ITEM 1   Business

A. Description of Business

As used in this document, “CIGNA” and the “Company” may refer to CIGNA Corporation itself, one or more of its subsidiaries, or CIGNA Corporation and its consolidated subsidiaries. CIGNA Corporation is a holding company and is not an insurance company. Its subsidiaries conduct various businesses, which are described in this Annual Report on Form 10-K for the fiscal year ended December 31, 2010 (“Form 10-K”).

CIGNA is a global health service organization with subsidiaries that are major providers of medical, dental, disability, life and accident insurance and related products and services. In the U.S., the majority of these products and services are offered through employers and other groups (e.g. unions and associations) and in selected international markets, CIGNA offers supplemental health, life and accident insurance products, expatriate benefits and international health care coverage and services to businesses, governmental and non-governmental organizations and individuals. In addition to its ongoing operations described above, the Company also has certain run-off operations, including a Run-off Reinsurance segment.

CIGNA Corporation had consolidated shareholders’ equity of $6.6 billion and assets of $45.7 billion as of December 31, 2010, and revenues of $21.3 billion for the year then ended. CIGNA Corporation was incorporated in the State of Delaware in 1981.

CIGNA’s revenues are derived principally from premiums, fees, mail order pharmacy, other revenues and investment income. The financial results of CIGNA’s businesses are reported in the following segments:

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Health Care;

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Disability and Life;

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International;

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Run-off Reinsurance; and

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Other Operations, including Corporate-owned Life Insurance.

Available Information

CIGNA’s annual, quarterly and current reports, proxy statements and other filings, and any amendments to these filings, are made available free of charge on its website (http://www.cigna.com, under the “Investors — SEC Filings” captions) as soon as reasonably practicable after the Company electronically files these materials with, or furnishes them to, the Securities and Exchange Commission (the “SEC”). The Company uses its website as a channel of distribution for material company information. Important information, including news releases, analyst presentations and financial information regarding CIGNA is routinely posted on and accessible at www.cigna.com. See “Code of Ethics and Other Corporate Governance Disclosures” in Part III, Item 10 beginning on page 168 of this Form 10-K for additional available information.

B. Financial Information about Business Segments

The financial information included herein is in conformity with accounting principles generally accepted in the United States of America (“GAAP”), unless otherwise indicated. Certain reclassifications have been made to prior years’ financial information to conform to the 2010 presentation. Industry rankings and percentages set forth herein are for the year ended December 31, 2010, unless otherwise indicated. Unless otherwise noted, statements set forth in this document concerning CIGNA’s rank or position in an industry or particular line of business have been developed internally, based on publicly available information.

Financial data for each of CIGNA’s business segments is set forth in Note 23 to the Consolidated Financial Statements beginning on page 156 of this Form 10-K.

CIGNA CORPORATION – 2010 Form 10-K – 1

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C. Strategy

As a global health service organization, CIGNA’s mission is to help the people it serves improve their health, well-being and sense of security. As part of this mission, the Company remains committed to health advocacy as a means of creating sustainable solutions for employers, improving the health of the individuals that the Company serves, and lowering the costs of health care for all constituencies.

CIGNA’s long-term growth strategy is based on: (1) growth in targeted geographies, product lines, buying segments and distribution channels; (2) improving its strategic and financial flexibility; and (3) pursuing additional opportunities in high-growth markets with particular focus on individuals. Our strategy can be summarized as follows:

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“Go deep” with growth in targeted customer segments, geographies, buying segments and distribution channels,

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“Go individual” by delivering high quality products and services which improve health, wellness and insurance needs that are helpful and easy to use, and

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“Go global” by pursuing additional opportunities in high-growth markets across the globe and serving individuals regardless of where they live and work.

To achieve these goals, CIGNA expects to focus on the following which have the most potential for profitable growth:

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Domestic Health Care segment. In this market, CIGNA is focused on expanding and deepening client and customer relationships across each segment. Specifically: (1) within key geographic segments, growing the “Select” market, which generally includes employers with more than 50 but fewer than 250 employees and the “Middle Market” segment which generally includes employers with more than 250 but less than 5,000 employees, by leveraging the Company’s customer knowledge, differentiated service model, product portfolio and distribution model, (2) engaging those national account employers who share and will benefit from the Company’s value proposition of using health advocacy and employee engagement to increase productivity, performance and the health outcomes of their employees, and (3) targeting sub-markets including industry, government and municipal entities and individuals that align closest to the Company’s stated strategy.

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In the Disability and Life segment, CIGNA’s strategy is to grow its Disability business by fully leveraging the key components of its industry-leading disability management model to reduce costs for its clients and return their employees to work sooner through: (1) effective customer engagement and early outreach, (2) a full suite of clinical and return-to-work resources to support the employer’s ability to manage disability and work related events, and (3) specialized case management services that address an individual’s unique needs.

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In the International segment, CIGNA continues to expand the product and geographic footprint by executing local strategies that grow supplemental, primary medical and expatriate benefits through: (1) product and channel expansion in its supplemental health, life, and accident business in key Asian geographies, (2) the introduction of new expatriate benefits products, that provide greater benefit and geographic flexibility to individual and employers (such as through the Vanbreda International acquisition); and (3) further expansion of distribution capabilities to capitalize on emerging and growing markets globally.

The Company plans to improve its strategic and financial flexibility by driving further reductions in its Health Care operating expenses, improving its medical cost competitiveness in targeted markets and effectively managing balance sheet exposures. For further discussion of the Company’s actions to manage its balance sheet exposures, see the section on “Run-off Operations” in the Introduction section of Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) beginning on page 47.

Details on the Company’s operational strategies are discussed further in the Health Care segment section of the MD&A beginning on page 63 of this Form 10-K.

CIGNA CORPORATION – 2010 Form 10-K – 2

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D. Health Care

CIGNA’s Health Care segment (“CIGNA HealthCare”) offers insured and self-insured medical, dental, behavioral health, vision, and prescription drug benefit plans, health advocacy programs and other products and services that may be integrated to provide comprehensive health care benefit programs. CIGNA HealthCare companies offer these products and services in all 50 states, the District of Columbia and the U.S. Virgin Islands.

CIGNA HealthCare believes the most sustainable approach to enhancing quality and managing health care costs is to fully engage individuals in the decisions that affect their health and the health care services they receive. Accordingly, to assist individuals in making informed choices about health care for themselves and their families, CIGNA HealthCare makes available to them actionable information about health and advocacy programs, as well as about the cost and quality of health care services and supplies provided to them.

Underlying CIGNA HealthCare’s operations is a foundation of clinical expertise and an ability to provide quality service. CIGNA HealthCare’s strengths include its ability to:

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integrate medical and specialty product offerings to achieve a more holistic and integrated approach to individuals’ health that promotes consistent care management; and

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provide predictive modeling and other analytical tools (for example, through the Company’s exclusive access to analytical tools and algorithms developed by the University of Michigan), to assist in providing targeted outreach and health advocacy by CIGNA’s clinical professionals to CIGNA HealthCare customers.

Principal Products and Services

CIGNA offers a variety of products and services to employers and other groups that sponsor group health plans. With the exception of Health Maintenance Organization (“HMO”), Medicare, Voluntary and stop loss products, each of CIGNA HealthCare’s products is offered with alternative funding options (described below). CIGNA may sell multiple products under the same funding arrangement to the same employer. Accordingly, the revenue table included in the Health Care section of the MD&A beginning on page 63 of this Form 10-K reflects both the product type and funding arrangement. Approximately 80% of medical customers are enrolled in self-insured plans, with the remainder split fairly evenly between guaranteed cost and experience-rated insured plans. Approximately 90% of our medical customers are enrolled in self-insured and experience-rated plans, in which lower medical costs directly benefit our corporate clients and their employees.

CIGNA also offers guaranteed cost medical insurance to individuals; see the “markets and distribution” section for additional information about the Company’s offerings in the individual market.

Commercial Medical

CIGNA HealthCare provides a wide array of products and services to meet the needs of employers, other sponsors of health benefit plans and their plan participants (i.e., employees/customers and their eligible dependents), and individuals, including:

Network and Open Access Plus Plans

CIGNA HealthCare offers a product line of indemnity managed care benefit plans on an insured (guaranteed cost or experience-rated) or self-insured basis. Premiums for insurance policies written on a guaranteed cost or experience-rated basis are reported in the appropriate premium category in the revenue table included in the Health Care section of the MD&A beginning on page 63 of this Form 10-K. For self-insured plans, where a majority of the Company’s customers are enrolled, revenues consist of administrative fees and are included in fees in the revenue table.

These plans use meaningful coinsurance differences to encourage the use of “in-network” versus “out-of-network” health care providers. They also encourage the use of and give customers the option to select a primary care physician and use a national provider network, which is somewhat smaller than the national network used with the preferred provider (“PPO”) plan product line. The Network, Network Open Access, and Open Access Plus In-Network products cover only those services provided by CIGNA HealthCare participating health care professionals (“in-network”) and emergency services provided by non-participating health care professionals (“out-of-network”). The Network point of service (“POS”), Network POS Open Access and Open Access Plus plans (“OAP”) cover health care services provided by participating, and non-participating health care professionals, but the customers’ cost-sharing obligation is generally greater for out-of-network care.

CIGNA CORPORATION – 2010 Form 10-K – 3

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Preferred Provider Plans

CIGNA HealthCare also offers a PPO product line that features a national network with even broader access than the Network and Open Access Plans with a somewhat higher medical cost, no option to designate a primary care physician, and in-network and out-of-network coverage with greater member cost-sharing for out-of-network services. Like Network and Open Access Plus Plans, the PPO product line is offered on an insured (guaranteed cost or experience-rated) or self-insured basis, with a majority of the customers being in self-insured plans.

Health Maintenance Organizations

In most states, Commercial and Medicare HMOs are required by law to provide coverage for all basic health services and plans may only be offered on a guaranteed cost basis. They use various tools to facilitate the appropriate use of health care services through employed and/or contracted health care professionals. HMOs control unit costs by negotiating rates of reimbursement with health care professionals and facilities and by requiring advanced authorization for coverage of certain treatments. CIGNA HealthCare offers HMO plans that require customers to obtain all non-emergency services from participating health care professionals as well as POS HMO plans that provide some level of coverage for out-of-network care from non-participating health care professionals and facilities. The out-of-network coverage is generally provided through separate insurance coverage that is sold with the HMO benefits.

Voluntary Plans

CIGNA HealthCare’s voluntary medical products are offered to employers with 51 or more eligible employees and are designed to provide hourly and part-time employees with limited coverage that is more affordable than comprehensive medical plans. CIGNA Voluntary products have annual and, in some cases, lifetime maximums, which are prohibited under the Patient Protection and Affordable Care Act effective September 23, 2010. However, the Department of Health & Human Services (HHS) has approved a one-year waiver of these limitations for plans in effect as of September 23, 2010. CIGNA intends to submit a waiver request for subsequent years through and including 2013. Annual benefit limits are prohibited beginning January 1, 2014.

CIGNA Choice Fund® suite of Consumer-Directed Products

In connection with many of the products described above, CIGNA HealthCare offers the CIGNA Choice Fund suite of consumer-directed products, including Health Reimbursement Arrangements (“HRA”), Health Savings Accounts (“HSA”) and Flexible Spending Accounts (“FSA”).

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An HRA allows plan sponsors to choose from a variety of benefit plan designs which usually include a high deductible feature and allows employees to fund un-reimbursed health care expenses with reimbursement account funds that can be rolled over from year to year.

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HSA plans allow plan sponsors to choose from a variety of benefit plan designs and funding options and combine a high deductible payment feature for a health plan with a tax-preferred savings account offering mutual fund investment options. Funds in an HSA can be used to pay the deductible and other eligible tax-deductible medical expenses and can be rolled over from year to year.

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The HRA and HSA products for employers with generally more than 50 but fewer than 250 employees are now available in 49 states.

