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CIGNA Warns Of Health, Death-Benefit Woes

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NU Online News Service, July 11, 2003, 7:33 p.m. EDT – CIGNA Corp., Philadelphia, says it may have to take a $300 million charge for the second quarter to increase the reserves that back contracts that reinsure variable annuity death-benefit guarantees.

CIGNA put its life and annuity reinsurance business in run-off mode in 2000, but it still has responsibility for reinsurance contracts that back blocks of variable annuities that offer death-benefit guarantees.

CIGNA also says that, even before it takes the death-benefit charge, problems with major medical insurance membership, current and past medical claims costs, and medical insurance operating costs may cut its second-quarter operating earnings to $140 million, from a previous forecast of about $200 million, and operating earnings for all of 2003 to $700 million, from a previous forecast of about $875 million.

Meanwhile, problems with medical insurance sales and customer retention may cause major medical enrollment to fall about 10% between the beginning and end of 2003, CIGNA says.

Although the managed care unit is having problems, “our other employee benefits businesses continue to perform well,” says CIGNA Chairman H. Edward Hanway.

Hanway, who led the managed care unit in the late 1990s, will try to improve its performance by taking back direct control over it, CIGNA says.

Patrick Welch, the current head of the unit, will be leaving CIGNA, and John Coyle, the former president of Trigon Healthcare Inc., Richmond, Va., will be coming in to run the unit’s sales, distribution, marketing and medical management operations.

CIGNA will be trying to attack medical costs by improving its claims-processing and case-management systems, changing benefit plan designs, and renegotiating provider contracts, the company says.