129 removed, 490 unchanged (38% of the section changed)

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Investment Assets

Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is intended to provide information to assist you in better understanding and evaluating our financial condition as of June 30, 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.

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, 2023, compared with December 31, 2022 and our results of operations for the three and nine months ended September 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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potential failure of our prevention, detection and control systems;

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;

unfavorable economic and market conditions, 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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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.

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

Financial Highlights

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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.

The commentary provided below describes our results for the three and nine months ended September 30, 2023 compared with the same periods in 2022.

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

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

Financial highlights by segment

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

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

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

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Adjusted revenues 49,078 45,361 8 144,173 134,899 7

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

Net realized investment results from certain equity method investments (30) (80) 63 (22) (134) 84

Total revenues $ 49,048 $ 45,281 8 % $ 144,151 $ 134,765 7 %

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Amortization of acquired intangible assets (454) (460) 1 (1,368) (1,419) 4

Special items (6) (30) 80 (7) (82) 91

Special items (235) 1,711 N/M (242) 1,629 N/M

Income before income taxes $ 1,840 $ 3,491 (47) % $ 5,325 $ 7,039 (24) %

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Consolidated Results of Operations (GAAP basis)

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

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

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

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Interest expense and other (365) (304) (20) (1,086) (904) (20)

Net realized investment gains (losses)

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

(Loss) gain on sale of businesses

(21) 1,735 N/M (21) 1,735 N/M

Net realized investment losses

(14) (82) 83 (44) (493) 91

Income before income taxes 1,840 3,491 (47) 5,325 7,039 (24)

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

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

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

2023 2022 2023 2022

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Special items

Charges (benefits) associated with litigation matters 201 171 — — 201 171 (28) (20)

Loss (gain) on sale of businesses 21 19 (1,735) (1,388) 21 19 (1,735) (1,388)

Integration and transaction-related costs 13 9 24 23 20 15 112 86

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

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

Total special items $ 235 199 $ (1,711) (1,365) $ 242 205 $ (1,629) (1,305)

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

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

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

2023 2022 2023 2022

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Special items

Charges (benefits) associated with litigation matters 0.68 0.58 — — 0.67 0.58 (0.09) (0.06)

Loss (gain) on sale of businesses 0.07 0.06 (5.64) (4.52) 0.07 0.06 (5.49) (4.39)

Integration and transaction-related costs 0.04 0.03 0.08 0.07 0.07 0.05 0.35 0.27

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

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

Total special items $ 0.79 0.67 $ (5.56) (4.45) $ 0.81 0.69 $ (5.16) (4.13)

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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.

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).

Three and Nine Months Ended September 30, 2023 versus Three and Nine Months Ended September 30, 2022

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

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

Shareholders' net income decreased 49% and 25%, respectively, primarily reflecting the absence of the gain on the sale of our life, accident and supplemental health benefits business in six countries sold on July 1, 2022 (the "Chubb transaction").

Adjusted income from operations increased 8% for the three months ended September 30, 2023 primarily driven by higher earnings in our Evernorth Health Services and Cigna Healthcare segments.

The decrease of 6% for the nine months ended September 30, 2023 primarily reflects the absence of earnings from the businesses divested in the Chubb transaction.

Medical customers increased 9%, 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 6% and 5%, respectively, reflecting growth in specialty as well as inflation on branded drugs.

Pharmacy revenues increased 5% in both periods, reflecting inflation on branded drugs as well as growth in specialty.

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

Premiums increased 6% in both periods, reflecting insured customer growth and higher premium rates in Cigna Healthcare due to anticipated underlying medical cost trend.

Premiums increased 15% and 9%, respectively, 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 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.

For the nine months ended September 30, 2023, these favorable effects were partially offset by a decline in premiums due to the Chubb transaction.

Fees and other revenues increased 17% and 19%, respectively, primarily reflecting client growth from our continued affordability services within Evernorth Health Services.