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An FSA pays for certain health care-related expenses, that are either not covered or only partially covered by health care plans, with pre-tax contributions by employees. Unused FSA account funds cannot be rolled over from year to year; they are forfeited by the employee.

Stop Loss Coverage

CIGNA HealthCare offers stop loss insurance coverage for self-insured plans. This stop loss coverage reimburses the plan for claims in excess of a predetermined amount, either for individuals (“specific”) or the entire group (“aggregate”), or both. CIGNA HealthCare also includes stop loss features in its experience-rated policies (discussed below).

Shared Administration Services

CIGNA HealthCare provides Taft-Hartley trusts and other self-insured groups access to its national provider network and provides claim re-pricing and other services (e.g., utilization management).

Medicare

Private Fee For Service

CIGNA’s Medicare Advantage private fee-for-service plan, CIGNA Medicare Access Plan, which was offered by CIGNA through December 31, 2010, was approved by the Centers for Medicare and Medicaid Services (CMS) to be a replacement for Original Medicare. The CIGNA Medicare Access Plan offered the same benefits as Original Medicare Parts A & B, as well as supplemental benefits, including annual physicals, emergency worldwide coverage and health and wellness programs. Beginning on January 1, 2011, CIGNA no longer offers an individual Medicare Private Fee for Service Plan. To meet the needs of Medicare eligible groups desiring this coverage, CIGNA has contracted with Humana Inc. to provide group Medicare Advantage Plans underwritten and issued by Humana and reinsured by CIGNA under a 50% coinsurance agreement.

CIGNA CORPORATION – 2010 Form 10-K – 4

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Medicare Part D

CIGNA’s Medicare Part D prescription drug program, CIGNA Medicare Rx®, provides a number of plan options as well as service and information support to Medicare and Medicaid eligible customers. CIGNA Medicare Rx is available in all 50 states and the District of Columbia.

Specialty

Medical Specialty

Health Advocacy

CIGNA HealthCare offers medical management, disease management, and other health advocacy services to employers and other plan sponsors. These services are offered to customers covered under CIGNA HealthCare administered plans, as well as, individuals covered under plans insured and/or administered by competing insurers/third party administrators. CIGNA offers a seamless integration of services to address the clinical and administrative challenges that are inherent in coordinating multiple vendors. Through its health advocacy programs, CIGNA HealthCare works to help: (1) healthy people stay healthy; (2) people change behaviors that are putting their health at risk; (3) people with existing health care issues access quality care and practice healthy self-care; and (4) people with a disabling illness or injury return to productive work quickly and safely.

CIGNA HealthCare offers a wide array of health advocacy programs and services to help individuals improve their health, well-being and sense of security, including:

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early intervention by CIGNA’s network of clinical professionals;

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CIGNA’s online health assessment, powered by analytics from the University of Michigan Health Management Research Center, which helps customers identify potential health risks and learn what they can do to live a healthier life;

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the CIGNA Well Aware for Better Health® program, which helps patients with chronic conditions such as asthma, diabetes, depression and weight complications better manage their conditions;

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CIGNA Health Advisor®, which provides customers with access to a personal health coach to help them reach their health and wellness goals;

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CIGNA’s Well Informed program, which uses clinical rules-based software to identify potential gaps and omissions in customers’ health care through analysis of the Company’s integrated medical, behavioral, pharmacy and lab data allowing CIGNA HealthCare to communicate the gaps to the customer and their doctor; and

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CIGNA’s online coaching capabilities.

CIGNA Onsite Health

CIGNA Onsite Health was formed in 2007. CIGNA operates nine onsite health centers and expects to continue to open additional onsite health clinics. In addition, the Company has expanded onsite services to include onsite pharmacies, dedicated health advocates at employer sites across the country, hourly coaching services and onsite biometric screenings through the acquisition of Kronos Optimal Health. Services and operations are projected to continue to expand throughout 2011 and beyond.

Cost Containment Service

CIGNA administers cost containment programs with respect to health care services/supplies that are covered under benefit plans. These programs, which may involve contracted vendors, are intended to control health costs through the reduction of out-of-network utilization, the auditing of provider bills and recovery of overpayments from other insurance carriers or health care professionals. CIGNA earns fees for providing or arranging these services.

Behavioral Specialty

Behavioral Health

CIGNA arranges for behavioral health care services for individuals through its network of participating behavioral health care professionals and offers behavioral health care management services, employee assistance programs, and work/life programs to employer and other groups sponsoring health benefit plans, HMOs, governmental entities and disability insurers. CIGNA Behavioral Health focuses on integrating its programs and services to facilitate customized, holistic care.

As of December 31, 2010, CIGNA’s behavioral national network had approximately 88,000 access points to independent psychiatrists, psychologists and clinical social workers and approximately 8,500 facilities and clinics that are reimbursed on a contracted fee-for-service basis.

CIGNA CORPORATION – 2010 Form 10-K – 5

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CIGNA Pharmacy Management

Pharmacy

CIGNA Pharmacy Management offers prescription drug plans to its insured and self-funded customers both in conjunction with its medical products and on a stand-alone basis. With a nationwide network of over 60,000 contracted pharmacies, CIGNA Pharmacy Management is a comprehensive pharmacy benefits manager (PBM) offering clinical integration programs, specialty pharmacy solutions, and fast, efficient home delivery pharmacy capabilities.

Programs that facilitate this integration of medical, behavioral and pharmacy offerings include: Well Informed, which focuses on the chronic conditions most likely to benefit from disciplined prescription therapy, such as asthma, diabetes, back pain and high cholesterol, as well as Step Therapy, which encourages individuals who take prescription drugs to treat an ongoing medical condition to use generic and/or preferred brand drugs before progressing to higher cost brand-named drugs within the relevant therapeutic drug class. This is accomplished through claim management protocols, which may include communications with the individual and the individual’s physician.

CIGNA Specialty Pharmacy Management

Clients with CIGNA administered medical and pharmacy coverage benefit from better continuity of care, integrated reporting, and aggressive unit cost discounts on all specialty drugs — regardless of where they are administered.

TheraCare Program

CIGNA’s specialty pharmacy outcome management program, TheraCare, takes a unique approach to managing specialty conditions by lowering cost while improving health and satisfaction for our customers. CIGNA has a comprehensive list of conditions covered regardless of the pharmacy used to fill the respective prescription, or under which benefit the prescription falls. TheraCare is coordinated with other CIGNA health advocacy programs and all data is captured for analysis and reporting.

CIGNA Home Delivery Pharmacy

CIGNA also offers cost-effective mail order, telephone and on-line pharmaceutical fulfillment services through its home delivery operation. CIGNA Home Delivery Pharmacy provides an individual-focused, efficient home delivery pharmacy with high standards of quality, accuracy and individual care relating to maintenance and specialty medications. Orders may be submitted through the mail, via phone or through the internet at myCIGNA.com.

Dental Specialty

Dental

CIGNA Dental Health offers a variety of dental care products including dental health maintenance organization plans (“Dental HMO”), dental preferred provider organization (“DPPO”) plans, dental exclusive provider organization plans, traditional dental indemnity plans and a dental discount program. Employers and other groups can purchase CIGNA Dental Health products as stand-alone products or integrated with CIGNA HealthCare’s medical products. As of December 31, 2010, CIGNA Dental Health customers totaled approximately 10.3 million, representing employees at approximately 40% of all Fortune 100 companies. Most of these customers are in self-insured plans, with guaranteed cost and experience-rated insured plans accounting for the remaining membership. All dental HMO customers are in guaranteed cost insured plans. Managed dental care products are offered in 37 states for Dental HMO and 45 states and the District of Columbia for Dental PPO through a network of independent health care professionals that have contracted with CIGNA Dental Health to provide dental services.

CIGNA Dental Health customers access care from one of the largest dental HMO and dental PPO networks in the U.S., with approximately 194,200 DPPO-contracted access points (approximately 84,000 unique health care professionals) and approximately 50,600 dental HMO-contracted access points (approximately 14,900 unique health care professionals).

CIGNA Dental Health stresses preventive dentistry; it believes that promoting preventive care contributes to a healthier workforce, an improved quality of life, increased productivity and fewer treatment claims and associated costs over time. CIGNA Dental Health offers customers a dental treatment cost estimator to educate individuals on oral health and aid them in their dental health care decision-making.

CIGNA CORPORATION – 2010 Form 10-K – 6

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Vision Specialty

Vision

CIGNA Vision offers flexible, cost-effective PPO coverage that includes a range of both in and out-of-network benefits for routine vision services. CIGNA’s national vision care network, which consists of over 50,100 health care professionals in approximately 22,300 locations, includes private practice ophthalmologist and optometrist offices, as well as retail eye care centers. Routine vision products are offered in conjunction with CIGNA HealthCare’s medical and dental product offerings.

Funding Arrangements, Pricing, Reserves and Reinsurance

The segment’s health care products and services are offered through the following funding arrangements:

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Insured — Guaranteed Cost;

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Insured — Shared Returns ^SM (Experience-rated, including minimum premium funding arrangements); and

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Administrative Services Only.

Premiums and fees charged for HMO and most health insurance products are generally set in advance of the policy period and are typically guaranteed for one year (unless specified events occur, such as changes in benefits, significant changes in enrollment or laws affecting the coverage or costs). Premium rates for fully insured products are established either on a guaranteed cost or retrospectively experience-rated basis.

Beginning on January 1, 2011, the Patient Protection and Affordable Care Act (“Health Care Reform”) requires CIGNA HealthCare’s comprehensive medical insurance products to meet a minimum medical loss ratio (“MLR”) of 85% for large groups (generally defined as employers with more than 50 employees) and 80% for small groups and individuals. The United States Department of Health and Human Services has issued interim final regulations that specify how the MLR is to be calculated. These regulations currently require the MLR to be calculated on a state-by-state basis for each separate insurance company or HMO, and then separately within each state for large groups, small groups and individuals. The MLR is determined generally by taking the sum of claims plus expenses that improve health care quality and dividing by premiums less taxes and assessments. To the extent the MLR floors are not met for large groups, small groups or individual segments within each state, premium rebates will need to be paid to both employers and customers enrolled in the plans based on the portion of the premium each has contributed. Approximately 20% of CIGNA HealthCare’s customers are enrolled in insured plans, which are subject to the MLR requirements. These requirements are expected to have a greater near-term impact on individual and small group business.

Insured — Guaranteed Cost

Charges to policyholders under an insured, guaranteed cost policy are established at the beginning of the policy period and are not adjusted to reflect actual claim experience during the policy period. Accordingly, CIGNA HealthCare bears the risk for claims and costs. The HMO product is offered only on a guaranteed cost basis. Summarized below are the key elements of an insured, guaranteed cost funding arrangement:

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A guaranteed cost pricing methodology reflects assumptions about future claims, health care inflation (unit cost, location of delivery of care and utilization), effective medical cost management, expenses, enrollment mix, investment returns, and profit margins.

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Claim and expense assumptions may be based in whole or in part on prior experience of the policyholder or on a pool of accounts, depending on the policyholder’s size and the statistical credibility of the experience.

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Generally, guaranteed cost policyholders are smaller and less statistically credible than retrospectively experience-rated groups.

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Pricing for insurance/HMO products that use networks of contracted health care professionals reflects assumptions about the future claims impact on the reimbursement rates in the provider contracts.

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Premium rates may vary among policyholders to reflect the underlying plan benefits, anticipated contract and demographic mix, family size, geography, industry, renewal date, and other cost-predictive factors.

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In some states, premium rates must be approved by the state insurance department and state laws may restrict or limit the use of rating methods.

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Premium rates for groups and individuals are subject to state and/or HHS review for unreasonable increases.

CIGNA CORPORATION – 2010 Form 10-K – 7

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Insured — Shared Returns ^SM (participating, including minimum premium — also referred to as experience rated)

The key features of a Shared Returns funding arrangement are summarized below:

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If cost experience is favorable in relation to the prospectively determined premium rates, a portion of the initial premiums may be credited to the policyholder as an experience refund. However, if claims and expenses exceed this premium (an “experience deficit”), CIGNA HealthCare generally bears the risk.

