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CIGNA CORP – 10-Q – MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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Executive Overview 35 Liquidity and Capital Resources 41 Critical Accounting Estimates 44 Segment Reporting 44 Evernorth 44Cigna Healthcare 46 Other Operations 48 Corporate 48 Investment Assets 49 Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is intended to provide information to assist you in better understanding and evaluating our financial condition as ofMarch 31, 2022 , compared withDecember 31, 2021 and our results of operations for the three months endedMarch 31, 2022 , compared with the same period last year and is intended to help you understand the ongoing trends in our business. We encourage you to read this MD&A in conjunction with our Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q and our Annual Report on Form 10-K for the year endedDecember 31, 2021 ("2021 Form 10-K"). In particular, we encourage you to refer to the "Risk Factors" contained in Part I, Item 1A of the 2021 Form 10-K. Unless otherwise indicated, financial information in this MD&A is presented in accordance with accounting principles generally accepted inthe United States of America ("GAAP"). See Note 2 to the Consolidated Financial Statements in our 2021 Form 10-K for additional information regarding the Company's significant accounting policies and see Note 2 to the Consolidated Financial Statements in this Form 10-Q for updates to those policies resulting from adopting new accounting guidance, if any. The preparation of interim consolidated financial statements necessarily relies heavily on estimates. This and certain other factors call for caution in estimating full-year results based on interim results of operations. In some of our financial tables in this MD&A, we present either percentage changes or "N/M" when those changes are so large as to become not meaningful. Changes in percentages are expressed in basis points ("bps"). In this MD&A, our consolidated measures "adjusted income from operations," earnings per share on that same basis and "adjusted revenues" are not determined in accordance with GAAP and should not be viewed as substitutes for the most directly comparable GAAP measures of "shareholders' net income," "earnings per share" and "total revenues." We also use pre-tax adjusted income (loss) from operations and adjusted revenues to measure the results of our segments. The Company uses "pre-tax adjusted income (loss) from operations" and "adjusted revenues" as its principal financial measures of segment operating performance because management believes these metrics best reflect the underlying results of business operations and permit analysis of trends in underlying revenue, expenses and profitability. We define adjusted income from operations as shareholders' net income (or income before income taxes less pre-tax income/loss attributable to noncontrolling interests for the segment metric) excluding net realized investment results, amortization of acquired intangible assets, and special items. Cigna's share of certain realized investment results of its joint ventures reported in theCigna Healthcare segment using the equity method of accounting are also excluded. Special items are matters that management believes are not representative of the underlying results of operations due to their nature or size. Adjusted income (loss) from operations is measured on an after-tax basis for consolidated results and on a pre-tax basis for segment results. Consolidated adjusted income (loss) from operations is not determined in accordance with GAAP and should not be viewed as a substitute for the most directly comparable GAAP measure, shareholders' net income. See the below Financial Highlights section for a reconciliation of consolidated adjusted income from operations to shareholders' net income. The Company defines adjusted revenues as total revenues excluding the following adjustments: special items and Cigna's share of certain realized investment results of its joint ventures reported in theCigna Healthcare segment using the equity method of accounting. Special items are matters that management believes are not representative of the underlying results of operations due to their nature or size. We exclude these items from this measure because management believes they are not indicative of past or future underlying performance of the business. Adjusted revenues is not determined in accordance with GAAP and should not be viewed as a 34 --------------------------------------------------------------------------------
substitute for the most directly comparable GAAP measure, total revenues. See
the below Financial Highlights section for a reconciliation of consolidated
adjusted revenues to total revenues.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on Cigna's current expectations and projections about future trends, events and uncertainties. These statements are not historical facts. Forward-looking statements may include, among others, statements concerning future financial or operating performance, including our ability to deliver affordable, predictable and simple solutions for our customers and clients, including in light of the challenges presented by the COVID-19 pandemic; future growth, business strategy, and strategic or operational initiatives; economic, regulatory or competitive environments, particularly with respect to the pace and extent of change in these areas and the impact of developing inflationary pressures; the ongoingRussia -Ukraine conflict; financing or capital deployment plans and amounts available for future deployment; our prospects for growth in the coming years; strategic transactions, including the sale of our international life, accident and supplemental benefits businesses; and other statements regarding Cigna's future beliefs, expectations, plans, intentions, liquidity, cash flows, financial condition or performance. You may identify forward-looking statements by the use of words such as "believe," "expect," "project," "plan," "intend," "anticipate," "estimate," "predict," "potential," "may," "should," "will" or other words or expressions of similar meaning, although not all forward-looking statements contain such terms. Forward-looking statements are subject to risks and uncertainties, both known and unknown, that could cause actual results to differ materially from those expressed or implied in forward-looking statements. Such risks and uncertainties include, but are not limited to: our ability to achieve our strategic and operational initiatives; our ability to adapt to changes in an evolving and rapidly changing industry; the scale, scope and duration of the COVID-19 pandemic and its potential impact on our business, operating results, cash flows or financial condition; our ability to compete effectively, differentiate our products and services from those of our competitors and maintain or increase market share; price competition, inflation and other pressures that could compress our margins or result in premiums that are insufficient to cover the cost of services delivered to our customers; the potential for actual claims to exceed our estimates related to expected medical claims; our ability to develop and maintain satisfactory relationships with physicians, hospitals, other health service providers and with producers and consultants; our ability to maintain relationships with one or more key pharmaceutical manufacturers or if payments made or discounts provided decline; changes in the pharmacy provider marketplace or pharmacy networks; changes in drug pricing or industry pricing benchmarks; political, legal, operational, regulatory, economic and other risks that could affect our multinational operations; risks related to strategic transactions and realization of the expected benefits of such transactions, including with respect to the sale of our international life, accident and supplemental benefits businesses, as well as integration or separation difficulties or underperformance relative to expectations; dependence on success of relationships with third parties; risk of significant disruption within our operations or among key suppliers or third parties; our ability to invest in and properly maintain our information technology and other business systems; our ability to prevent or contain effects of a potential cyberattack or other privacy or data security incident; potential liability in connection with managing medical practices and operating pharmacies, onsite clinics and other types of medical facilities; the substantial level of government regulation over our business and the potential effects of new laws or regulations or changes in existing laws or regulations; uncertainties surrounding participation in government-sponsored programs such as Medicare; the outcome of litigation, regulatory audits and investigations; compliance with applicable privacy, security and data laws, regulations and standards; potential failure of our prevention, detection and control systems; unfavorable economic and market conditions, stock market or interest rate declines and risks related to a downgrade in financial strength ratings of our insurance subsidiaries; the impact of our significant indebtedness and the potential for further indebtedness in the future; unfavorable industry, economic or political conditions; credit risk related to our reinsurers; as well as more specific risks and uncertainties discussed in Part I, Item 1A - Risk Factors of our 2021 Form 10-K, Part II, Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations of our 2021 Form 10-K, and as described from time to time in our future reports filed with theSecurities and Exchange Commission . You should not place undue reliance on forward-looking statements, which speak only as of the date they are made, are not guarantees of future performance or results and are subject to risks, uncertainties and assumptions that are difficult to predict or quantify. Cigna undertakes no obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise, except as may be required by law.
