growth depend, in part, on its ability to compete effectively in its markets, set rates appropriately in highly competitive markets to keep or increase its market share, increase membership as planned, and avoid losing accounts with favorable medical cost experience while retaining or increasing membership in accounts with unfavorable medical cost experience. 

Cigna’s profitability depends, in part, on its ability to accurately predict and control future health care costs through underwriting criteria, provider contracting, utilization management and product design. Premiums in the health care business are generally fixed for one-year periods. Accordingly, future cost increases in excess of medical cost projections reflected in pricing cannot generally be recovered in the current contract year through higher premiums. Although Cigna bases the premiums it charges on its estimate of future health care costs over the fixed premium period, actual costs may exceed what was estimated and reflected in premiums. Factors that may cause actual costs to exceed premiums include: medical cost inflation; higher than expected utilization of medical services; the introduction of new or costly treatments and technology; and membership mix. 

Cigna records medical claims reserves for estimated future payments. The Company continually reviews estimates of future payments relating to medical claims costs for services incurred in the current and prior periods and makes necessary adjustments to its reserves. However, actual health care costs may exceed what was estimated. 

## Significant stock market declines could result in additional pension obligations, increased funding for those obligations, and increased pension plan expenses. 

Cigna currently has unfunded obligations in its frozen pension plans. A significant decline in the value of the plan’s equity and fixed income investments or unfavorable changes in applicable laws or regulations could materially increase Cigna’s expenses and change the timing and amount of required plan funding that could reduce the cash available to Cigna, including its subsidiaries. See Note 10 to Cigna’s Consolidated Financial Statements for more information on the Company’s obligations under the pension plan. 

## Significant changes in market interest rates affect the value of Cigna’s financial instruments that promise a fixed return or benefit and the value of particular assets and liabilities. 

As an insurer, Cigna has substantial investment assets that support insurance and contractholder deposit liabilities. Generally low levels of interest rates on investments, such as those experienced in United States and foreign financial markets during recent years, have negatively impacted the level of investment income earned by the Company in recent periods, and such lower levels of investment income would continue if these lower interest rates were to continue. 

Substantially all of the Company’s investment assets are in fixed interest-yielding debt securities of varying maturities, fixed redeemable preferred securities and commercial mortgage loans. The value of these investment assets can fluctuate significantly with changes in market conditions. A rise in interest rates could reduce the value of the Company’s investment portfolio and increase interest expense if Cigna were to access its available lines of credit. 

The Company is also exposed to interest rate and equity risk associated with the Company’s pension and other post-retirement obligations. Sustained declines in interest rates could have an adverse impact on the funded status of the Company’s pension plans and the Company’s reinvestment yield on new investments. 

## A downgrade in the financial strength ratings of Cigna’s insurance subsidiaries could adversely affect new sales and retention of current business, and a downgrade in Cigna’s debt ratings would increase the cost of borrowed funds and affect the Company’s ability to access capital. 

Financial strength, claims paying ability and debt ratings by recognized rating organizations are an important factor in establishing the competitive position of insurance companies and health benefits companies. Ratings information by nationally recognized ratings agencies is broadly disseminated and generally used throughout the industry. Cigna believes the claims paying ability and financial strength ratings of its principal insurance subsidiaries are an important factor in marketing its products to certain of Cigna’s customers. In addition, Cigna Corporation’s debt ratings impact both the cost and availability of future borrowings, and accordingly, its cost of capital. Each of the rating agencies reviews Cigna’s ratings periodically and there can be no assurance that current ratings will be maintained in the future. In addition, a downgrade of these ratings could make it more difficult to raise capital and to support business growth at Cigna’s insurance subsidiaries. 

Insurance ratings represent the opinions of the rating agencies on the financial strength of a company and its capacity to meet the obligations of insurance policies. The principal agencies that rate Cigna’s insurance subsidiaries characterize their insurance rating scales as follows: 

A.M. Best Company, Inc. (‘‘A.M. Best’’), A++ to S (‘‘Superior’’ to ‘‘Suspended’’); GLYPH<127> 

Moody’s Investors Service (‘‘Moody’s’’), Aaa to C (‘‘Exceptional’’ to ‘‘Lowest’’); GLYPH<127> 

Standard & Poor’s Corp. (‘‘S&P’’), AAA to R (‘‘Extremely Strong’’ to ‘‘Regulatory Action’’); and GLYPH<127> 

Fitch, Inc. (‘‘Fitch’’), AAA to D (‘‘Exceptionally Strong’’ to ‘‘Order of Liquidation’’). GLYPH<127> 