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CIGNA HealthCare may recover an experience deficit, according to contractual provisions, through future premiums and experience settlements, provided the policy remains in force. If premiums exceed claims and expenses, any surplus amount is generally first used to offset prior deficits and otherwise generally returned to the policyholder.

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As a result of the one-sided nature of the product, a premium that typically includes a margin to partially protect against adverse claim fluctuations is determined at the beginning of the policy period.

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Such premiums may be adjusted for the actual claim and, in some cases, administrative cost experience of the policyholder through an experience settlement process subsequent to the policy period.

Key features of insurance policies using a minimum premium funding arrangement are summarized below:

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Minimum premium funding arrangements combine insurance protection with an element of self-funding. The policyholder is responsible for funding all claims up to a predetermined aggregate, maximum monthly amount, and CIGNA HealthCare bears the risk for claim costs incurred in excess of that amount.

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Instead of paying a fixed monthly premium, the group policyholder establishes and funds a bank account and must maintain an agreed upon amount in the account. The policyholder authorizes the insurer to draw upon funds in the account to pay claims and other authorized expenses.

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The policyholder pays a significantly reduced monthly “residual” premium while the policy is in effect and a supplemental premium (to cover reserves for run-out claims and administrative expenses) upon termination.

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As with other Shared Returns (experience-rated) insurance products, CIGNA HealthCare may recover deficits from margins in future years if the policy is renewed.

Liabilities are established for estimated experience refunds based on the results of Shared Returns (retrospectively experience-rated) policies and applicable contract terms. CIGNA HealthCare credits interest on experience refund balances to these policyholders through rates that take investment performance and market rates into consideration. Interest-crediting rates are set at CIGNA HealthCare’s discretion. Higher rates are credited to funds with longer expected payout terms reflecting the fact that higher yields are generally available on investments with longer maturities. For 2010, the rates of interest credited ranged from 1.75% to 4.0%, with a weighted average rate of approximately 2.4%.

Administrative Services Only

CIGNA HealthCare contracts with employers, unions and other groups sponsoring self-insured plans on an administrative services only (“ASO”) basis to administer claims and perform other plan related services. The key features of an ASO funding arrangement are summarized below:

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CIGNA HealthCare collects administrative service fees in exchange for providing these self-insured plans with access to CIGNA HealthCare’s applicable participating provider network and for providing other services and programs including: claim administration; quality management; utilization management; cost containment; health advocacy; 24-hour help line; 24/7 call center; case management; disease management; pharmacy benefit management; behavioral health care management services (through its provider networks); or any combination of these services.

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The self-insured plan sponsor is responsible for self-funding all claims, but may purchase stop loss insurance from CIGNA HealthCare or other insurers for claims in excess of a predetermined amount, for either individuals (“specific”), the entire group (“aggregate”), or both.

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In some cases, CIGNA HealthCare provides performance guarantees associated with meeting certain service related and other performance standards. If these standards are not met, CIGNA HealthCare may be financially at risk up to a stated percentage of the contracted fee or a stated dollar amount. CIGNA HealthCare establishes liabilities for estimated payouts associated with these guarantees. See Note 24 to the Consolidated Financial Statements beginning on page 159 of this Form 10-K for details about these guarantees.

CIGNA CORPORATION – 2010 Form 10-K – 8

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Pricing

Premium rates for insured funding arrangements are based on assumptions about the expected utilization levels of medical services, costs of medical services and the Company’s administrative costs. The profitability of these arrangements will vary by the actual utilization level of medical services, the cost of the services provided and the costs to administer the benefit programs. Additionally, overall profitability may be impacted by the implementation of the minimum loss ratio rebates required by Health Care Reform, as potentially favorable experience in a market will generate premium rebates instead of offsetting any unfavorable experience in other markets.

Pricing for self-funded arrangements is generally based on the expected cost to administer those arrangements and will vary by the services provided and the size and complexity of the benefit programs among other factors.

Reserves

In addition to paying current benefits and expenses under HMO and health insurance policies, CIGNA HealthCare establishes reserves for amounts estimated to fund reported claims not yet paid, as well as claims incurred, but not yet reported. As of December 31, 2010, approximately $1.5 billion, or 62% of the reserves of CIGNA HealthCare’s operations comprised liabilities that are likely to be paid within one year, primarily for medical and dental claims, as well as certain group disability and life insurance claims. The reserve amount expected to be paid within one year includes $236 million that is recoverable from certain ASO customers and from minimum premium policyholders. The remaining reserves relate primarily to contracts that are short term in nature, but have long term payouts and include liabilities for group long-term disability insurance benefits and group life insurance benefits for disabled and retired individuals, benefits paid in the form of both life and non-life contingent annuities to survivors and contractholder deposit funds.

Reinsurance

CIGNA HealthCare reduces its exposure to large catastrophic losses under group life, disability and accidental death contracts by purchasing reinsurance from unaffiliated reinsurers.

Financial information, including premiums and fees, is presented in the Health Care section of the MD&A beginning on page 63 and in Note 23 to CIGNA’s Consolidated Financial Statements beginning on page 156 of this Form 10-K.

Service and Quality

Customer Service

CIGNA HealthCare operates 12 service centers that together processed approximately 119 million medical claims in 2010. Satisfying customers is a primary business objective and critical to the Company’s success. To further this objective, in 2009, the Company made its call centers available 24 hours a day, seven days a week. As of December 31, 2010, CIGNA operates seven call centers that customers can call toll-free about their health care benefits, wellness programs and claims.

Technology

CIGNA HealthCare understands the critical importance of information technology to the level of service the Company is able to provide to its customers and to the continued growth of its health care business. The health care marketplace is evolving and the level of service that is acceptable to consumers today may not be acceptable tomorrow. Therefore, CIGNA HealthCare continues to strategically invest in its information technology infrastructure and capabilities including technology essential to fundamental claim administration and customer service, as well as tools and Internet-enabled technology that support CIGNA HealthCare’s focus on engaging customers in health care decisions.

For example, CIGNA HealthCare has developed a range of member decision support tools including:

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myCIGNA.com, CIGNA’s consumer Internet portal. The portal is personalized with each member’s CIGNA medical, dental and pharmacy plan information;

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myCignaPlans.com, a website that allows prospective customers to compare plan coverage and pricing options, before enrolling, based on a variety of factors. The application gives customers information on the total health care cost to them and their employer;

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Health Risk Assessment, an online interactive tool through which customers can identify potential health risks and monitor their health status;

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a number of interactive online cost and quality information tools that compare hospital quality and efficiency information, prescription drug choices and average price estimates and member-specific average out-of-pocket cost estimates for certain medical procedures; and

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a special website designed for seniors that offers customized features as well as access to both the myCIGNA.com and cigna.com websites.

CIGNA CORPORATION – 2010 Form 10-K – 9

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Benefit/Claim Resolution

CIGNA HealthCare customer service representatives are empowered to immediately resolve a wide range of issues to help customers obtain the most from their benefit plans. If an issue cannot be resolved informally, CIGNA HealthCare has a formal appeals process that can be initiated by telephone or in writing and involves two levels of internal review. For those matters not resolved by internal reviews, CIGNA HealthCare customers are offered the option of a voluntary external review of claims. The CIGNA HealthCare formal appeals process addresses member inquiries and appeals concerning initial coverage determinations based on medical necessity and other benefits/coverage determinations. CIGNA HealthCare’s formal appeals process meets National Committee for Quality Assurance (“NCQA”), Employee Retirement Income Security Act of 1974 (“ERISA”), Utilization Review Accreditation Commission (“URAC”) and/or applicable state regulatory requirements.

Quality Medical Care

CIGNA HealthCare’s commitment to promoting quality medical care to its customers is reflected in a variety of activities including: credentialing medical health care professionals and facilities that participate in CIGNA HealthCare’s managed care and PPO networks as well as developing the CIGNA Care ^SM specialist physician designation described below.

Participating Provider Network

CIGNA HealthCare has an extensive national network of participating health care professionals which, as of December 31, 2010, consisted of approximately 5,500 hospitals and approximately 640,800 health care professionals as well as other facilities, pharmacies and vendors of health care services and supplies.

In most instances, CIGNA HealthCare contracts directly with the participating hospital, health care professional or other facility to provide covered services to customers at agreed-upon rates of reimbursement. In some instances, however, CIGNA HealthCare companies contract with third parties for access to their provider networks and care management services. In addition, CIGNA HealthCare has entered into strategic alliances with several regional managed care organizations (Tufts Health Plan, HealthPartners, Inc., Health Alliance Plan, and MVP Health Plan) to gain access to their provider networks and discounts.

CIGNA Medical Group

CIGNA Medical Group (CMG) is the multi-specialty medical group practice division of CIGNA HealthCare of Arizona, Inc. which delivers primary care and certain specialty care services through 32 medical facilities and approximately 225 employed clinicians in the Phoenix, Arizona metropolitan area. Eighteen of CMG’s multi-specialty health care centers and their affiliated primary care physicians have received the top level (level 3) of Patient Centered Medical Homes (PCMH) accreditation from NCQA. CMG currently holds the highest level of this accreditation for the greatest number of practices and physicians in the state of Arizona.

CIGNA Care ^SM

CIGNA Care is a benefit design option available for CIGNA HealthCare administered plans in 64 service areas across the country. CIGNA Care designated physicians are a subset of participating physicians in certain specialties who are designated as CIGNA Care physicians based on specific clinical quality and cost-efficiency selection criteria. Customers pay reduced co-payments or co-insurance when they receive care from a specialist designated as a CIGNA Care provider. CIGNA participating specialists are evaluated annually for the CIGNA Care designation.

Provider Credentialing

CIGNA HealthCare credentials physicians, hospitals and other health care professionals in its participating provider networks using quality criteria which meet or exceed the standards of external accreditation or state regulatory agencies, or both. Typically, most health care professionals are re-credentialed every three years.

External Validation

CIGNA continues to demonstrate its commitment to quality and has expanded its scope of external validation of its quality programs through nationally recognized accreditation organizations. Each of CIGNA’s 23 HMO and POS plans that have undergone an accreditation review has earned Excellent or Commendable status from the NCQA, a private, nonprofit organization dedicated to improving health care quality. In addition, CIGNA’s provider transparency, wellness, utilization management, case management and demand management programs have been awarded the highest outcomes possible. From NCQA, CIGNA earned Physician & Hospital Quality Certification and Wellness and Health Promotion Accreditation. From URAC, an independent, nonprofit health care accrediting organization dedicated to promoting health care quality through accreditation, certification and commendation, CIGNA has full accreditation for Health Utilization Management.

HEDIS® Measures

In addition, CIGNA HealthCare participates in NCQA’s Health Plan Employer Data and Information Set (“HEDIS®”) Quality Compass Report. HEDIS® Effectiveness of Care measures are a standard set of metrics to evaluate the effectiveness of managed care clinical programs. CIGNA HealthCare’s national results compare favorably to industry averages.

CIGNA CORPORATION – 2010 Form 10-K – 10

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Accountable Care Organizations

CIGNA has collaborated with a number of Accountable Care organizations in 2010, and expects to continue to expand these arrangements. The overall objective of these organizations is to improve the quality of care and service experience for individuals while lowering costs and improving the overall value for our customers. The goal in collaborating with an Accountable Care organization is to identify health care delivery organizations (medical groups and hospital organizations) that can coordinate end-to-end care for a defined population of patients.

Markets and Distribution

CIGNA HealthCare offers products in the following markets:

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national accounts, which are multi-site employers generally with more than 5,000 employees;

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middle market, which is generally defined as multi-site employers with more than 250 but fewer than 5,000 employees, and single-site employers with more than 250 employees;

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“Select”, which generally includes employers with more than 50 but fewer than 250 employees;

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small business; CIGNA recently made a strategic business decision to begin withdrawing its insured medical product offering from the Small Group market (defined as employers with two to 50 employees) in the following states by the end of 2011: California, Connecticut, Florida, Georgia, Hawaii, Illinois, Kansas, Missouri, New Hampshire, New York, North Carolina, Ohio, Pennsylvania, South Carolina, Texas and Virginia, as well as Washington, DC. CIGNA will continue to offer insured small group medical policies in Arizona, New Jersey, New Mexico, Tennessee, Vermont and the U.S. Virgin Islands.