Net investment income increased 57% for the three months ended September 30, 2023, primarily driven by higher yields, as well as improved returns on our partnership investments and, to a lesser extent, growth in average invested assets.

For the nine months ended September 30, 2023, the decrease of 7% was primarily due to the unfavorable impact of the Chubb transaction, partially offset by growth in average invested assets.

Also contributing to the decrease was lower returns on partnership investments largely offset by increased yields on other investments.

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

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

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

Medical costs and other benefit expenses increased 15% and 12%, respectively, primarily reflecting insured customer growth.

For the nine months ended September 30, 2023, the increase also reflects trend in Cigna Healthcare partially offset by the impact of the Chubb transaction.

Selling, general and administrative expenses increased 20% and 11%, respectively, primarily driven by volume-related expenses in Cigna Healthcare due to business growth, as well as increased investments to support the onboarding of new clients and continued advancement of our digital capabilities and care solutions in Evernorth Health Services.

Increased expenses were also driven by charges associated with litigation settlements during the three months ended September 30, 2023.

See Note 16 to the Consolidated Financial Statements for further discussion.

For the nine months ended September 30, 2023, these increases were partially offset by the impact of the Chubb transaction.

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

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

In 2023, we recorded immaterial adjustments to the sales price reflecting resolution of certain contractual matters.

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 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.

The effective tax rate increased by 90 basis points for the three months ended September 30, 2023 primarily reflecting the unfavorable effects of the remeasurement of deferred tax liabilities and the Medicare Advantage litigation settlement in the third quarter of 2023.

These effects were partially offset by favorable results relative to the Company's foreign operations.

For the nine months ended September 30, 2023, the effective tax rate decreased by 110 basis points, driven by favorable results relative to the Company's foreign operations and the release of uncertain tax positions resulting from favorable audit developments.

These favorable effects were partially offset by the remeasurement of deferred tax liabilities in the third quarter of 2023.

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 monitor global economic conditions, including inflation, labor market dynamics and the recent geopolitical events.

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.

Our results of operations or cash flows for the three and nine months ended September 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.

Conflict in the Middle East

The Cigna Group serves a limited number of customers and clients in the impacted regions in the Middle East.

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 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.

acquired a minority interest in CarepathRx Health Systems Solutions ("CHSS").

CHSS 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.

See Note 5 to the Consolidated Financial Statements for further discussion of this investment.

Medicare Star Quality Ratings ("Star Ratings")

The Centers for Medicare and Medicaid Services ("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.

On October 13, 2023, CMS announced Medicare Star Ratings for bonus payments to be received in 2025.

We estimate 67% to be in four star or greater plans for bonus payments to be received in 2024 and 2025 (based upon the current customer mix

associated with the announced Star Ratings).

See Part I, Item I, "Business - Regulation" section of our 2022 Form 10-K for further discussion of Star Ratings.

Medicare Advantage Rates

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").

On March 31, 2023, 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).

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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 six months ended June 30 were as follows:

Six Months Ended June 30,

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

Nine Months Ended September 30,

(In millions) 2023 2022

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Financing activities $ (3,044) $ (8,604)

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.

The following discussion explains variances in the various categories of cash flows for the nine months ended September 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 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.

Operating cash flows increased for the nine months ended September 30, 2023 due to higher insurance liabilities, higher pharmacy and service costs payable, acceleration of cash proceeds from the accounts receivable factoring facility and the higher CMS Part D annual settlement.

Investing activities

The Company invested $2.7 billion in VillageMD in 2023, which resulted in an increase in cash used in investing activities.

The Company invested $2.7 billion in VillageMD in 2023.

This, combined with the absence of the net $4.9 billion proceeds received from the Chubb transaction in 2022, resulted in an increase in cash used in investing activities.

Financing activities

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

The Company had lower share repurchases and lower net debt outflows.

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

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

Dividends from U.S.

regulated subsidiaries were $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.