EXECUTIVE OVERVIEW
Cigna Corporation , together with its subsidiaries (either individually or collectively referred to as "Cigna," the "Company," "we," "our" or "us") is a global health services organization with a mission of helping those we serve improve their health, well-being and peace of mind by making health care affordable, predictable and simple. Our subsidiaries offer a differentiated set of pharmacy, medical, dental and related products and services. For further information on our business and strategy, see Item 1, "Business" in our 2021 Form 10-K. 35
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Financial Highlights
See Note 1 to the Consolidated Financial Statements for a description of our
segments.
Summarized below are certain key measures of our performance by segment for the three months endedMarch 31, 2022 and 2021: Financial highlights by segment Three Months Ended March 31, (Dollars in millions, except per share amounts) 2022 2021
% Change
Revenues
Adjusted revenues by segment Evernorth$ 33,586 $ 30,620 10 % Cigna Healthcare 11,392 11,067 3 Other Operations 979 1,005 (3) Corporate, net of eliminations (1,849) (1,707) (8) Adjusted revenues 44,108 40,985 8 Net realized investment results from certain equity method investments (103) (14) N/M Total revenues$ 44,005 $ 40,971 7 % Shareholders' net income$ 1,183 $ 1,161 2 % Adjusted income from operations$ 1,931 $ 1,664 16 % Earnings per share (diluted) Shareholders' net income$ 3.68 $ 3.30 12 % Adjusted income from operations$ 6.01 $ 4.73 27 % Pre-tax adjusted income (loss) from operations by segment Evernorth$ 1,302 $ 1,223 6 % Cigna Healthcare 1,279 1,042 23 Other Operations 226 231 (2) Corporate, net of eliminations (343) (354)
3
Consolidated pre-tax adjusted income from operations 2,464 2,142
15
Income attributable to noncontrolling interests 17 12
42
Net realized investment gains (losses) (1) (422) (13)
N/M
Amortization of acquired intangible assets (458) (495) 7 Special items (52) (133) 61 Income before income taxes$ 1,549 $ 1,513 2 % (1) Includes the Company's share of certain realized investment results of its joint ventures reported in theCigna Healthcare segment using the equity method of accounting.
For further analysis and explanation of each segment's results, see the "Segment
Reporting" section of this MD&A.
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Consolidated Results of Operations (GAAP basis)
Three Months Ended
March 31,
(Dollars in millions) 2022 2021 % Change
Pharmacy revenues $ 30,697 $ 28,025 10 %
Premiums 10,356 10,214 1
Fees and other revenues 2,538 2,341 8
Net investment income 414 391 6
Total revenues 44,005 40,971 7
Pharmacy and other service costs 29,813 27,235 9
Medical costs and other benefit expenses 8,268 8,005 3
Selling, general and administrative expenses 3,299 3,279 1
Amortization of acquired intangible assets 458 495 (7)
Total benefits and expenses 41,838 39,014 7
Income from operations 2,167 1,957 11
Interest expense and other (299) (314) 5
Debt extinguishment costs - (131) N/M
Net realized investment gains (losses) (319) 1 N/M
Income before income taxes 1,549 1,513 2
Total income taxes 351 342 3
Net income 1,198 1,171 2
Less: Net income attributable to noncontrolling
interests 15 10 50
Shareholders' net income $ 1,183 $ 1,161 2 %
Consolidated effective tax rate 22.7 % 22.6 % 10 bps
Medical customers (in thousands) 17,779 16,671 7 %
Reconciliation of Shareholders' Net Income (GAAP) to Adjusted Income from Operations
Diluted Earnings
Dollars in Millions Per Share
Three Months
Three Months Ended Ended
March 31, March 31,
2022 2021 2022
2021
Shareholders' net income$ 1,183 $ 1,161 $ 3.68 $ 3.30 After-tax adjustments required to reconcile to adjusted income from operations Net realized investment (gains) losses (1) 355 13 1.10
0.04
Amortization of acquired intangible assets 356 388 1.11
1.10
Special items Integration and transaction-related costs 37 22 0.12
0.06
Debt extinguishment costs - 101 -
0.29
(Benefits) charges associated with litigation matters - (21) - (0.06) Total special items 37 102 0.12 0.29 Adjusted income from operations$ 1,931 $ 1,664 $ 6.01
(1) Includes the Company's share of certain realized investment results of its joint ventures reported in theCigna Healthcare segment using the equity method of accounting. 37
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Recent Events
COVID-19
Cigna's commitment to the health, well-being and peace of mind of our employees and the people we serve remains our focus as the pandemic environment evolves. We continue to leverage our resources, expertise, data and actionable intelligence to assist customers, clients and care providers throughout this time. The situation surrounding COVID-19 remains fluid with continued uncertainty and a wide range of potential outcomes. We continue to actively manage our response and assess impacts to our financial position and operating results, as well as mitigate adverse developments in our business. For further information regarding the potential impact of COVID-19 on the Company, see "Risk Factors" contained in Part I, Item 1A of our 2021 Form 10-K.
Inflation
The United States economy continues to be impacted by rising inflation. While we have not experienced material impacts from inflation on our results of operations or cash flows for the three months endedMarch 31, 2022 , we continue to monitor our operations for any inflationary impacts. For further information regarding risks we encounter in our business due to economic conditions including inflationary pressures, please see "Risk Factors" contained in Part I, Item 1A of our 2021 Form 10-K.
Russian Invasion of
The war inUkraine has significantly affected individuals, economic activity and financial markets on a global scale. Cigna does not have operations or employees inUkraine orRussia and serves a limited number of customers and clients in these countries. We have not experienced significant impacts to date on our investment portfolio, financial position, or results of operations. For a more complete discussion of the risks we encounter in our business, please see "Risk Factors" contained in Part I, Item 1A of our 2021 Form 10-K.