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individuals; CIGNA HealthCare actively markets insurance to individuals in ten states as of December 31, 2010, including Arizona, California, Colorado, Connecticut, Florida, Georgia, North Carolina, South Carolina, Tennessee and Texas.

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government, which includes federal, state and local governments plans, as well as, primary and secondary schools, and colleges and universities;

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Taft-Hartley plans, which includes customers covered by union trust funds;

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seniors, which focuses on the health care needs of individuals 50 years and older;

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voluntary, which focuses on employers with hourly and part-time employees; and

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emerging markets, which includes non-CIGNA HealthCare payors to which leased network and other services are offered.

To date, the national and middle markets have comprised a significant amount of CIGNA HealthCare’s business. Following the acquisition of Great-West Healthcare in 2008, the “Select”, and emerging markets now constitute a larger share of CIGNA HealthCare’s business than before the acquisition.

CIGNA HealthCare employs sales representatives to distribute its products and services through insurance brokers and insurance consultants or directly to employers, unions and other groups. CIGNA HealthCare also employs representatives to sell utilization review services, managed behavioral health care and employee assistance services directly to insurance companies, HMOs, third party administrators and employer groups. As of December 31, 2010, the field sales force for the products and services of this segment consisted of approximately 860 sales representatives in approximately 90 field locations.

Competition

CIGNA HealthCare’s business is subject to intense competition, and industry consolidation has created an even more competitive business environment. While no one competitor dominates the health care market nationally, CIGNA HealthCare expects a continuing trend of consolidation in the industry given the current economic and political environment.

In certain geographic locations, some health care companies may have significant market share positions. A large number of health care companies and other entities compete by offering similar products. Competition in the health care market exists both for employers and other groups sponsoring plans and for the employees in those instances where the employer offers its employees a choice of products from more than one health care company. Most group policies are subject to annual review by the policyholder, who may seek competitive quotations prior to renewal.

CIGNA CORPORATION – 2010 Form 10-K – 11

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The principal competitive factors are: quality and cost-effectiveness of service and provider networks; effectiveness of medical care management; product responsiveness to the needs of clients and their employees; price; cost-containment services; technology; and effectiveness of marketing and sales. Financial strength of the insurer, as indicated by ratings issued by nationally recognized rating agencies, is also a competitive factor. CIGNA HealthCare believes that its health advocacy capabilities, integrated approach to consumer engagement, breadth of product offerings, clinical care and medical management capabilities and funding options are strategic competitive advantages. These advantages allow CIGNA HealthCare to respond to the diverse needs of its customer base. CIGNA HealthCare also believes that its focus on helping to improve the health, well-being and sense of security of its customers will allow it to distinguish itself from its competitors.

CIGNA HealthCare’s principal competitors are:

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other large insurance companies that provide group health and life insurance products;

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Blue Cross and Blue Shield organizations;

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stand-alone HMOs and PPOs;

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third-party administrators;

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HMOs affiliated with major insurance companies and hospitals; and

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national managed pharmacy, behavioral health and utilization review services companies.

Competition also arises from smaller regional or specialty companies with strength in a particular geographic area or product line, administrative service firms and, indirectly, self-insurers. In addition to these traditional competitors, a new group of competitors is emerging. These new competitors are focused on delivering employee benefits and services through Internet-enabled technology that allows consumers to take a more active role in the management of their health. This is accomplished primarily through financial incentives, access to enhanced medical quality data and other information sharing. The effective use of the Company’s health advocacy capabilities, decision support tools (some of which are web-based) and enabling technology are critical to success in the health care industry, and CIGNA HealthCare believes they will be competitive differentiators.

Industry Developments

In the first quarter 2010, the Patient Protection and Affordable Care Act, including the Reconciliation Act of 2010, was signed into law. Many provisions became effective during 2010 and interim final regulations relating to some provisions have been issued. However there are still many provisions which will become effective in future years and regulations will continue to evolve. For more information concerning health care reform, see “Health Care Reform” in the Introduction section of the MD&A beginning on page 47 and in the Regulation section beginning on page 26.

CIGNA CORPORATION – 2010 Form 10-K – 12

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E. Disability and Life

CIGNA’s Disability and Life segment (“CIGNA Disability and Life”) provides the following insurance products and their related services: group long-term and short-term disability insurance, group life insurance and accident and specialty insurance. These products and services are provided by subsidiaries of CIGNA Corporation. CIGNA Disability and Life markets products in all 50 states, the District of Columbia, Puerto Rico, the U.S. Virgin Islands and Canada.

Principal Products and Services

Disability

CIGNA Disability and Life markets group long-term and short-term disability insurance products and services. These products and services generally provide a fixed level of income to replace a portion of wages lost because of disability. CIGNA Disability and Life also provides assistance to the employee in returning to work and assistance to the employer in managing the cost of employee disability. Group disability coverage is typically employer-paid or a combination of employer and employee-paid, but may also include coverage paid for entirely by employees.

CIGNA Disability and Life is an industry leader in returning employees to work quickly. Shorter disability claim durations mean higher productivity and lower cost for employers and a better quality of life for their employees. CIGNA Disability and Life’s disability insurance products may be integrated with other disability benefit programs, behavioral programs, workers’ compensation, medical programs, social security advocacy, and leave of absence administration. CIGNA Disability and Life believes this integration provides customers with increased efficiency and effectiveness in disability claims management, enhances productivity and reduces overall costs to employers. Coordinating the administration of CIGNA Disability and Life’s disability and CIGNA HealthCare’s medical programs may provide enhanced opportunities to influence outcomes, reduce the cost of both medical and disability events and improve the return to work rate. Using information from the CIGNA HealthCare and CIGNA Disability and Life databases helps identify, treat and manage disabilities before they become chronic, longer in duration and more costly. Proactive outreach from CIGNA Behavioral Health assists employees suffering from a mental health condition, either as a primary condition or as a result of another condition. CIGNA may receive fees for providing these integrated services to customers.

Approximately 9,100 insured disability policies covering approximately 5.7 million lives were outstanding as of December 31, 2010.

Life Insurance

Group life insurance products include group term life and group universal life. Group term life insurance may be employer-paid basic life insurance, employee-paid supplemental life insurance or a combination thereof.

CIGNA Disability and Life provides group universal life insurance to employers. Group universal life insurance is a voluntary life insurance product in which the owner may accumulate cash value. The cash value earns interest at rates declared from time to time, subject to a minimum guaranteed contracted rate, and may be borrowed, withdrawn, or, within certain limits, used to fund future life insurance coverage.

Approximately 5,000 group life insurance policies covering approximately 5.1 million lives were outstanding as of December 31, 2010.

Other Products and Services

CIGNA Disability and Life offers personal accident insurance coverage, which consists primarily of accidental death and dismemberment and travel accident insurance to employers. Group accident insurance may be employer-paid or employee-paid.

CIGNA Disability and Life also offers specialty insurance services that consist primarily of disability and life, accident, and medical insurance to professional associations, financial institutions, and participant organizations. Renewal rights to CIGNA’s block of student and participant accident insurance business were sold to an unaffiliated insurer during 2009.

CIGNA CORPORATION – 2010 Form 10-K – 13

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Voluntary benefits are those paid by the employee and are offered at the employer’s worksite. CIGNA Disability and Life plans provide employers, among other services, flexible enrollment options, list billing, medical underwriting, and individual record keeping. CIGNA Disability and Life designed its voluntary offerings to offer employers a complete and simple way to manage their benefits, including personalized enrollment communication and administration of the benefits program.

In 2010, CIGNA sold the workers’ compensation and case management services previously provided through its Intracorp® subsidiary. For more information on this sale, see “Acquisitions and Dispositions” in the Introduction section of the MD&A beginning on page 47.

Financial information, including premiums and fees, is presented in the Disability and Life section of the MD&A beginning on page 70 and in Note 23 to CIGNA’s Consolidated Financial Statements beginning on page 156 of this Form 10-K.

Pricing, Reserves and Reinsurance

CIGNA Disability and Life’s products and services are offered on a fully insured, experience-rated and ASO basis. Under fully insured arrangements, policyholders pay a fixed premium and CIGNA Disability and Life bears the risk for claims and costs. Under experience-rated funding arrangements, a premium that typically includes a margin to partially protect against adverse claim fluctuations is determined at the beginning of the policy period. CIGNA Disability and Life generally bears the risk if claims and expenses exceed this premium. If premiums exceed claims and expenses, any surplus amount is generally first used to offset prior deficits and is otherwise generally returned to the policyholder if surplus exceeds minimum contractual levels. With experience-rated insurance products, CIGNA Disability and Life may recover deficits from margins in future years if the policy is renewed. Under ASO arrangements, CIGNA Disability and Life contracts with groups sponsoring self-insured plans to administer claims and perform other plan related services in return for service fees. The self-insured plan sponsor is responsible for self funding all claims. The majority of CIGNA Disability and Life’s products and services are fully insured.

Premiums and fees charged for disability and life insurance products are generally established in advance of the policy period and are generally guaranteed for one to three years and selectively guaranteed for up to five years, but policies can in most cases be subject to early termination by the policyholder or by the insurance company.

Premium rates reflect assumptions about future claims, expenses, credit risk, investment returns and profit margins. Assumptions may be based in whole or in part on prior experience of the account or on a pool of accounts, depending on the group size and the statistical credibility of the experience, which varies by product.

Premiums for group universal life insurance products consist of mortality, administrative and surrender charges assessed against the policyholder’s fund balance. Interest credited and mortality charges for group universal life, and mortality charges on group variable universal life, may be adjusted prospectively to reflect expected interest and mortality experience. Mortality charges are subject to guaranteed maximum rates, based on standard mortality tables, which rates are stated in the policy.

In addition to paying current benefits and expenses, CIGNA Disability and Life establishes reserves in amounts estimated to be sufficient to pay reported claims not yet paid, as well as claims incurred but not yet reported. For liabilities with longer-term pay-out periods such as long-term disability, reserves represent the present value of future expected payments. CIGNA Disability and Life discounts these expected payments using assumptions for interest rates and the length of time over which claims are expected to be paid. The annual effective interest rate assumptions used in determining reserves for most of the long-term disability insurance business is 4.75% for claims that were incurred in 2010 and 5% for claims that were incurred in 2009. For group universal life insurance, CIGNA Disability and Life establishes reserves for deposits received and interest credited to the policyholder, less mortality and administrative charges assessed against the policyholder’s fund balance.

The profitability of this segment’s products depends on the adequacy of premiums charged and investment returns relative to claims and expenses. The effectiveness of return to work programs and mortality levels also impact the profitability of disability insurance products. CIGNA Disability and Life’s previous claim experience and industry data indicate a correlation between disability claim incidence levels and economic conditions, with submitted claims rising under adverse economic conditions, although the impact of the current adverse economic conditions is not clear. For life insurance products, the degree to which future experience deviates from mortality, morbidity and expense assumptions also affects profitability.

In order to reduce its exposure to large individual and catastrophic losses under group life, disability and accidental death policies, CIGNA Disability and Life purchases reinsurance from unaffiliated reinsurers.

CIGNA CORPORATION – 2010 Form 10-K – 14

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Markets and Distribution

CIGNA Disability and Life markets the group insurance products and services described above to employers, employees, professional and other associations and groups in the following customer segments:

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national accounts, which are multi-site employers generally with more than 5,000 employees;

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middle market, which is generally defined as multi-site employers with more than 250 but fewer than 5,000 employees, and single-site employers with more than 250 employees; and

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select, which generally includes employers with more than 50 but fewer than 250 employees.