Dividends received from U.S.

regulated subsidiaries were $758 million for the nine months ended September 30, 2023 and $1.4 billion for the nine months ended September 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 June 30, 2023, The Cigna Group's revolving credit agreements include:

As of September 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 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.

As of September 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), $3.5 billion of remaining capacity under our commercial paper program and $8.7 billion in cash and short-term investments, approximately $0.8 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 41.9% at June 30, 2023 and 41.0% at December 31, 2022.

Our debt-to-capitalization ratio was 40.5% at September 30, 2023 and 41.9% at June 30, 2023 due in part to the July 2023 repayment of $2.9 billion of senior notes at maturity.

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 $2.6 billion from its subsidiaries without further approvals as of June 30, 2023.

In addition to the sources of liquidity discussed above, the parent company can borrow an additional $1.4 billion from its subsidiaries without further approvals as of September 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.

In July 2023, we repaid $2.9 billion of senior notes at maturity.

Capital expenditures .

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.

Capital expenditures for property, equipment and computer software were $1.2 billion in the nine months ended September 30, 2023 compared to $1.0 billion in the nine months ended September 30, 2022.

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

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

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.

During the first nine 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 nine months of 2022.

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

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.

On October 25, 2023, the Board of Directors declared the fourth quarter cash dividend of $1.23 per share of The Cigna Group common stock to be paid on December 21, 2023 to shareholders of record on December 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 3.8 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.

We repurchased 6.1 million shares for approximately $1.8 billion during the nine months ended September 30, 2023, compared to 20.1 million shares for approximately $5.8 billion during the nine months ended September 30, 2022.

From October 1, 2023 through November 1, 2023, we repurchased 1.6 million shares for approximately $474 million.

Share repurchase authority was $1.3 billion as of November 1, 2023.

Strategic investments.

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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.

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

In July 2023, Evernorth Health, Inc.

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

acquired a minority interest in CarepathRx Health Systems Solutions.

See Note 5 to the Consolidated Financial Statements for further discussion of this investment.

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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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 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.

Our long-term debt obligations previously provided in our 2022 Form 10-K have been updated as of September 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 $0.3 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).

In connection with our equity method investment in CarepathRx Health Systems Solutions ("CHSS"), we guaranteed $125 million of CHSS's credit facilities.

See Note 5 to the Consolidated Financial Statements for further information regarding our equity method investment in CHSS.

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

As of September 30, 2023, there were no significant changes to the critical accounting estimates from what was reported in our 2022 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 2023.

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.

Government reporting unit (which includes Individual and Family Plans, Medicare Advantage, Medicare Stand-Alone Prescription Drug Plans, and Medicare Supplement) the estimated fair value exceeded the carrying value by a sufficient margin despite a decrease from the prior year.

The two most critical factors affecting the reporting unit's future cash flows assumptions are customer growth and profit margins.

If we do not realize our targeted customer growth or profit margins, the cash flow projections could be impacted and significantly reduce the fair value of the reporting unit.

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

However, if actual experience significantly differs from the assumptions used in estimating amounts reflected in our

Consolidated Financial Statements, the resulting changes could have a material adverse effect on our consolidated results of operations and in certain situations, could have a material adverse effect on liquidity and our financial condition.

SEGMENT REPORTING

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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.

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.

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Three Months Ended

June 30, Change Favorable

(Unfavorable) Six Months Ended

June 30, Change Favorable

September 30, Change Favorable

(Unfavorable) Nine Months Ended

September 30, Change Favorable

(Unfavorable)

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Three Months Ended

June 30, Change Favorable

(Unfavorable) Six Months Ended

June 30, Change Favorable

September 30, Change Favorable

(Unfavorable) Nine Months Ended

September 30, Change Favorable

(Unfavorable)

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2,893 1,877 54 8,276 5,316 56

Net investment income 62 16 288 112 26 N/M

Net investment income 63 25 152 175 51 243

Adjusted revenues (1)

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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 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.