Commentary: Three Months Ended
31, 2021
The commentary presented below, and in the segment discussions that follow,
compare results for the three months ended
three months ended
Shareholders' net income increased slightly, reflecting strong growth in adjusted income from operations (as discussed below) and the absence in 2022 of debt extinguishment costs incurred in the first quarter of 2021. These favorable effects were largely offset by higher realized investment losses primarily due to mark-to-market adjustments on equity securities during the first quarter of 2022. Adjusted income from operations increased, primarily due to improved results inCigna Healthcare , primarily reflecting higher specialty contributions, and in Evernorth, primarily reflecting continued contract affordability improvements and business growth.
Medical customers grew, reflecting a higher customer base in our Middle Market,
Pharmacy revenues increased, reflecting higher specialty claims volume due in part to Evernorth's collaboration with Prime Therapeutics, as well as increased prices, primarily due to inflation on branded drugs. See the "Evernorth segment" section of this MD&A for further discussion. Premiums were higher, reflecting increased specialty contributions and higher premium rates due to anticipated underlying medical cost trend, partially offset by the disposition of the Medicaid business. See "Cigna Healthcare segment" section of this MD&A for further discussion. Fees and other revenues increased, primarily reflecting customer growth from our formulary rebate administrative services. See "Evernorth segment" section of this MD&A for further discussion.
Net investment income increased due to strong returns on our partnership
investments. See the "Investment Assets" section of this MD&A for further
discussion.
38 -------------------------------------------------------------------------------- Pharmacy and other service costs increased, reflecting higher specialty claims volume due in part to Evernorth's collaboration with Prime Therapeutics, as well as increased prices, primarily due to inflation on branded drugs.
Medical costs and other benefit expenses increased, resulting from higher
medical cost trend, partially offset by the disposition of the Medicaid
business.
Selling, general and administrative expenses were largely flat.
Interest expense and other decreased primarily due to lower average interest
rates.
Debt extinguishment costs were lower as no debt was retired early in the first
quarter of 2022.
Realized investment results were lower, primarily due to mark-to-market
adjustments on equity securities during the first quarter of 2022. See Note 11
to the Consolidated Financial Statements for further discussion.
The effective tax rate increased slightly primarily attributable to an increase in state and foreign income taxes, partially offset by the favorable impact of the remeasurement of deferred income taxes.
Developments
InApril 2022 , we entered into a five-year agreement withKaiser Permanente aimed at delivering increased convenience, affordability and expanded access to high-quality care forKaiser Permanente members. Initially, the agreement will focus on providingKaiser Permanente and its members access to: •Cigna'sPreferred Provider Organization ("PPO") provider network forKaiser Permanente members who need urgent or emergency care and are traveling outside ofKaiser Permanente's service areas, and •specialty pharmacy services through Evernorth's Accredo specialty pharmacy and Evernorth's CuraScript SD.
The agreement has the potential to extend in additional areas.
Organizational Efficiency Plan
As discussed in Note 15 to the Consolidated Financial Statements, during the fourth quarter of 2021, the Company approved a strategic plan to drive operational efficiencies. We believe this plan, coupled with the previously announced divestiture of the international life, accident and supplemental health benefits businesses (described below), will further leverage the Company's ongoing growth to drive operational efficiency through enhancements to organizational structure and increased use of automation and shared services. In connection with these plans, Cigna has updated its reporting segments to align with the new business reporting structure and recognized a charge in the fourth quarter of 2021 in the amount of$168 million , pre-tax ($119 million , after-tax). We expect to realize annualized after-tax savings of approximately$180 million . A substantial portion of the savings is expected to be realized in 2022. Although a substantial portion of the actions associated with these strategic steps have been reflected in the charge recognized in the fourth quarter of 2021, additional amounts are expected to be recorded in the second quarter of 2022 as we finalize our plans following the completion of the divestiture. See Note 15 to the Consolidated Financial Statements for further information regarding our organizational efficiency charge.
Agreement to Sell International Life, Accident and Supplemental Benefits
Businesses
We entered into a definitive agreement inOctober 2021 to sell our life, accident and supplemental benefits businesses in several countries toChubb INA Holdings, Inc. ("Chubb"). As ofMarch 31, 2022 , we now expect to sell our life, accident and supplemental benefits businesses in six countries (Hong Kong ,Indonesia ,New Zealand ,South Korea ,Taiwan andThailand ) to Chubb for$5.72 billion in cash (the "Chubb Transaction"); we no longer expect to sell our interest in a joint venture inTurkey as part of the Chubb Transaction. See Note 5 to the Consolidated Financial Statements for further information on the classification of these businesses as held for sale. Subject to applicable regulatory approvals and customary closing conditions, we expect to complete the sale of these businesses in the second quarter of 2022. The "Liquidity and Capital Resources" section of this MD&A provides a discussion of the expected impact of this transaction to liquidity. 39 --------------------------------------------------------------------------------
Purchase of
As discussed in Note 4 to the Consolidated Financial Statements, onApril 19, 2021 , Cigna's Evernorth segment completed the acquisition ofMDLIVE, Inc. ("MDLIVE"), a 24/7 virtual care platform (the "MDLIVE Acquisition") for$2.0 billion cash consideration. The acquisition ofMDLIVE enables Evernorth to continue expanding access to virtual care and delivering a more affordable, convenient and connected care experience for consumers.
Medicare Star Quality Ratings ("Star Ratings")
TheCenters for Medicare & Medicaid Services ("CMS") uses a Star Rating system to measure how well Medicare Advantage ("MA") plans perform, scoring how well plans perform in several categories, including quality of care and customer service. Star Ratings range from one to five stars. CMS recognizes plans with Star Ratings of four stars or greater with quality bonus payments and the ability to offer enhanced benefits. Approximately 87% of our MA customers were in four star or greater plans for bonus payments received in 2021 and approximately 89% were in four star or greater plans for bonus payments to be received in 2022; we expect this percentage to decrease to 85% for bonus payments to be received in 2023 based upon the mix of new and existing MA plans.
Medicare Advantage Rates
OnApril 4, 2022 , CMS released the final Calendar Year 2023 Medicare Advantage Capitation Rates and Part C and Part D Payment Policies (the "2023 Final Notice"). While the 2023 Final Notice rates are modestly higher than the advance notice rates (previously released onFebruary 2, 2022 ), we do not expect the final rates to have a material impact on our consolidated results of operations in 2023. 40 --------------------------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
We maintain liquidity at two levels: the subsidiary level and the parent company
level.