In marketing these products, CIGNA Disability and Life primarily sells through insurance brokers and consultants and employs a direct sales force. As of December 31, 2010, the field sales force for the products and services of this segment consisted of approximately 200 sales professionals in 27 office locations.

Competition

The principal competitive factors that affect the CIGNA Disability and Life segment are underwriting and pricing, the quality and effectiveness of claims management, relative operating efficiency, investment and risk management, distribution methodologies and producer relations, the breadth and variety of products and services offered, and the quality of customer service.

For certain products with longer-term liabilities, such as group long-term disability insurance, the financial strength of the insurer, as indicated by ratings issued by nationally recognized rating agencies, is also a competitive factor.

The principal competitors of CIGNA’s group disability, life and accident businesses are other large and regional insurance companies that market and distribute these or similar types of products.

As of December 31, 2010, CIGNA is one of the top five providers of group disability, life and accident insurance in the United States, based on premiums.

Industry Developments and Strategic Initiatives

The group insurance market remains highly competitive as the rising cost of providing medical coverage to employees has forced companies to re-evaluate their overall employee benefit spending. Demographic shifts have further driven demand for products and services that are sufficiently flexible to meet the evolving needs of employers and employees who want innovative, cost-effective solutions to their insurance needs. Employers continue to shift towards greater employee participatory coverage and voluntary purchases.

Employers are also expressing a growing interest in employee wellness, absence management and productivity and recognizing a strong link between health, productivity and their profitability. CIGNA is well-positioned to offer employers programs that promote a healthy lifestyle, offer assistance in returning to work and integrate health care and disability programs. CIGNA believes it is well positioned to deliver integrated solutions that address these broad employer and employee needs. CIGNA also believes that its strong disability management portfolio and fully integrated programs provide employers and employees tools to improve health status. This focus on managing the employee’s total absence enables CIGNA to increase the number and likelihood of interventions and minimize disabling events.

CIGNA CORPORATION – 2010 Form 10-K – 15

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F. International

CIGNA’s International segment (“CIGNA International”) offers supplemental health, life and accident insurance products as well as international health care products and services. These products and services are provided by subsidiaries of CIGNA Corporation, including foreign operating entities.

CIGNA International provides employers, affinity groups and individuals with quality local and global health care and related financial protection programs. With local licenses in over 27 countries and jurisdictions, CIGNA International offers products and services to both local citizens and globally mobile individuals. CIGNA International services expatriates virtually everywhere in the world.

Principal Products and Services

Supplemental Health, Life and Accident Insurance

CIGNA International’s supplemental health, life and accident insurance products generally provide simple, affordable coverage of risks for the health and financial security of individuals. Supplemental health products provide a specified payment for a variety of health risks and include personal accident, accidental death, critical illness, hospitalization, dental, cancer and other dread disease coverages. Term life as well as variable universal life insurance and other savings products are also included in the product portfolio. CIGNA International’s supplemental health, life and accident insurance products are offered in South Korea, Taiwan, Indonesia, Hong Kong, the European Union, China, New Zealand and Thailand.

International Health Care

CIGNA International’s health care businesses primarily consist of products and services to meet the needs of multinational companies and their expatriate employees and dependents. These products and services include insurance and administrative services for medical, dental, vision, life, accidental death and dismemberment, and disability risks. The expatriate benefits products and services are offered through guaranteed cost, experience-rated, administrative services only, and minimum premium funding arrangements. For definitions of funding arrangements, see “Funding Arrangements” in Section D beginning on page 3 of this Form 10-K. The customers of CIGNA International’s expatriate benefits business are multinational companies and intergovernmental and non-governmental organizations, headquartered in the United States, Canada, Europe, the Middle East, Hong Kong, China and other international locations. The acquisition of Vanbreda International, in the third quarter of 2010, further strengthens CIGNA International’s position in this market.

In addition, CIGNA International’s health care businesses include products and services which are primarily provided through group benefits programs to employees of businesses and other organizations in the United Kingdom and Spain. These products and services include medical indemnity insurance coverage, with some offerings having managed care or administrative service aspects. These products and services generally provide an alternative or supplement to government provided national health care programs.

In 2010, CIGNA International began offering individual private medical insurance to local citizens in Spain as well as to individual expatriates and globally mobile high net worth individuals. Local, regional or global coverage is available to these groups, adapted to local market conditions.

Financial information, including premiums and fees, is presented in the International section of the MD&A beginning on page 72 and in Note 23 to CIGNA’s Consolidated Financial Statements beginning on page 156 of this Form 10-K.

Pricing, Reserves and Reinsurance

Premium rates for CIGNA International’s supplemental health, life and accident insurance products are based on assumptions about mortality, morbidity, customer acquisition and retention, expenses and target profit margins, as well as interest rates. The profitability of these products is primarily driven by mortality, morbidity, and customer retention.

Fees for variable universal life insurance products consist of mortality, administrative, asset management and surrender charges assessed against the contractholder’s fund balance. Mortality charges on variable universal life may be adjusted prospectively to reflect expected mortality experience.

CIGNA CORPORATION – 2010 Form 10-K – 16

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Premium rates and fees for CIGNA International’s health care products reflect assumptions about future claims, expenses, customer demographics, investment returns, and profit margins. For products using networks of contracted health care professionals and facilities, premiums reflect assumptions about the impact of these contracts and utilization management on future claims. Most of the premium volume for the medical indemnity business is on a guaranteed cost basis. Other premiums are established on an experience-rated basis. Most contracts permit rate changes at least annually.

The profitability of health care products is dependent upon the accuracy of projections for health care inflation (unit cost, location of delivery of care, currency of incurral and utilization), customer demographics, the adequacy of fees charged for administration and effective medical cost management.

In addition to paying current benefits and expenses, CIGNA International establishes reserves in amounts estimated to be sufficient to settle reported claims not yet paid, claims incurred but not yet reported as well as future amounts payable on experience-rated arrangements. Additionally, for some individual life insurance and supplemental health insurance products, CIGNA International establishes policy reserves which reflect the present value of expected future obligations less the present value of expected future premiums attributable to policyholder obligations. CIGNA International defers acquisition costs, such as commissions, telemarketing, direct response marketing and policy fulfillment costs, incurred in the sales of multi-year supplemental health, life, and accident products. For most products, these costs are amortized in proportion to premium revenue recognized, which is impacted by customer retention. For variable universal life products, acquisition costs are amortized in proportion to expected gross profits.

CIGNA International’s operations are diversified by line of business and geographic spread of risk. However, South Korea does represent the single largest geographic market for CIGNA International. A global approach to underwriting risk management allows for each local business to underwrite and accept risk within specified limits. Retentions are centrally managed through cost effective use of external reinsurance to limit segment liability on a per life, per risk, and per event (catastrophe) basis.

Markets and Distribution

CIGNA International’s supplemental health, life and accident insurance products are generally marketed through distribution partners with whom the individual insured has an affinity relationship. These products are sold primarily through direct marketing channels, such as outbound telemarketing and in-branch bancassurance. Marketing campaigns are conducted through these channels under a variety of arrangements with affinity partners. These affinity partners primarily include banks, credit card companies and other financial institutions. CIGNA International also distributes directly to consumers via direct response television and the Internet. CIGNA International’s supplemental health, life and accident insurance businesses are located in South Korea, Taiwan, the European Union, Hong Kong, Indonesia, China, New Zealand and Thailand. In China, CIGNA International owns a 50% interest in a joint venture through which its products and services are offered.

CIGNA International’s health care products are distributed through independent brokers and consultants, select partners, CIGNA International’s own sales personnel, telemarketing and the Internet. The customers of CIGNA International’s expatriate benefits business are multinational companies and international organizations headquartered in the United States, Canada, Europe, the Middle East, Hong Kong, China and other international locations. In addition, CIGNA International’s health care businesses include medical products, which are provided through group and individual benefits programs in the United Kingdom and Spain as well as to individual expatriates and high net worth globally mobile individuals.

For CIGNA International’s supplemental health, life and accident insurance products, a significant portion of premiums are billed and collected through credit cards. A substantial contraction in consumer credit could impact CIGNA International’s ability to retain existing policies and sell new policies. A decline in customer retention would result in both a reduction of revenue and an acceleration of the amortization of acquisition related costs. Changes in regulation around permitted distribution channels may also impact CIGNA International’s business or results. See the Regulation section beginning on page 26 and the Risk Factors section beginning on page 33 of this Form 10-K.

In 2010, South Korea generated 32% of CIGNA International’s revenues and 49% of its segment earnings. For information on the concentration of risk with respect to CIGNA International’s business in South Korea, see “Other Items Affecting International Results” in the International section of the MD&A beginning on page 72 of this Form 10-K.

CIGNA CORPORATION – 2010 Form 10-K – 17

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Competition

Competitive factors in CIGNA International’s supplemental health, life and accident and health care businesses include product and distribution innovation and differentiation, efficient management of marketing processes and costs, commission levels paid to distribution partners, and quality of claims and customer services.

The principal competitive factors that affect CIGNA International’s health care businesses are underwriting and pricing, relative operating efficiency, relative effectiveness in network development and medical cost management, product innovation and differentiation, broker relations, and the quality of claims and customer service. In most overseas markets, perception of financial strength is also an important competitive factor.

For the supplemental health, life and accident insurance line of business, competitors are primarily locally based insurance companies, including insurance subsidiaries of banks primarily in Asia and Europe. Insurance company competitors in this segment primarily focus on traditional product distribution through captive agents, with direct marketing being secondary channels. CIGNA International estimates that it has less than 2% market share of the total life insurance premiums in any given market in which it operates.

The primary competitors of the expatriate benefits business include U.S.-based and European health insurance companies with global expatriate benefits operations. For the health care operations in the United Kingdom and Spain, the primary competitors are regional and local insurers, with CIGNA’s market share at less than 5% of the premiums of the total local health care market.

CIGNA International expects that the competitive environment will intensify as U.S. and Europe-based insurance and financial services providers pursue global expansion opportunities.

Industry Developments

Pressure on social health care systems and increased wealth and education in emerging markets are leading to higher demand for products providing health insurance and financial security. In the supplemental health, life and accident business, direct marketing channels are growing and attracting new competitors while industry consolidation among financial institutions and other affinity partners continues. Increased regulations requiring foreign workers to show proof of health insurance are creating opportunities for CIGNA International’s health care businesses. See “Risk Factors” beginning on page 33 of this Form 10-K for a discussion of risks related to CIGNA International.

CIGNA CORPORATION – 2010 Form 10-K – 18

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G. Run-off Reinsurance

Principal Products and Services

Until 2000, CIGNA offered reinsurance coverage for part or all of the risks written by other insurance companies (or “ceding companies”) under life and annuity policies (both group and individual) and accident policies (workers’ compensation, personal accident, and catastrophe coverages). The products and services related to these operations were offered by subsidiaries of CIGNA Corporation.

In 2000, CIGNA sold its U.S. individual life, group life and accidental death reinsurance businesses. CIGNA placed its remaining reinsurance businesses (including its accident, international life, and annuity reinsurance businesses) into run-off as of June 1, 2000, and stopped underwriting new reinsurance business.

On December 31, 2010, the Company essentially exited from its workers’ compensation and personal accident reinsurance business by purchasing retrocessional coverage from a Bermuda subsidiary of Enstar Group Limited and transferring administration of this business to the reinsurer. See Note 3 to the Consolidated Financial Statements beginning on page 112 for more information.

CIGNA’s remaining exposures stem primarily from its annuity reinsurance business, including its reinsurance of guaranteed minimum death benefits (“GMDB”) and guaranteed minimum income benefits (“GMIB”) contracts.

Life and Annuity Policies

Guaranteed Minimum Death Benefit Contracts

CIGNA’s reinsurance segment reinsured GMDB (also known as variable annuity death benefits (“VADBe”)), under certain variable annuities issued by other insurance companies. These variable annuities are essentially investments in mutual funds combined with a death benefit. CIGNA has equity and other market exposures as a result of this product. The Company purchased retrocessional protection that covers approximately 5% of the assumed risks. The Company also maintains a dynamic hedge program (“GMDB equity hedge program”) to substantially reduce the equity market exposures relating to GMDB contracts by entering into exchange-traded futures contracts.

For additional information about GMDB contracts, see “Guaranteed Minimum Death Benefits” under Run-off Reinsurance section of the MD&A beginning on page 75 and Note 7 to CIGNA’s Consolidated Financial Statements beginning on page 116 of this Form 10-K.

Guaranteed Minimum Income Benefit Contracts

In certain circumstances where CIGNA’s reinsurance operations reinsured the GMDB, CIGNA also reinsured GMIB under certain variable annuities issued by other insurance companies. These variable annuities are essentially investments in mutual funds combined with minimum income and death benefits. All reinsured GMIB policies also have a GMDB benefit reinsured by the Company. When annuitants elect to receive these minimum income benefits, CIGNA may be required to make payments which will vary based on changes in underlying mutual fund values and interest rates. CIGNA has retrocessional coverage for 55% of the exposures on these contracts, provided by two external reinsurers.

For additional information about GMIB contracts, see “Guaranteed Minimum Income Benefits” under Run-off Reinsurance section of the MD&A beginning on page 75 and Note 11 to CIGNA’s Consolidated Financial Statements beginning on page 127 of this Form 10-K.

CIGNA CORPORATION – 2010 Form 10-K – 19

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Markets and Distribution

These products under CIGNA’s Run-off Reinsurance segment were sold principally in North America and Europe through a small sales force and through intermediaries.

CIGNA also purchased reinsurance to reduce the risk of losses on contracts that it had written. CIGNA determines its net exposure for run-off reinsurance contracts by estimating the portion of its policy and claim reserves that it expects will be recovered from its reinsurers (or “retrocessionaires”) and reflecting these in its financial statements as Reinsurance recoverables, or, with respect to GMIB contracts discussed above, as Other assets including other intangibles.

Other Risks

For more information on policy and claim reserves see the Run-off Reinsurance section of the MD&A beginning on page 75, and Notes 8 and 11 to CIGNA’s Consolidated Financial Statements beginning on pages 119 and 127 respectively of this Form 10-K. For more information on the risk associated with Run-off Reinsurance, see the Risk Factors beginning on page 33 of this Form 10-K, and the Critical Accounting Estimates section of the MD&A beginning on page 57 of this Form 10-K.

CIGNA CORPORATION – 2010 Form 10-K – 20

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H. Other Operations

CIGNA’s Other Operations segment includes the following businesses:

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corporate owned life insurance;

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deferred gains recognized from the 1998 sale of the individual life insurance and annuity business and the 2004 sale of the retirement benefits business; and

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run-off settlement annuity business.

The products and services related to these operations are offered by subsidiaries of CIGNA Corporation.

Corporate-owned Life Insurance (“COLI”)

Principal Products and Services

The principal products of the COLI business are permanent insurance contracts sold to corporations to provide coverage on the lives of certain of their employees for the purpose of funding employer-paid future benefit obligations. Permanent life insurance provides coverage that, when adequately funded, does not expire after a term of years. The contracts are primarily non-participating universal life policies.

Universal life policies typically provide flexible coverage and flexible premium payments. Policy cash values fluctuate with the amount of the premiums paid, mortality and expense charges assessed, and interest credited to the policy. Variable universal life policies are universal life contracts in which the cash values vary directly with the performance of a specific pool of investments underlying the policy.

The principal services provided by the COLI business are issuance and administration of the insurance policies (e.g., maintenance of records regarding cash values and death benefits, claims processing, etc.) as well as oversight of the investment management for separate account assets that support the variable universal life product.

Product Features

COLI policies provide a death benefit for which CIGNA collects fees to cover mortality risk and pay death benefits. Mortality risk is retained according to guidelines established by CIGNA. To the extent a given policy carries mortality risk that exceeds these guidelines, reinsurance is purchased from third parties for the balance. COLI policies also allow the policy owner to borrow against a portion of their cash surrender value.

Cash values on universal life policies are credited interest at a declared interest rate that reflects the anticipated investment results of the assets backing these policies and may vary with the characteristics of each product. Universal life policies generally have a minimum guaranteed declared interest rate which may be cumulative from the issuance date of the policy. The declared interest rate may be changed monthly, but is generally changed less frequently.

Cash values on variable universal life policies vary directly with the performance of a specific pool of investments underlying the policy. A limited number of variable universal life policies guarantee that the realized investment performance for a quarter, excluding the impact of unrealized gains/losses and the impact of credit-related events, will not be negative.

Pricing, Reserves, and Reinsurance

Fees for universal life insurance products consist of mortality, administrative and surrender charges assessed against the policyholder’s fund balance. Interest credited and mortality charges for universal life and mortality charges on variable universal life may be adjusted prospectively to reflect expected interest and mortality experience. For universal life insurance, CIGNA establishes reserves for deposits received and interest credited to the contractholder, less mortality and administrative charges assessed against the contractholder’s fund balance. In order to reduce its exposure to large individual and catastrophe losses, CIGNA purchases reinsurance from unaffiliated reinsurers.

CIGNA CORPORATION – 2010 Form 10-K – 21

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Markets and Distribution

The Company is actively developing and enhancing its product portfolio to pursue new business. The principal markets for COLI products are regional to national account-sized corporations, including banks. CIGNA’s COLI products are offered through a select group of independent brokers with particular expertise in the bank market and in the use of COLI for the financing of benefit plan liabilities.

Competition

The principal competitive factors that affect CIGNA’s COLI business are pricing, service, product innovation and access to third-party distribution. For CIGNA’s COLI business, competitors are primarily major life insurance companies. CIGNA expects that the competitive environment will intensify as the economy recovers and competitors develop new investment strategies and product designs, and aggressively price their offerings to build distribution capacity and gain market share.

Industry Developments and Strategic Initiatives

The COLI regulatory environment continues to evolve, with various Federal budget related proposals recommending changes in policyholder tax treatment. In addition, provisions of the Dodd-Frank financial reform legislation may limit the ability of some financial institutions to hold certain types of COLI contracts. Although regulatory and legislative activity could adversely impact our business and policyholders, management does not expect the impact to materially affect the Company’s results of operations, liquidity or financial condition.

Individual Life Insurance & Annuity and Retirement Benefits Businesses

CIGNA sold its individual life insurance and annuity business in 1998 and its retirement benefits business in 2004. Portions of the gains from these sales were deferred because the principal agreements to sell these businesses were structured as reinsurance arrangements. The deferred portion relating to the remaining reinsurance is being recognized at the rate that earnings from the sold businesses would have been expected to emerge, primarily over 15 years on a declining basis.

For more information regarding the sale of these businesses and the arrangements which secure CIGNA’s reinsurance recoverables, see Note 8 of the Consolidated Financial Statements beginning on page 119 of this Form 10-K.

Settlement Annuity Business

CIGNA’s settlement annuity business is a run-off block of contracts. These contracts are primarily liability settlements with approximately 34% of the liabilities associated with payments that are guaranteed and not contingent on survivorship. In the case of the contracts that involve non-guaranteed payments, such payments are contingent on the survival of one or more parties involved in the settlement.

The settlement annuities business is premium deficient, meaning initial premiums were not sufficient to cover all claims and profit. Liabilities are estimates of the present value of benefits to be paid less the present value of investment income generated by the assets supporting the product including realized and unrealized capital gains. The Company estimates these liabilities based on assumptions for investment yields, mortality, and administrative expenses. Refer to Note 2 to CIGNA’s Consolidated Financial Statements beginning on page 103 of this Form 10-K for additional information regarding reserves for this business.

CIGNA CORPORATION – 2010 Form 10-K – 22

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I. Investments and Investment Income

CIGNA’s investment operations provide investment management and related services primarily for CIGNA’s corporate invested assets and the insurance-related invested assets in its General Account (“General Account Invested Assets”). CIGNA acquires or originates, directly or through intermediaries, various investments including private placements, public securities, commercial mortgage loans, real estate, mezzanine and private equity partnerships, policy loans and short-term investments. CIGNA’s General Account Invested Assets are managed primarily by CIGNA subsidiaries and external managers with whom CIGNA’s subsidiaries contract.

The General Account Invested Assets comprise a majority of the combined assets of the Health Care, Disability and Life, Run-off Reinsurance and Other Operations segments (collectively, the “Domestic Portfolios”). There are, in addition, portfolios containing Invested Assets that consist of the assets of the International segment (collectively, the “International Portfolios”). Additionally, CIGNA subsidiaries or external managers manage Separate Account assets on behalf of contractholders. These assets are legally segregated from the Company’s other businesses and are not included in the General Account Invested Assets. Income, gains and losses generally accrue directly to the contractholders.

Net investment income and realized investment gains (losses) are not reported separately in the investment operations. Instead, net investment income is included as a component of earnings for each of CIGNA’s operating segments (Health Care, Disability and Life, Run-off Reinsurance, Other Operations and International) and Corporate, net of the expenses attributable to the investment operations. Realized investment gains (losses) are reported for each of CIGNA’s operating segments.

CIGNA’s General Account Invested Assets under management at December 31, 2010 totaled $20.9 billion. See Schedule I to CIGNA’s Consolidated Financial Statements on page FS-3 of this Form 10-K for more information as to the allocation to types of investments.

In addition, as of December 31, 2010, CIGNA’s Separate Account assets consisted of:

•

$1.3 billion in separate account assets that are managed by the buyer of the retirement benefits business pursuant to reinsurance arrangements described in the Sales of Individual Life Insurance & Annuity and Retirement Benefits Businesses sections in Note 3 to the Consolidated Financial Statements beginning on page 112 of this Form 10-K;

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$2.8 billion in separate account assets, which constitute a portion of the assets of the CIGNA Pension Plan; and

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$3.8 billion in separate account assets, which primarily support certain corporate-owned life insurance, health care and disability and life products.

Types of Investments

CIGNA invests in a broad range of asset classes, including domestic and international fixed maturities and common stocks, commercial mortgage loans, real estate, mezzanine and private equity partnerships and short-term investments. Fixed maturity investments include publicly traded and private placement corporate bonds, state, local and federal government bonds, publicly traded and private placement asset-backed securities, and redeemable preferred stocks. In addition, investment assets include policy loans which are collateralized by insurance policy cash values.

For the International Portfolios, CIGNA invests primarily in publicly traded fixed maturities, short-term investments and time deposits denominated in the currency of the relevant liabilities and surplus.

Fixed Maturities

CIGNA’s fixed maturities are 92% investment grade as determined by external rating agencies (for public investments) and by CIGNA (for private investments). These assets are well diversified by individual holding and industry sector. For additional information about fixed maturities, see the “Investment Assets” section of the MD&A beginning on page 88 of this Form 10-K.

CIGNA CORPORATION – 2010 Form 10-K – 23

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Commercial Mortgages and Real Estate

Commercial mortgage loan investments are subject to underwriting criteria addressing loan-to-value ratio, debt service coverage, cash flow, tenant quality, leasing, market, location and borrower’s financial strength. Such investments consist primarily of first mortgage loans on primarily completed and substantially leased commercial properties and are diversified by property type, location and borrower. Virtually all of CIGNA’s commercial mortgage loans are balloon payment loans, under which all or a substantial portion of the loan principal is due at the end of the loan term. The weighted average loan-to-value ratio of the Company’s commercial mortgage loan portfolio, based on management’s annual valuation completed in the third quarter of 2010 along with updates for subsequent portfolio activity, was approximately 74% and the weighted average debt service coverage was estimated to be 1.38. CIGNA holds no direct residential mortgage loans and does not securitize or service mortgage loans.

CIGNA enters into joint ventures with local partners to develop, lease, manage, and sell commercial real estate to maximize investment returns. CIGNA’s portfolio of real estate investments consists of properties under development and stabilized properties, and is diversified relative to property type and location. Additionally, CIGNA invests in third-party sponsored real estate funds to maximize investment returns and to maintain diversity with respect to its real estate related exposure.

CIGNA also could take possession of real estate through foreclosure of delinquent commercial mortgage loans. CIGNA rehabilitates, re-leases, and sells foreclosed properties, a process that usually takes from three to five years unless management considers a near-term sale preferable. As of December 31, 2010, CIGNA held one foreclosed property with a carrying value of $59 million.

Mezzanine and Private Equity Partnerships

CIGNA invests in limited partnership interests in partnerships formed and managed by seasoned, experienced fund managers with diverse mezzanine and private equity strategies.

Derivative Instruments

The Company uses derivative financial instruments primarily as part of a strategy to reduce the equity market exposures relating to guaranteed minimum death benefit contracts. Derivative financial instruments are also used by the Company as a part of its investment strategy to manage the characteristics of investment assets to meet the varying demands of the related insurance and contractholder liabilities. CIGNA has also written derivative instruments to minimize certain insurance customers’ market risks. For information about CIGNA’s use of derivative financial instruments, see Note 13 to CIGNA’s Consolidated Financial Statements beginning on page 142 of this Form 10-K.

See also the “Investment Assets” section of the MD&A beginning on page 88, and Notes 2, 11, 12, 14, and 15 to the Consolidated Financial Statements beginning on pages 103, 127, 136, 145, and 145, respectively, of this Form 10-K for additional information about CIGNA’s investments.

Domestic Portfolios — Investment Strategy

As of December 31, 2010, the Domestic Portfolios had $19.0 billion in General Account Invested Assets, allocated among fixed maturity investments (68%); commercial mortgage loan investments (18%); and policy loans, real estate investments, short-term investments and mezzanine and private equity partnership investments (14%).

CIGNA’s objective is to maximize risk-adjusted yields for the portfolios while generally managing the characteristics of these assets to reflect the underlying characteristics of related insurance and contractholder liabilities and capital requirements, as well as regulatory and tax considerations pertaining to those liabilities and state investment laws. CIGNA’s domestic insurance and contractholder liabilities as of December 31, 2010, excluding liabilities of businesses sold through the use of reinsurance arrangements, were associated with the following products, and the General Account Invested Assets are allocated proportionally as follows: other life and health, 51%; fully guaranteed annuity, 19%; and interest-sensitive life insurance, 30%.

CIGNA CORPORATION – 2010 Form 10-K – 24

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While the businesses and products supported are described elsewhere in this Form 10-K, the General Account Invested Assets supporting the insurance and contractholder liabilities of each of the Company’s segments are as follows:

•

assets supporting CIGNA’s Health Care segment are structured to emphasize investment income, and provide the necessary liquidity to meet cash flow requirements.

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assets supporting CIGNA’s Disability and Life segment are also structured to emphasize investment income, and provide necessary liquidity to meet cash flow requirements. Invested Assets supporting longer-term group disability insurance benefits and group life waiver of premium benefits are generally managed to an aggregate duration similar to that of the related benefit cash flows.

•

assets supporting the Run-off Reinsurance segment with respect to reinsurance provided for guaranteed minimum death benefit contracts and guaranteed minimum income benefit contracts are structured to emphasize investment income and provide the necessary liquidity to meet cash flow requirements. For information about CIGNA’s use of derivative financial instruments in the Run-off Reinsurance segment, see Notes 7 and 11 to CIGNA’s Consolidated Financial Statements beginning on pages 116 and 127 of this Form 10-K.

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assets supporting CIGNA’s Other Operations segment are associated primarily with fully guaranteed annuities (primarily settlement annuities) and interest-sensitive life insurance (primarily corporate-owned life insurance products). Because settlement annuities generally do not permit withdrawal by policyholders prior to maturity, the amount and timing of future benefit cash flows can be reasonably estimated so funds supporting these products are invested in fixed income investments whose aggregate duration generally matches the cash flows of the related benefits. As of December 31, 2010, the average duration of assets that supported these liabilities was approximately 12 years. General Account Invested Assets supporting interest-sensitive life insurance products are primarily fixed income investments and policy loans. Fixed income investments emphasize investment yield while meeting the liquidity requirements of the related liabilities.

Investment strategy and results are affected by the amount and timing of cash available for investment, competition for investments, economic conditions, interest rates and asset allocation decisions. CIGNA routinely monitors and evaluates the status of its investments, obtaining and analyzing relevant investment-specific information as well as assessing current economic conditions, trends in capital markets and other factors. Such factors include industry sector considerations for fixed maturity investments and mezzanine and private equity partnership investments, and geographic and property-type considerations for commercial mortgage loan and real estate investments.

International Portfolios — Investment Strategy

As of December 31, 2010 the International Portfolios had $1.9 billion in Invested Assets, allocated among fixed maturity investments (93%), short-term investments (5%) and other investments (2%). The International Portfolios are primarily managed by external managers with whom CIGNA’s subsidiaries contract.

The characteristics of these assets are generally managed to reflect the underlying characteristics of related insurance and contractholder liabilities, as well as regulatory and tax considerations in the countries where CIGNA’s subsidiaries operate. CIGNA International’s Invested Assets are generally invested in the currency of related liabilities, typically the currency in which the subsidiaries operate and with an aggregate duration generally matching the duration of insurance liabilities. CIGNA’s investment policy allows the investment of subsidiary assets in U.S. dollars to the extent permitted by applicable regulation. CIGNA International’s Invested Assets as of December 31, 2010 were held primarily in support of statutory surplus and liabilities associated with the health, life and accident and healthcare products described in Section F on page 16 of this Form 10-K.

CIGNA CORPORATION – 2010 Form 10-K – 25

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J. Regulation

CIGNA and its subsidiaries are subject to comprehensive federal, state and international regulations. The laws and regulations governing CIGNA’s business continue to increase each year and are subject to frequent change. CIGNA has established policies and procedures to comply with applicable requirements.

CIGNA’s insurance and HMO subsidiaries must be licensed by the jurisdictions in which they conduct business. These subsidiaries are subject to numerous state and federal regulations related to their business operations, including, but not limited to:

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the form and content of customer contracts including benefit mandates (including special requirements for small groups, generally under 50 employees);

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premium rates;

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the content of agreements with participating providers of covered services;

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producer appointment and compensation;

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claims processing and appeals;

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underwriting practices;

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reinsurance arrangements;

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unfair trade and claim practices;

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protecting the privacy and confidentiality of the information received from members;

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risk sharing arrangements with providers;

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medical loss ratios;

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advertising; and

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the operation of consumer-directed plans (including health savings accounts, health reimbursement accounts, flexible spending accounts and debit cards).

CIGNA and its international subsidiaries comply with regulations in international jurisdictions where foreign insurers may be faced with more onerous regulations than their domestic competitors. The broader regulatory environment may include anti-corruption laws, various privacy, insurance, tax, tariff and trade laws and regulations, corporate governance, employment, intellectual property and investment laws and regulation, discriminatory licensing procedures, compulsory cessions of reinsurance, required localization of records and funds, higher premium and income taxes, and requirements for local participation in an insurer’s ownership. In addition, the expansion of CIGNA’s operations into foreign countries increases the Company’s exposure to certain U.S. laws, such as the Foreign Corrupt Practices Act of 1977 (FCPA). See page 29 for further discussion of international regulations.

The business of administering and insuring employee benefit programs, particularly health care programs, is heavily regulated by state and federal laws and administrative agencies, such as state departments of insurance and the federal departments of Labor, Health and Human Services and Justice, the Internal Revenue Service as well as the courts. Health savings accounts, health reimbursement accounts and flexible spending accounts are also regulated by the U.S. Department of the Treasury and the Internal Revenue Service.

CIGNA’s operations, accounts and other books and records are subject to examination at regular intervals by regulatory agencies, including state health, insurance and managed care departments, state boards of pharmacy and the Center for Medicare & Medicaid Services to assess compliance with applicable laws and regulations. In addition, CIGNA’s current and past business practices are subject to review by, and from time to time the Company receives subpoenas and other requests of information from, various state insurance and health care regulatory authorities, attorneys general, the Office of Inspector General, and other state and federal authorities, including inquiries by, and testimony before committees and subcommittees of the U.S. Congress regarding certain of its business practices. These examinations, reviews, subpoenas and requests may result in changes to or clarifications of CIGNA’s business practices, as well as fines, penalties or other sanctions.

CIGNA CORPORATION – 2010 Form 10-K – 26

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Regulatory and Legislative Developments

The federal and state governments in the U.S. as well as governments in other countries where CIGNA does business continue to enact and seriously consider many broad-based legislative and regulatory proposals that could materially impact various aspects of CIGNA’s business.

During the first quarter of 2010, the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 were signed into law. This legislation is far-reaching and is intended to expand access to health insurance coverage over time. This legislation includes a requirement that most individuals maintain a minimum level of health insurance coverage beginning in 2014 and also a requirement that most large employers offer coverage to their employees or they will be required to pay a financial penalty.

In addition, the legislation imposes an excise tax on high-cost employer-sponsored coverage and an annual fee on insurance companies and HMOs which will not be deductible for income tax purposes. It also limits the amount of compensation for executives of insurers that is tax deductible. The Patient Protection and Affordable Care Act also imposes new regulations on the health insurance sector, including, but not limited to, guaranteed coverage and renewal requirements, prohibitions on some annual and all lifetime benefit limits, increased restrictions on rescinding coverage, minimum medical loss ratio and customer rebate requirements, a requirement to cover preventive services on a first dollar basis, greater controls on premium rate increases for health insurance, and a requirement to establish state insurance exchanges.

Some of the health insurance reform provisions in the new law became effective immediately upon enactment while others take effect for group health plans and individual insurance policies with the first policy or plan year occurring on and after September 23, 2010 (six months from the enactment of the legislation) including those requiring coverage of preventive services with no enrollee cost-sharing, banning the use of lifetime and certain limits on benefits, increasing restrictions on rescinding coverage and extending coverage of dependents to the age of 26. Minimum medical loss ratio requirements commenced in January 2011 for health insurance companies and HMOs. Other significant changes, including the annual fees on health insurance companies, the excise tax on high-cost employer-sponsored coverage, the guaranteed issue and renewal requirements and the requirement that individuals maintain coverage, do not become effective until 2014 or later.

The Patient Protection and Affordable Care Act left many of the details of the new law to be established through regulations. While federal agencies have published interim final regulations with respect to many requirements, many issues remain unresolved. For example, the Department of Health and Human Services released interim final regulations in November 2010 which provided a special methodology for calculating medical loss ratios for 2011 for expatriate insurance business and limited benefit plans while also stating that it intends to study the data in determining whether special accommodations will be made for these plans in 2012 and future years. In addition to acting to comply with applicable requirements of the legislation, CIGNA is closely monitoring regulatory developments and keeping its clients apprised of changes that may affect them. (See further Health Care reform discussion beginning on page 50.)

In 2010, Congress also enacted the Dodd-Frank Wall-Street Reform and Consumer Protection Act which provides for a number of reforms and regulations in the corporate governance, financial reporting and disclosure, investments, tax and enforcement areas that will affect CIGNA. The full impact of this legislation may not be known for several years until regulations become fully effective. CIGNA is closely monitoring how these regulations will impact the Company.

Regulation of Insurance Companies

Financial Reporting

Regulators closely monitor the financial condition of licensed insurance companies and HMOs. States regulate the form and content of statutory financial statements, the type and concentration of permitted investments, and corporate governance over financial reporting. CIGNA’s insurance and HMO subsidiaries are required to file periodic financial reports and schedules with regulators in most of the jurisdictions in which they do business as well as annual financial statements audited by independent certified public accountants. Certain insurance and HMO subsidiaries are required to file an annual report of internal control over financial reporting with most jurisdictions in which they do business. Insurance and HMO subsidiaries’ operations and accounts are subject to examination by such agencies.

CIGNA CORPORATION – 2010 Form 10-K – 27

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Guaranty Associations, Indemnity Funds, Risk Pools and Administrative Funds

Most states and certain non-U.S. jurisdictions require insurance companies to support guaranty associations or indemnity funds, which are established to pay claims on behalf of insolvent insurance companies. In the United States, these associations levy assessments on member insurers licensed in a particular state to pay such claims.

Several states also require HMOs to participate in guaranty funds, special risk pools and administrative funds. For additional information about guaranty fund and other assessments, see Note 24 to CIGNA’s Consolidated Financial Statements beginning on page 159 of this Form 10-K.

Some states also require health insurers and HMOs to participate in assigned risk plans, joint underwriting authorities, pools or other residual market mechanisms to cover risks not acceptable under normal underwriting standards.

Solvency and Capital Requirements

Many states have adopted some form of the National Association of Insurance Commissioners (“NAIC”) model solvency-related laws and risk-based capital rules (“RBC rules”) for life and health insurance companies. The RBC rules recommend a minimum level of capital depending on the types and quality of investments held, the types of business written and the types of liabilities incurred. If the ratio of the insurer’s adjusted surplus to its risk-based capital falls below statutory required minimums, the insurer could be subject to regulatory actions ranging from increased scrutiny to conservatorship.

In addition, various non-U.S. jurisdictions prescribe minimum surplus requirements that are based upon solvency, liquidity and reserve coverage measures. During 2010, CIGNA’s HMOs and life and health insurance subsidiaries, as well as non-U.S. insurance subsidiaries, were compliant with applicable RBC and non-U.S. surplus rules.

Effective December 31, 2009, the Company’s principal life insurance subsidiary, Connecticut General Life Insurance Company (“CGLIC”), implemented the NAIC’s Actuarial Guideline XLIII (also known as AG 43 or VACARVM), which is applicable to CGLIC’s statutory reserves for GMDB and GMIB contracts totaling $1.5 billion as of December 31, 2010. As provided under this guidance, CGLIC received approval from the State of Connecticut to grade-in the full effect of the guideline over a 3-year period beginning in 2009. At December 31, 2010, statutory reserves for CGLIC were higher than the pre-AG 43 reserves by $123 million. If the guidance had been fully implemented at December 31, 2010, statutory reserves would have been higher by an additional $63 million. Management does not anticipate that VACARVM will have a material impact on the amount of dividends expected to be paid by CGLIC to the parent company in 2011. In addition, VACARVM has no impact on measurement of the Company’s results of operations or financial condition as determined under GAAP.

Holding Company Laws

CIGNA’s domestic insurance companies and certain of its HMOs are subject to state laws regulating subsidiaries of insurance holding companies. Under such laws, certain dividends, distributions and other transactions between an insurance or HMO subsidiary and its affiliates may require notification to, or approval by, one or more state insurance commissioners.

Marketing, Advertising and Products

In most states, CIGNA’s insurance companies and HMO subsidiaries are required to certify compliance with applicable advertising regulations on an annual basis. CIGNA’s insurance companies and HMO subsidiaries are also required in most states to file and secure regulatory approval of products prior to the marketing, advertising, and sale of such products. State and/or federal regulatory scrutiny of life and health insurance company and HMO marketing and advertising practices, including the adequacy of disclosure regarding products and their administration, may result in increased regulation. Products offering limited coverage, such as those CIGNA issues through the Star HRG business acquired in July 2006, continue to attract increased regulatory scrutiny.

CIGNA CORPORATION – 2010 Form 10-K – 28

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Licensing Requirements

Pharmacy Licensure Laws

Certain CIGNA subsidiaries are pharmacies, which dispense prescription drugs to participants of benefit plans administered or insured by CIGNA subsidiary HMOs and insurance companies. These pharmacy-subsidiaries are subject to state licensing requirements and regulation.

International Licensure Laws

CIGNA International subsidiaries are often required to be licensed when entering new markets or starting new operations in certain jurisdictions. The licensure requirements for these CIGNA subsidiaries vary by country and are subject to change.

Claim Administration, Utilization Review and Related Services

Certain CIGNA subsidiaries contract for the provision of claim administration, utilization management and other related services with respect to the administration of self-insured benefit plans. These CIGNA subsidiaries may be subject to state third-party administration and other licensing requirements and regulation.

International Regulations

An increasing portion of CIGNA’s revenue is derived from operations outside the United States, which exposes the Company to laws of multiple jurisdictions and the rules and regulations of various governing bodies and regulators, including those related to financial and other disclosures, corporate governance, privacy, data protection, data mining, data transfer, labor and employment, consumer protection and anti-corruption. The operations in countries outside the United States:

•

are subject to local regulations in the place in which CIGNA subsidiaries conduct business;

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in some cases, are subject to regulations in the places in which customers are located; and

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in all cases are subject to FCPA.

FCPA prohibits offering, promising, providing or authorizing others to give anything of value to a foreign government official to obtain or retain business or otherwise secure a business advantage. CIGNA is also subject to applicable anti-corruption laws in the jurisdictions in which it operates. Additionally, in many countries outside of the U.S., health care professionals are employed by the government. Therefore, CIGNA’s dealings with them are subject to regulation under the FCPA. Violations of the FCPA and other anti-corruption laws may result in severe criminal and civil sanctions as well as other penalties and the SEC and Department of Justice have increased their enforcement activities with respect to FCPA. The UK Bribery Act of 2010 is an anti-corruption law that applies to all companies with a nexus to the United Kingdom and whose scope is even broader than the FCPA. It is yet to be seen how the UK Bribery Act will be implemented and enforced, but any voluntary disclosures of FCPA violations may be shared with the UK authorities, thus potentially exposing companies to liability and potential penalties in multiple jurisdictions. CIGNA has internal control policies and procedures and has implemented training and compliance programs for its employees to deter prohibited practices. However, if CIGNA’s employees or agents fail to comply with applicable laws governing its international operations, the Company may face investigations, prosecutions and other legal proceedings and actions which could result in civil penalties, administrative remedies and criminal sanctions. See the Risk Factors section beginning on page 33 for a discussion of the risks related to operating globally.

Federal Regulations

Employee Retirement Income Security Act

CIGNA subsidiaries sell most of their products and services to sponsors of employee benefit plans that are governed by ERISA. CIGNA subsidiaries are subject to requirements imposed by ERISA affecting claim and appeals procedures for health plans and are expected to comply with these requirements on behalf of the dental, disability, life and accident plans they administer.

CIGNA CORPORATION – 2010 Form 10-K – 29

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Medicare Regulations

Several CIGNA subsidiaries engage in businesses that are subject to federal Medicare regulations such as:

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those offering individual and group Medicare Advantage (HMO) coverage in Arizona;

•

contractual arrangements with the federal government for the processing of certain Medicare claims and other administrative services; and

•

those offering Medicare Pharmacy (Part D) and Medicare Advantage Private Fee For Service products that are subject to federal Medicare regulations.

Several CIGNA subsidiaries are also subject to reporting requirements pursuant to Section 111 of the Medicare, Medicaid and SCHIP Extension Act of 2007.

Federal Audits of Government Sponsored Health Care Programs

Participation in government sponsored health care programs subjects CIGNA to a variety of federal laws and regulations and risks associated with audits conducted under these programs. These audits may occur in years subsequent to CIGNA providing the relevant services under audit. These risks may include reimbursement claims as well as potential fines and penalties. For example, the federal government requires Medicare and Medicaid providers to file detailed cost reports for health care services provided. These reports may be audited in subsequent years. CIGNA HMOs that contract to provide community-rated coverage to participants in the Federal Employees Health Benefit Plan may be required to reimburse the federal government if, following an audit, it is determined that a federal employee group did not receive the benefit of a discount offered by a CIGNA HMO to one of the two groups closest in size to the federal employee group. See “Health Care” in Section D beginning on page 3 of this Form 10-K for additional information about CIGNA’s participation in government health-related programs.

The Federal government has made investigating and prosecuting health care fraud and abuse a priority. Fraud and abuse prohibitions encompass a wide range of activities, including kickbacks for referral of members, billing for unnecessary medical services, improper marketing, and violation of patient privacy rights. The regulations and contractual requirements in this area are complex and subject to change and compliance will continue to require significant resources.

Health Insurance Portability and Accountability Act Regulations

The federal Health Insurance Portability and Accountability Act of 1996 and its implementing regulations (“HIPAA”) impose several different requirements on health insurers, HMOs, health plans, health care providers and clearinghouses. Health insurers and HMOs are further subject to regulations related to guaranteed issuance (for groups with 50 or fewer lives), guaranteed renewal, and portability of health insurance.

HIPAA also imposes minimum standards for health plans, health insurers, health care providers and their vendors to safeguard the privacy and security of individually identifiable or protected health information (“PHI”). HIPAA’s privacy and security requirements were expanded by the Health Information Technology for Economic and Clinical Health Act (“HITECH”) which enhanced penalties for HIPAA violations and required regulated entities to provide notice of breaches of unsecured PHI.

HIPAA also establishes rules to standardize the format and content of certain electronic transactions, including, but not limited to, eligibility and claims. Federal regulations were issued requiring entities subject to HIPAA to update their transaction formats for electronic data interchange from the current HIPAA 4010 standards to new HIPAA 5010 standards with a compliance date of January 1, 2012. Regulations were also issued requiring a conversion from the ICD-9 diagnosis and procedure code sets to the ICD-10 diagnosis and procedure code sets. The IDC-10 code set conversion is dependent upon implementation of the HIPAA 5010 standards. CIGNA has related project plans underway to deliver ICD-10 capabilities by the October 1, 2013 effective date.

CIGNA CORPORATION – 2010 Form 10-K – 30

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Other Confidentiality Requirements

The federal Gramm-Leach-Bliley Act generally places restrictions on the disclosure of non-public information to non-affiliated third parties, and requires financial institutions, including insurers, to provide customers with notice regarding how their non-public personal information is used, including an opportunity to “opt out” of certain disclosures. State departments of insurance and certain federal agencies adopted implementing regulations as required by federal law. A number of states have also adopted data security laws and/or regulations, regulating data security and/or requiring security breach notification, which may apply to CIGNA in certain circumstances.

Antitrust Regulations

CIGNA subsidiaries are also engaged in activities that may be scrutinized under federal and state antitrust laws and regulations. These activities include the administration of strategic alliances with competitors, information sharing with competitors and provider contracting.

Anti-Money Laundering Regulations

Certain CIGNA products (“Covered Products” as defined in the Bank Secrecy Act) are subject to U.S. Department of the Treasury anti-money laundering regulations. CIGNA has implemented anti-money laundering policies designed to ensure that its Covered Products are underwritten and sold in compliance with these regulations.

Office of Foreign Assets Control

The Company is also subject to regulation put forth by the Office of Foreign Assets Control (OFAC) of the U.S. Department of the Treasury which administers and enforces economic and trade sanctions based on U.S. foreign policy and national security goals against targeted foreign countries and regimes, terrorists, international narcotics traffickers, those engaged in activities related to the proliferation of weapons of mass destruction, and other threats to the national security, foreign policy or economy of the United States.

Investment-Related Regulations

Depending upon their nature, CIGNA’s investment management activities are subject to U.S. federal securities laws, ERISA, and other federal and state laws governing investment related activities. In many cases, the investment management activities and investments of individual insurance companies are subject to regulation by multiple jurisdictions.

CIGNA CORPORATION – 2010 Form 10-K – 31

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K. Miscellaneous

CIGNA and its principal subsidiaries are not dependent on business from one or a few customers. No one customer accounted for 10% or more of CIGNA’s consolidated revenues in 2010. CIGNA and its principal subsidiaries are not dependent on business from one or a few brokers or agents. In addition, CIGNA’s insurance businesses are generally not committed to accept a fixed portion of the business submitted by independent brokers and agents, and generally all such business is subject to its approval and acceptance.

CIGNA had approximately 30,600, 29,300, and 30,300 employees as of December 31, 2010, 2009 and 2008, respectively.

CIGNA CORPORATION – 2010 Form 10-K – 32

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