Three and Nine Months Ended September 30, 2023 versus Three and Nine Months Ended September 30, 2022

Adjusted network revenues increased 2% in both periods, reflecting inflation on branded drugs and higher claims volume, partially offset by a decrease in claims mix and an increase in the generic fill rate.

Adjusted home delivery and specialty revenues increased 5% and 7%, respectively, with the three months ended September 30, 2023 reflecting inflation on branded drugs and higher specialty claims volume, partially offset by lower home delivery claims volume.

The nine months ended September 30, 2023 reflecting higher specialty claims volume and inflation on branded drugs, partially offset by lower home delivery claims volume.

Other pharmacy revenues increased 47% and 30%, respectively, reflecting higher volume from our CuraScript Specialty Distribution business.

Adjusted fees and other revenues increased 54% and 56%, 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.

Adjusted gross profit increased 10% in both periods, and pre-tax adjusted income from operations increased 6% and 3%, respectively, reflecting growth in Specialty Pharmacy and continued affordability improvements, partially offset by increased strategic investments to support the onboarding of new clients and continued advancement of our digital capabilities and care solutions to support whole-person health outcomes, partially offset by operational expense discipline.

The adjusted expense ratio increased 20 bps in both periods, reflecting increased strategic investments to support the onboarding of new clients and continued advancement of our digital capabilities and care solutions to support whole-person health outcomes, partially offset by operational expense discipline.

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

For the three and nine months ended September 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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Three Months Ended

June 30, Change Favorable

(Unfavorable) Six Months Ended

June 30, Change Favorable

September 30, Change Favorable

(Unfavorable) Nine Months Ended

September 30, Change Favorable

(Unfavorable)

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Adjusted expense ratio 21.6 % 21.9 % 30 bps 21.3 % 21.0 % (30) 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.

Three and Nine Months Ended September 30, 2023 versus Three and Nine Months Ended September 30, 2022

Adjusted revenues increased 14% and 13%, respectively, reflecting customer growth and higher premium rates due to anticipated underlying medical cost trend.

Pre-tax adjusted income from operations increased 16% for the three months ended September 30, 2023, driven by U.S.

Commercial growth, including increased specialty contributions, partially offset by U.S.

Pre-tax adjusted income from operations decreased 2% for the nine months ended September 30, 2023, driven by U.S.

Government, including less favorable prior year development, mostly offset by U.S.

Commercial growth, including increased specialty contributions.

The medical care ratio decreased 30 bps for the three months ended September 30, 2023, primarily due to a lower U.S.

Commercial medical care ratio reflecting effective pricing execution and affordability initiatives, partially offset by a higher U.S.

Government medical care ratio, including a shift in business mix.

The medical care ratio was flat for the nine months ended September 30, 2023, primarily due to a lower U.S.

Commercial medical care ratio reflecting effective pricing execution and affordability initiatives, offset by a higher U.S.

Government medical care ratio, including less favorable prior year development.

The adjusted expense ratio decreased 30 bps for the three months ended September 30, 2023, primarily due to revenue growth outpacing volume-related expenses as well as higher technology spend.

The adjusted expense ratio increased 30 bps for the nine months ended September 30, 2023, primarily due to volume-related expenses and higher technology spend outpacing revenue growth.

Medical Customers

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Cigna Healthcare Medical Customers

As of June 30,

As of September 30,

(In thousands) 2023 2022 % Change

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(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.

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

Total medical customers increased 9%, primarily driven by growth in fee-based customers as well as in Individual and Medicare Advantage customers.

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Unpaid Claims and Claim Expenses

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

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

Unpaid claims and claim expenses – Cigna Healthcare

$ 5,317 $ 4,176 27 %

Our unpaid claims and claim expenses liability increased 28%, driven by stop loss seasonality and higher volumes in our Individual and Medicare Advantage businesses.