Cash requirements at the subsidiary level generally consist of:
•pharmacy, medical costs and other benefit payments; •expense requirements, primarily for employee compensation and benefits, information technology and facilities costs; •income taxes; and •debt service.
Our subsidiaries normally meet their liquidity requirements by:
•maintaining appropriate levels of cash, cash equivalents and short-term investments; •using cash flows from operating activities; •matching investment durations to those estimated for the related insurance and contractholder liabilities; •selling investments; and •borrowing from affiliates, subject to applicable regulatory limits.
Cash requirements at the parent company level generally consist of:
•debt service; •payment of declared dividends to shareholders; •lending to subsidiaries as needed; and •pension plan funding.
The parent company normally meets its liquidity requirements by:
•maintaining appropriate levels of cash and various types of marketable investments; •collecting dividends from its subsidiaries; •using proceeds from issuing debt and common stock; and •borrowing from its subsidiaries, subject to applicable regulatory limits. Dividends from our insurance,Health Maintenance Organization ("HMO") and certain foreign subsidiaries are subject to regulatory restrictions. See Note 20 to the Consolidated Financial Statements in our 2021 Form 10-K for additional information regarding these restrictions. Most of the Evernorth segment operations are not subject to regulatory restrictions regarding dividends and therefore provide significant financial flexibility to Cigna.
Cash flows for the three months ended
Three Months Ended March 31, (In millions) 2022 2021 Operating activities $ 2,030$ 1,093 Investing activities $ (324)$ (717) Financing activities$ (2,171) $ (4,051) The following discussion explains variances in the various categories of cash flows for the three months endedMarch 31, 2022 compared with the same period in 2021. Operating activities
Cash flows from operating activities consist principally of cash receipts and
disbursements for pharmacy revenues and costs, premiums, fees, investment
income, taxes, benefit costs and other expenses.
Cash provided by operating activities increased, driven primarily by the receipt
of the delayed 2021 CMS Part D settlement and the timing of accrued liability
payments, partially offset by timing of pharmacy and other service costs
payable.
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Investing and Financing activities
Cash used in investing activities decreased due to lower net purchases of
investments.
Cash used in financing activities decreased primarily due to lower stock
repurchases and lower debt repayments.
Capital Resources
Our capital resources consist primarily of cash, cash equivalents and investments maintained at regulated subsidiaries required to underwrite insurance risks, cash flows from operating activities, our commercial paper program, credit agreements and the issuance of long-term debt and equity securities. Our businesses generate significant cash flow from operations, some of which is subject to regulatory restrictions relative to the amount and timing of dividend payments to the parent company. Dividends fromU.S. regulated subsidiaries were$475 million for the three months endedMarch 31, 2022 and$625 million for the three months endedMarch 31, 2021 . Non-regulated subsidiaries also generate significant cash flow from operating activities, which is typically available immediately to the parent company for general corporate purposes.
We prioritize our use of capital resources to:
•Invest in capital expenditures, primarily related to technology to support innovative solutions for our customers, provide the capital necessary to maintain or improve the financial strength ratings of subsidiaries and to repay debt and fund pension obligations if necessary; •pay dividends to shareholders; •consider acquisitions that are strategically and economically advantageous; and •return capital to shareholders through share repurchases.
Funds Available
Commercial Paper Program. Cigna maintains a commercial paper program and may issue short-term, unsecured commercial paper notes privately placed on a discount basis through certain broker-dealers at any time not to exceed an aggregate amount of$5.0 billion . The net proceeds of issuances have been and are expected to be used for general corporate purposes. Revolving Credit Agreements. Our revolving credit agreements provide us with the ability to borrow amounts for general corporate purposes, including for the purpose of providing liquidity support if necessary under our commercial paper program discussed above. As ofApril 2022 , Cigna's revolving credit agreements include: a$3.0 billion five-year revolving credit and letter of credit agreement that expires inApril 2027 ; a$1.0 billion three-year revolving credit agreement that expires inApril 2025 ; and a$1.0 billion 364-day revolving credit agreement that expires inApril 2023 . As ofMarch 31, 2022 , we had$5.0 billion of undrawn committed capacity under our revolving credit agreements that have since been replaced with the revolving credit agreements described above (these amounts are available for general corporate purposes, including providing liquidity support for our commercial paper program),$3.4 billion of remaining capacity under our commercial paper program and$4.6 billion in cash and short-term investments, approximately$0.7 billion of which was held by the parent company or certain non-regulated subsidiaries.
See Note 7 to the Consolidated Financial Statements for further information on
our credit agreements and commercial paper program.
Our debt-to-capitalization ratio was 41.9% at
We actively monitor our debt obligations and engage in issuance or redemption
activities as needed in accordance with our capital management strategy.
Subsidiary Borrowings. In addition to the sources of liquidity discussed above, the parent company can borrow an additional$2.2 billion from its subsidiaries without further approvals as ofMarch 31, 2022 .
Use of Capital Resources
Capital Expenditures. Capital expenditures for property, equipment and computer software were$288 million in the three months endedMarch 31, 2022 compared to$242 million in the three months endedMarch 31, 2021 . We expect to continue to invest in technology that we believe will drive future growth. Anticipated capital expenditures will be funded primarily from operating cash flow. 42 -------------------------------------------------------------------------------- Dividends. In the first quarter of 2022, Cigna declared and paid quarterly cash dividends of$1.12 per share of Cigna common stock. See Note 8 to the Consolidated Financial Statements for further information on our dividend payments. OnApril 27, 2022 , the Board of Directors declared the second quarter cash dividend of$1.12 per share of Cigna common stock to be paid onJune 23, 2022 to shareholders of record onJune 8, 2022 . Cigna currently intends to pay regular quarterly dividends, with future declarations subject to approval by its Board of Directors and the Board's determination that the declaration of dividends remains in the best interests of Cigna and its shareholders. The decision of whether to pay future dividends and the amount of any such dividends will be based on the Company's financial position, results of operations, cash flows, capital requirements, the requirements of applicable law and any other factors the Board of Directors may deem relevant. Share repurchases. We maintain a share repurchase program authorized by our Board of Directors, under which we may repurchase shares of our common stock from time to time. The timing and actual number of shares repurchased will depend on a variety of factors including price, general business and market conditions and alternate uses of capital. The share repurchase program may be effected through open market purchases in compliance with Rule 10b-18 under the Securities Exchange Act of 1934, as amended, including through Rule 10b5-1 trading plans or privately negotiated transactions. The program may be suspended or discontinued at any time. InFebruary 2022 , the Board increased repurchase authority by an additional$6.0 billion . We repurchased 5.8 million shares for approximately$1.3 billion during the three months endedMarch 31, 2022 , compared to 12.7 million shares for approximately$2.8 billion during the three months endedMarch 31, 2021 . FromApril 1, 2022 throughMay 5, 2022 , we repurchased 1.9 million shares for approximately$470 million . Share repurchase authority was$9.4 billion as ofMay 5, 2022 . Strategic investments. In 2022, we committed an additional$450 million (which in aggregate represents a$700 million commitment) toCigna Ventures , our strategic corporate venture fund.Cigna Ventures will use this new funding to continue to invest in companies making progress in insights and analytics, digital health and experience, and care delivery and enablement. Sale of life, accident and supplemental benefits businesses in six countries. We entered into a definitive agreement inOctober 2021 to sell our life, accident and supplemental benefits businesses in several countries to Chubb. As ofMarch 31, 2022 , we now expect to sell our life, accident and supplemental benefits businesses in six countries (Hong Kong ,Indonesia ,New Zealand ,South Korea ,Taiwan andThailand ) to Chubb for$5.72 billion in cash. Subject to applicable regulatory approvals and customary closing conditions, we expect to complete the sale of these businesses in the second quarter of 2022. Cigna estimates it will receive approximately$5.4 billion of net after-tax proceeds from this transaction and expects to utilize the after-tax proceeds primarily for share repurchases. Risks to our liquidity and capital resources outlook include cash projections that may not be realized and the demand for funds could exceed available cash if our ongoing businesses experience unexpected shortfalls in earnings or we experience material adverse effects from one or more risks or uncertainties described more fully in the "Risk Factors" section of our 2021 Form 10-K. Though we believe we have adequate sources of liquidity, significant disruption or volatility in the capital and credit markets could affect our ability to access those markets for additional borrowings or increase costs.
Supply Chain Financing Program
We facilitate a voluntary supply chain finance program (the "program") that provides suppliers the opportunity to sell their receivables due from us (i.e., our payment obligations to the suppliers) to a financial institution, on a non-recourse basis in order to be paid earlier than our payment terms provide. Cigna is not a party to the program and agrees to commercial terms with its suppliers independently of their participation in the program. A supplier's participation in the program has no impact on our payment terms and Cigna has no economic interest in a supplier's decision to participate in the program. The suppliers, at their sole discretion, determine which invoices, if any, to sell to the financial institution. No guarantees are provided by Cigna or any of our subsidiaries under the program. We have been informed by the financial institution that$341 million as ofMarch 31, 2022 and$331 million as ofDecember 31, 2021 of our outstanding payment obligations were voluntarily elected by suppliers to be sold to the financial institution under the program. These amounts are reflected in Accounts payable in Cigna's Consolidated Balance Sheets.
Guarantees and Contractual Obligations
We are contingently liable for various contractual obligations and financial and other guarantees entered into in the ordinary course of business. See Note 18 to the Consolidated Financial Statements for discussion of various guarantees. During the three months endedMarch 31, 2022 , there was no material change to the contractual obligations reported in our 2021 Form 10-K. 43 --------------------------------------------------------------------------------
CRITICAL ACCOUNTING ESTIMATES
The preparation of Consolidated Financial Statements in accordance with GAAP
requires management to make estimates and assumptions that affect reported
amounts and related disclosures in the Consolidated Financial Statements.
Management considers an accounting estimate to be critical if:
•it requires assumptions to be made that were uncertain at the time the estimate was made; and •changes in the estimate or different estimates that could have been selected could have a material effect on our consolidated results of operations or financial condition.
Management has discussed how critical accounting estimates are developed and
selected with the Audit Committee of our Board of Directors and the Audit
Committee has reviewed the disclosures presented in our 2021 Form 10-K. We
regularly evaluate items that may impact critical accounting estimates.
Our most critical accounting estimates, as well as the effect of hypothetical changes in material assumptions used to develop each estimate, are described in the 2021 Form 10-K. As ofMarch 31, 2022 , there were no significant changes to the critical accounting estimates from what was reported in our 2021 Form 10-K.
SEGMENT REPORTING
The following section of this MD&A discusses the results of each of our
segments.
We entered into a definitive agreement inOctober 2021 to sell our life, accident and supplemental benefits businesses in several countries to Chubb. As ofMarch 31, 2022 , we now expect to sell our life, accident and supplemental benefits businesses in six countries (Hong Kong ,Indonesia ,New Zealand ,South Korea ,Taiwan andThailand ) to Chubb for$5.72 billion in cash. In connection with the pending Chubb Transaction, we revised our business reporting structure. As such, we adjusted our segment reporting effective in the fourth quarter of 2021 and segment results for the three months endedMarch 31, 2021 have been restated to conform to the new segment presentation.
See Note 1 to the Consolidated Financial Statements for further description of
our segments.
In segment discussions, we present "adjusted revenues" and "pre-tax adjusted income (loss) from operations," defined as income (loss) before income taxes excluding pre-tax income/loss attributable to noncontrolling interests, net realized investment results, amortization of acquired intangible assets and special items. Cigna's share of certain realized investment results of its joint ventures reported in theCigna Healthcare segment using the equity method of accounting are also excluded. Special items are matters that management believes are not representative of the underlying results of operations due to their nature or size. Ratios presented in this segment discussion exclude the same items as adjusted revenues and pre-tax adjusted income (loss) from operations. See Note 19 to the Consolidated Financial Statements for additional discussion of these metrics and a reconciliation of Income before income taxes to pre-tax adjusted income from operations, as well as a reconciliation of Total Revenues to adjusted revenues. Note 19 to the Consolidated Financial Statements also explains that segment revenues include both external revenues and sales between segments that are eliminated in Corporate.
In these segment discussions, we also present "pre-tax adjusted margin," defined
as pre-tax adjusted income (loss) from operations divided by adjusted revenues.
Evernorth Segment
Evernorth includes a broad range of coordinated and point solution health services and capabilities, as well as those from partners across the health care system, in pharmacy solutions, benefits management solutions, care delivery and care management solutions and intelligence solutions. As described in the introduction to Segment Reporting, Evernorth's performance is measured using adjusted revenues and pre-tax adjusted income (loss) from operations. The key factors that impactEvernorth's Pharmacy revenues and Pharmacy and other service costs are volume, mix of claims and price. These key factors are discussed further below. See Note 2 to the Consolidated Financial Statements included in our 2021 Form 10-K for additional information on revenue and cost recognition policies for this segment. •As our clients' claim volumes increase or decrease, our resulting revenues and cost of revenues correspondingly increase or decrease. Our gross profit, defined as Total Revenues less Pharmacy and other service costs, could also increase or decrease as a result of changes in purchasing discounts. 44 -------------------------------------------------------------------------------- •The mix of claims generally considers the type of drug and distribution method used for dispensing and fulfilling. Types of drugs can have an impact on our pharmacy revenues, pharmacy and other service costs and gross profit, including amounts payable under certain financial and performance guarantees with our clients. In addition to the types of drugs, the mix of generic claims (i.e., generic fill rate) also impacts our gross profit. Generally, higher generic fill rates reduce revenues, as generic drugs are typically priced lower than the branded drugs they replace. However, as ingredient cost paid to pharmacies on generic drugs is incrementally lower than the price charged to our clients, higher generic fill rates generally have a favorable impact on our gross profit. The home delivery generic fill rate is currently lower than the network generic fill rate as fewer generic substitutions are available among maintenance medications (such as therapies for chronic conditions) commonly dispensed from home delivery pharmacies as compared to acute medications that are primarily dispensed by pharmacies in our retail networks. Furthermore, our gross profit differs among network, home delivery and specialty distribution methods and can impact our profitability. •Our client contract pricing is impacted by our ongoing ability to negotiate favorable contracts for pharmacy network, pharmaceutical and wholesaler purchasing and manufacturer rebates. As we seek to improve the effectiveness of our integrated solutions for the benefit of our clients, we are continuously innovating and improving affordability. Our gross profit could also increase or decrease as a result of drug purchasing contract initiatives implemented. Inflation also impacts our pricing because most of our contracts provide that we bill clients and pay pharmacies based on a generally recognized price index for pharmaceuticals. Therefore, the rate of inflation for prescription drugs and our efforts to manage this inflation for our clients continues to be a significant driver of our revenues and cost of revenues in the current environment. In this MD&A, we present revenues and gross profit, as well as adjusted revenues and adjusted gross profit, consistent with our segment reporting metrics, which exclude special items. Results of Operations Three Months Ended Financial Summary March 31, Change Favorable (Dollars in millions) 2022 2021 (Unfavorable) Total revenues$ 33,586 $ 30,620 10 % Adjusted revenues (1)$ 33,586 $ 30,620 10 % Gross profit$ 2,011 $ 1,843 9 % Adjusted gross profit (1)$ 2,011 $ 1,843 9 % Pre-tax adjusted income from operations$ 1,302 $ 1,223 6 % Pre-tax adjusted margin 3.9 % 4.0 % (10) bps Adjusted expense ratio (2) 2.1 % 2.0 % 10 bps Three Months Ended March 31, Change Favorable (Dollars and adjusted scripts in millions) 2022 2021 (Unfavorable) Selected Financial Information (1) Pharmacy revenue by distribution channel Adjusted network revenues$ 15,531 $ 15,138 3 % Adjusted home delivery and specialty revenues 14,699 12,774 15 % Other pharmacy revenues 1,712 1,388 23 % Total adjusted pharmacy revenues$ 31,942 $ 29,300 9 % Adjusted fees and other revenues 1,634 1,317 24 % Net investment income 10 3 233 % Adjusted revenues$ 33,586 $ 30,620 10 % Pharmacy script volume Adjusted network scripts (3) 315 323 (2) % Adjusted home delivery and specialty scripts (3) 70 70 - % Total adjusted scripts (3) 385 393 (2) % Generic fill rate (4) Network 87.2 % 87.3 % (10) bps Home delivery 85.4 % 86.0 % (60) bps Overall generic fill rate 87.0 % 87.2 % (20) bps (1)Total revenues and gross profit were equal to adjusted revenues and adjusted gross profit as there were no special items in the periods presented. (2)Adjusted expense ratio is calculated as selling, general and administrative expenses as a percentage of adjusted revenues. 45 -------------------------------------------------------------------------------- (3)Non-specialty network scripts filled through 90-day programs and home delivery scripts are multiplied by three. All other network and specialty scripts are counted as one script. (4)Generic fill rate is defined as the total number of generic scripts divided by the total overall scripts filled.
Three Months Ended
Adjusted network revenues increased, reflecting increased prices, due to inflation on branded drugs. This increase was partially offset by lower claims volume and a slight change in claims mix due to an increase in the generic fill rate after excluding the impact of COVID-19 vaccines. Adjusted home delivery and specialty revenues increased, reflecting higher specialty claims volume due in part to our collaboration with Prime Therapeutics, as well as increased prices, primarily due to inflation on branded drugs, and a change in claims mix, primarily due to a decrease in the home delivery generic fill rate. These increases were partially offset by slightly lower home delivery claims volume.
Other pharmacy revenues increased, reflecting higher volume from our CuraScript
SD business.
Adjusted fees and other revenues increased, reflecting customer growth from our formulary rebate administrative services and the acquisition ofMDLIVE in the second quarter of 2021. Adjusted gross profit and pre-tax adjusted income from operations increased, reflecting continued contract affordability improvements and business growth. The increase in pre-tax adjusted income from operations was partially offset by strategic investments in expanding our services portfolio and digital capabilities.
The adjusted expense ratio was flat reflecting higher revenues as well as
increased strategic investments in expanding our services portfolio and digital
capabilities.
Cigna Healthcare SegmentCigna Healthcare includes Cigna'sU.S. Commercial,U.S. Government and International Health businesses, which provide comprehensive medical and coordinated solutions to clients and customers to support whole-person health needs.U.S. Commercial products and services include medical, pharmacy, behavioral health, dental, vision, health advocacy programs and other products and services for insured and self-insured customers.U.S. Government solutions include Medicare Advantage, Medicare Supplement and Medicare Part D plans for seniors and individual health insurance plans both on and off the public exchanges.International Health solutions include health care coverage in our international markets, as well as health care benefits for globally mobile individuals and employees of multinational organizations. As described in the introduction to Segment Reporting, performance of theCigna Healthcare segment is measured using adjusted revenues and pre-tax adjusted income from operations. Key factors affecting results for this segment include: •customer growth; •revenue growth; •percentage of Medicare Advantage customers in plans eligible for quality bonus payments; •medical costs as a percentage of premiums (medical care ratio or "MCR") for our insured businesses; and •selling, general and administrative expenses as a percentage of adjusted revenues (adjusted expense ratio). 46 -------------------------------------------------------------------------------- Results of Operations Financial Summary Three Months Ended March 31, Change Favorable (Dollars in millions) 2022 2021 (Unfavorable) Adjusted revenues$ 11,392 $ 11,067 3 % Pre-tax adjusted income from operations$ 1,279 $ 1,042 23 % Pre-tax adjusted margin 11.2 % 9.4 % 180 bps Medical care ratio 81.5 % 80.9 % (60) bps Adjusted expense ratio 20.7 % 22.2 % 150 bps
Three Months Ended
Adjusted revenues increased reflecting increases inU.S. Commercial partially offset by decreases inU.S. Government . The increase inU.S. Commercial adjusted revenues reflects increased specialty contributions and higher premium rates due to anticipated underlying medical cost trend. The decrease inU.S. Government adjusted revenues reflects the disposition of the Medicaid business.
Pre-tax adjusted income from operations increased primarily reflecting increased
specialty contributions in
The medical care ratio increased due to a higher loss ratio inU.S. Government reflecting risk adjustment updates related to prior years and higher medical costs associated with our Individual business. These increases were partially offset by lower direct COVID-19 costs inU.S. Commercial.
The adjusted expense ratio decreased primarily reflecting the absence of
litigation expenses recorded in 2021 as well as efficiencies from continued
disciplined expense management.
Medical Customers
A medical customer is defined as a person meeting any one of the following
criteria:
•is covered under a medical insurance policy, managed care arrangement or
service agreement issued by us;
•has access to our provider network for covered services under their medical
plan; or
•has medical claims that are administered by us.
As of March 31,
(In thousands) 2022 2021 % Change
Cigna Healthcare Medical Customers
Insured 4,682 4,613 1 % U.S. Commercial 2,166 2,133 2 % U.S. Government 1,397 1,464 (5) % International Health (1) 1,119 1,016 10 % Services only 13,097 12,058 9 % U.S. Commercial 12,455 11,419 9 % U.S. Government 5 - N/M % International Health (1) 637 639 - % Total 17,779 16,671 7 %
(1)
owned subsidiaries and customers that are part of the businesses to be sold
pursuant to the Chubb Transaction.
47 --------------------------------------------------------------------------------
Three Months Ended
Our medical customer base increased driven by a higher customer base in our
Middle Market,
Unpaid Claims and Claim Expenses
As of March As of December (In millions) 31, 2022 31, 2021 % Change
Unpaid claims and claim expenses -
$ 4,261 5 %
Our unpaid claims and claim expenses liability was higher as of
compared with
Other Operations
Other Operations includes International businesses to be sold,Corporate Owned Life Insurance ("COLI"), our interest in a joint venture inTurkey and the Company's run-off operations. As described in the introduction of Segment Reporting, performance of Other Operations is measured using adjusted revenues and pre-tax adjusted income from operations. Results of Operations Three Months Ended Change Financial Summary March 31, Favorable (Dollars in millions) 2022 2021 (Unfavorable) Adjusted revenues$ 979 $ 1,005 (3) % Pre-tax adjusted income from operations$ 226 $ 231 (2) % Pre-tax adjusted margin 23.1 % 23.0 % 10 bps
Three Months Ended
Adjusted revenues decreased primarily due to unfavorable foreign currency
movements in the International businesses and lower premiums in run-off
businesses, largely offset by business growth and higher net investment income
in the International businesses.
Pre-tax adjusted income from operations declined due to lower earnings in
run-off businesses, partially offset by higher earnings in the International
businesses.
Other Items Related to International Businesses Subject to Definitive Purchase
Agreement
For the three months endedMarch 31, 2022 , 85% of Other Operations' adjusted revenues and 92% of its pre-tax adjusted income from operations was associated with International businesses held for sale.
Corporate
Corporate reflects amounts not allocated to operating segments, including net interest expense (defined as interest on corporate debt less net investment income on investments not supporting segment and other operations), certain litigation matters, expense associated with our frozen pension plans, charitable contributions, severance, certain overhead and enterprise-wide project costs and intersegment eliminations for products and services sold between segments. Financial Summary Three Months Ended March 31, (In millions) 2022 2021 Change
Favorable (Unfavorable)
Pre-tax adjusted (loss) from operations$ (343) $ (354) 3 %
Three Months Ended
Pre-tax adjusted loss from operations decreased primarily due to lower interest
expense.
48
--------------------------------------------------------------------------------
INVESTMENT ASSETS
The following table presents our investment asset portfolio excluding separate account assets as ofMarch 31, 2022 andDecember 31, 2021 . Additional information regarding our investment assets is included in Notes 11, 12, 13 and 14 to the Consolidated Financial Statements. March 31, December 31, (In millions) 2022 2021 Debt securities$ 15,414 $ 16,958 Equity securities 871 603 Commercial mortgage loans 1,559 1,566 Policy loans 1,316 1,338 Other long-term investments 3,845 3,574 Short-term investments 190 428 Total 23,195 24,467 Investments classified as assets of businesses held for sale (1) (4,771) (5,109) Investments per Consolidated Balance Sheets $
18,424
(1) Investments related to the international life, accident and supplemental
benefits businesses that are held for sale. See Note 5 to the Consolidated
Financial Statements for additional information.
Investments in debt securities include publicly-traded and privately-placed bonds, mortgage and other asset-backed securities and preferred stocks redeemable by the investor. These investments are classified as available for sale and are carried at fair value on our balance sheet. Additional information regarding valuation methodologies, key inputs and controls is included in Note 12 to the Consolidated Financial Statements. More detailed information about debt securities by type of issuer and maturity dates is included in Note 11 to the Consolidated Financial Statements.
The following table reflects our portfolio of debt securities by type of issuer
as of
March 31, December 31, (In millions) 2022 2021 Federal government and agency$ 369 $ 387 State and local government 159 171 Foreign government 2,495 2,616 Corporate 11,993 13,266 Mortgage and other asset-backed 398 518 Total$ 15,414 $ 16,958 Our debt securities portfolio decreased during the three months endedMarch 31, 2022 , reflecting a decrease in valuations driven by a significant rise in treasury rates (in response to increased inflation), a modest increase in credit spreads, and net sales activity. As ofMarch 31, 2022 ,$13.4 billion , or 87% of the debt securities in our investment portfolio were investment grade (Baa and above, or equivalent) and the remaining$2 billion were below investment grade. The majority of the bonds that are below investment grade are rated at the higher end of the non-investment grade spectrum. These quality characteristics have not materially changed since the prior year and remain consistent with our investment strategy. Debt securities include private placement assets of$4.9 billion . These investments are generally less marketable than publicly-traded bonds; however, yields on these investments tend to be higher than yields on publicly-traded bonds with comparable credit risk. We perform a credit analysis of each issuer and require financial and other covenants that allow us to monitor issuers for deteriorating financial strength and pursue remedial actions, if warranted. Investments in debt securities are diversified by issuer, geography and industry. On an aggregate basis, the debt securities portfolio continues to perform according to original investment expectations. However, due to the economic impacts of the COVID-19 pandemic, there are certain issuers, particularly within the aviation, energy and hospitality sectors, that have shown signs of distress, primarily in the form of requests for temporary covenant relief. There were no material unrealized losses in any of these sectors as of the reporting date. We continue to monitor the economic environment and its effect on our portfolio and consider the impact of various factors in determining the allowance for credit losses on debt securities, which is discussed in Note 11 to the Consolidated Financial Statements. 49 -------------------------------------------------------------------------------- Foreign government obligations are concentrated inAsia , primarilySouth Korea andTaiwan , consistent with our risk management practice and local regulatory requirements of our international business operations. We expect the amount of these foreign government obligations to decrease significantly during 2022 upon the close of our sale of certain international businesses as discussed in Note 5 to the Consolidated Financial Statements.
Commercial Mortgage Loans
As ofMarch 31, 2022 , the$1.6 billion commercial mortgage loan portfolio consisted of approximately 50 loans that are in good standing. Our commercial mortgage loans are fixed rate loans, diversified by property type, location and borrower. Given the quality and diversity of the underlying real estate, positive debt service coverage and significant borrower cash invested in the property generally ranging between 30 and 40%, we remain confident that the vast majority of borrowers will continue to perform as expected under their contract terms. For further discussion of the results and changes in key loan metrics, see Note 11 to the Consolidated Financial Statements. Loans are secured by high quality commercial properties, located in strong institutional markets and are generally made at less than 65% of the property's value at origination of the loan. Property value, debt service coverage, quality, building tenancy and stability of cash flows are all important financial underwriting considerations. We hold no direct residential mortgage loans and do not originate or service securitized mortgage loans. We assess the credit quality of our commercial mortgage loan portfolio annually by reviewing each holding's most recent financial statements, rent rolls, budgets, and relevant market reports. The review performed in the second quarter of 2021 confirmed ongoing strong overall credit quality in line with the previous year's results. COVID-19 has negatively impacted commercial real estate fundamentals and capital market activity with concentrated weakness in hotels and regional malls. Our mortgage loan portfolio is well diversified by property type and geography with no material exposure to hotels and no exposure to regional shopping malls. We continue to monitor the long-term impacts surrounding the office sector fundamentals due to multiple headwinds that may impact future valuations: expanded work from home flexibility, shorter term leases, elevated tenant improvement allowances and corporate migration to lower cost states. Our mortgage loans secured by office properties are in good standing.
Other Long-term Investments
Other long-term investments of$3.8 billion as ofMarch 31, 2022 included investments in securities limited partnerships and real estate limited partnerships, direct investments in real estate joint ventures and other deposit activity that is required to support various insurance and health services businesses. The increase in other long-term investments of$0.3 billion sinceDecember 31, 2021 is primarily driven by net additional funding activity and value creation in the underlying investments. These limited partnership entities typically invest in mezzanine debt or equity of privately-held companies and equity real estate. Given our subordinate position in the capital structure of these underlying entities, we assume a higher level of risk for higher expected returns. To mitigate risk, these investments are diversified across approximately 210 separate partnerships and approximately 110 general partners who manage one or more of these partnerships. Also, the underlying investments are diversified by industry sector or property type and geographic region. No single partnership investment exceeded 3% of our securities and real estate limited partnership portfolio. Income from our limited partnership investments is generally reported on a one quarter lag due to the timing of when financial information is received from the general partner or manager of the investments. Accordingly, our net investment income in the first quarter largely reflects the underlying financial information from the fourth quarter of 2021. The broad recovery since the beginning of the outbreak of the COVID-19 pandemic has resulted in strong corporate earnings and higher public and private asset valuations. We expect continued volatility in private equity and real estate fund performance going forward as fair market valuations are adjusted to reflect market and portfolio transactions. We participate in an insurance joint venture inChina with a 50% ownership interest. We account for this joint venture under the equity method of accounting and report our share of the net assets of$0.95 billion in Other assets. Our 50% share of the investment portfolio supporting the joint venture's liabilities is approximately$8.8 billion as ofMarch 31, 2022 . These investments were comprised of approximately 75% debt securities, including government and corporate debt diversified by issuer, industry and geography; 15% equities, including mutual funds, equity securities and private equity partnerships; and 10% long-term deposits and policy loans. Approximately 1% of the joint venture's investment assets are exposed to private real estate property developers in theChina market. We participate in the approval of the joint venture's investment strategy and continuously review its execution. There were no investments with a material unrealized loss as ofMarch 31, 2022 . 50 --------------------------------------------------------------------------------
Investment Outlook
We continue to actively monitor the economic impact of the pandemic, including supply chain, labor market and inflation dynamics, as well as fiscal and monetary responses and their potential impact on the portfolio. Future realized and unrealized investment results will be driven largely by market conditions that exist when a transaction occurs or at the reporting date. These future conditions are not reasonably predictable; however, we believe that the vast majority of our investments will continue to perform under their contractual terms. Based on our strategy to match the duration of invested assets to the duration of insurance and contractholder liabilities, we expect to hold a significant portion of these assets for the long-term. Although future declines in investment fair values resulting from interest rate movements and credit deterioration due to both investment-specific and the global economic uncertainties discussed above remain possible, we do not expect these losses to have a material adverse effect on our financial condition or liquidity.
MARKET RISK
Financial Instruments
Our assets and liabilities include financial instruments subject to the risk of potential losses from adverse changes in market rates and prices. Our primary market risk exposures are interest rate risk and foreign currency exchange rate risk. We encourage you to read this in conjunction with "Market Risk - Financial Instruments" included in the MD&A section of our 2021 Form 10-K. Due to the decrease in fair value of our long-term debt sinceDecember 31, 2021 , in the event of a hypothetical 100 basis point increase in interest rates, the fair value of the Company's long-term debt would decrease approximately$2.5 billion atMarch 31, 2022 compared to approximately$2.9 billion atDecember 31, 2021 . Changes in the fair value of our long-term debt do not impact our financial position or operating results. Otherwise, there were no material changes in our risk exposures from those reported in our 2021 Form 10-K.
Federal Register Extracts
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