Our unpaid claims and claim expenses liability increased 27%, driven by customer growth in our Individual business and stop loss seasonality.

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

For the three and nine months ended September 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).

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Results of Operations

Financial Summary Three Months Ended June 30, Change

(Unfavorable) Six Months Ended

June 30, Change

Financial Summary Three Months Ended September 30, Change

(Unfavorable) Nine Months Ended

September 30, Change

(Unfavorable)

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Pre-tax adjusted margin 17.7 % 13.7 % 400 bps 15.2 % 23.0 % (780) 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.

Three and Nine Months Ended September 30, 2023 versus Three and Nine Months Ended September 30, 2022

Adjusted revenues for the three and nine months ended September 30, 2023 declined reflecting the absence of revenues from the business divested in 2022.

Pre-tax adjusted income from operations reflects favorable interest margins and lower benefit expenses for the three months ended September 30, 2023.

For the nine months ended September 30, 2023, pre-tax adjusted income from operations decreased primarily due to the absence of 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 financing 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 eliminations for products and services sold between segments.

Financial Summary Three Months Ended

June 30, Change Favorable (Unfavorable) Six Months Ended

June 30, Change Favorable (Unfavorable)

September 30, Change Favorable (Unfavorable) Nine Months Ended

September 30, Change Favorable (Unfavorable)

(In millions) 2023 2022 2023 2022

Pre-tax adjusted loss from operations $ (435) $ (316) (38) % $ (1,272) $ (1,060) (20) %

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

Three and Nine Months Ended September 30, 2023 versus Three and Nine Months Ended September 30, 2022

Pre-tax adjusted loss from operations increased 38% and 20% 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) June 30,

(In millions) September 30,

2023 December 31,

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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.

Although there has been very limited impact to date on our investment portfolio as a result of the recent geopolitical events, including the conflict in the Middle East, we are monitoring the ongoing developments of this situation.

We also continue to monitor the banking system stress that emerged in early 2023 and any potential impacts on our investments.

To date, this systemic stress has been most prominent in regional banks, where our investment portfolio has no material exposure.

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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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.

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

Although future declines in investment fair values remain possible due to interest rate movements and credit deterioration due to both investment-specific uncertainties and global economic uncertainties as discussed below, we do not expect these losses to have a material adverse effect on our financial condition or liquidity.

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

(In millions) June 30,

(In millions) September 30,

2023 December 31,

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Total $ 9,539 $ 9,872

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

Our debt securities portfolio decreased during the nine months ended September 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 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.

As of September 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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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.

Elevated global inflation, higher interest rates, continuing supply chain disruptions and potential fallout from the 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 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.

As of September 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 June 30, 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 September 30, 2023.

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

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Loans are secured by high quality commercial properties, located in strong institutional markets and are generally made at less than 65% of the property's value at origination of the loan.

Property value, debt service coverage, quality, building tenancy and stability of cash flows are all important financial underwriting considerations.

Property value, debt service coverage, quality, building tenancy and stability of

cash flows are all important financial underwriting considerations.

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

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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:

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 $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.

Other long-term investments of $4.1 billion as of September 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 second quarter largely reflects the underlying financial information from the first quarter of 2023.

Accordingly, our net investment income in the third quarter largely reflects the underlying financial information from the first two quarters 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 $0.2 billion in Other assets.

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

Our 50% share of the investment portfolio supporting the joint venture's liabilities is approximately $11.0 billion as of September 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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and 10% long-term deposits and policy loans.

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

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

We continuously review the joint venture's investment strategy and its execution.

There were no investments with a material unrealized loss as of September 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 June 30, 2023, there were no material changes in our risk exposures as reported in our 2022 Form 10-K;

As of September 30, 2023, there were no material changes in our interest rate 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.

If the market price for all equity securities declined by 10%, Cigna would record a realized loss of approximately $340 million as of September 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.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis