CIGNA CORPORATION 37th Annual J.P. Morgan Healthcare Conference January 7, 2019 - David Cordani President and Chief Executive Officer
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CIGNA CORPORATION 37th Annual J.P. Morgan Healthcare Conference January 7, 2019 David Cordani President and Chief Executive Officer
Forward-looking statements and Non-GAAP measures CAUTIONARY STATEMENT FOR PURPOSES OF THE “SAFE HARBOR” PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 This presentation may contain 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 our long-term projected adjusted income (loss) from operations outlook; expectations for growth in 2019, including but not limited to global medical and individual Medicare Advantage customer growth for 2019, growth in international markets and expectations for core business adjusted claims growth for 2019; projected growth beyond 2019; projected medical care and operating expense ratios and medical cost trends; our projected consolidated adjusted tax rate; future financial or operating performance, including our ability to deliver personalized and innovative solutions for our customers and clients; future growth, business strategy, strategic or operational initiatives; economic, regulatory or competitive environments, particularly with respect to the pace and extent of change in these areas; financing or capital deployment plans and amounts available for future deployment; our prospects for growth in the coming years; the merger (the “Merger”) with Express Scripts Holding Company (“Express Scripts”) and other statements regarding Cigna's future beliefs, expectations, plans, intentions, financial condition or performance. You may identify forward-looking statements by the use of words such as “believe,” “expect,” “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 financial, strategic and operational plans or initiatives; our ability to predict and manage medical costs and price effectively and develop and maintain good relationships with physicians, hospitals and other health care providers; the impact of modifications to our operations and processes; our ability to identify potential strategic acquisitions or transactions and realize the expected benefits of such transactions, including with respect to the Merger; 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; the outcome of litigation, regulatory audits, investigations, actions and/or guaranty fund assessments; uncertainties surrounding participation in government-sponsored programs such as Medicare; the effectiveness and security of our information technology and other business systems; unfavorable industry, economic or political conditions, including foreign currency movements; acts of war, terrorism, natural disasters or pandemics; the possibility that the anticipated benefits (including anticipated synergies) from the Merger cannot be realized in full, or at all or may take longer to realize than expected; problems regarding the successful integration of the businesses of Express Scripts and Cigna; unexpected costs regarding the Merger; the ability to retain key personnel; as well as more specific risks and uncertainties discussed in our most recent report on Form 10-K and subsequent reports on Forms 10-Q and 8-K available on the Investor Relations section of www.cigna.com as well as on Express Scripts’ most recent report on Form 10-K and subsequent reports on Forms 10-Q and 8-K available on the Investor Relations section of www.express-scripts.com. 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. NON-GAAP MEASURES AND FINANCIAL INFORMATION The Company uses adjusted income from operations as the principal measure of performance when describing its financial results and outlook. On a consolidated basis, adjusted income from operations is not determined in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Adjusted income from operations is defined as shareholders’ net income (loss) excluding after-tax realized investment results, net amortization of other acquired intangible assets, special items and, for periods ended on or prior to December 31, 2014, the results of Cigna’s Guaranteed Minimum Income Benefits (GMIB) business. Management uses adjusted income from operations to measure financial performance because it presents underlying results of operations and permits analysis of trends in underlying revenue, expenses and shareholders’ net income. On a consolidated basis, adjusted income from operations should not be viewed as a substitute for the most directly comparable GAAP measure - shareholders’ net income. “Global medical customers” include individuals who meet any one of the following criteria: are covered under a medical insurance policy, managed care arrangement, or service agreement issued by Cigna; have access to Cigna's provider network for covered services under their medical plan; or have medical claims and services that are administered by Cigna. “Adjusted claims” includes an adjustment to reflect non-specialty network claims filled through 90-day programs. These claims are multiplied by three, as these claims, on average, typically cover a time period three times longer than other network claims. Home delivery claims are also multiplied by three as home delivery claims typically cover a time period three times longer than unadjusted network claims. All other network and specialty claims are counted as one claim. “Core business” excludes the contributions from Anthem and Coventry and their clients, which together are referred to as the “transitioning clients.” *In this presentation, the term “earnings” means adjusted income from operations and “earnings per share” means adjusted inco me from operations on a fully diluted per share basis. The appendix to this presentation contains a reconciliation of adjusted income from operations on a consolidated basis to shareholders’ net income, the most directly comp arable GAAP measure. Management is unable to provide a forward-looking reconciliation of adjusted income from operations to shareholders’ net income for full year 2018 because we are unable to predict, without unreasonable effort, certain components thereof, including future net realized investment results and future special items. Peer information is presented on the basis of their respective principal financial performance measure. © 2019 Cigna 2
Identity and mission
Who we are
We are a global health service company
dedicated to providing whole-person
services and solutions
Our mission
To improve the health, well-being and
peace of mind of those we serve
Our role
To be champions for our customers
and our communities
© 2019 Cigna 3
Track record
Revenue 11% EPS 15%
CAGR CAGR
2009 2018 2009 2018
8 consecutive years 85% of Medicare Advantage
of organic Commercial enrollment growth customers in value-based
arrangements
6 years of industry-leading medical
cost trend Further depth and differentiation in
high-growth international markets
500+ physician collaboratives
Strong margins and free cash flows
Continued innovation of specialty solutions
2018 outlook as of Cigna’s 3rd quarter earnings release on November 1, 2018. Cigna does not undertake to review or update this information.
© 2019 Cigna 4
Global market forces Eroding
health status
Aging
Changing role
population
of consumers
INCREASING
SOCIETAL
PRESSURES
Technological Affordability
innovation and accessibility
challenges
Regulatory and
legislative climate
© 2019 Cigna 5
Strategy aligned with key needs
Employer and Health care
Customers health plan clients professionals Communities Government
Personalized, Greater affordability Value-based Improved health, Expanded access
affordable solutions and productivity partnering and vitality and and improved
care delivery productivity affordability
Tremendous need for affordability, personalization and predictability
Our strategy: Go Deeper Go Local Go Beyond
© 2019 Cigna 6
Combination with Express Scripts accelerates our strategy
INCREASE EXPAND ENHANCE
AFFORDABILITY, DISTRIBUTION STRATEGIC AND
CHOICE AND REACH FINANCIAL
PREDICTABILITY FLEXIBILITY
© 2019 Cigna 7
Four growth businesses – innovating to deliver more
affordability and personalization
INTEGRATED MEDICAL: HEALTH SERVICES INTERNATIONAL
COMMERCIAL GOVERNMENT MARKETS
© 2019 Cigna 8
Commercial Employer
• Insights, incentives and care resources to
engage and align customers, clients and
health care professionals
• Deeply integrated medical and specialty offerings
• Unique capabilities in the Select and Middle
Market segments – substantial runway for
continued growth
6 years leading 8 years of organic
medical cost commercial medical
trend results enrollment growth
Aligned, transparent, integrated solutions improved
outcomes and costs Consistent, strong growth
© 2019 Cigna 9
Government
• Highly attractive Individual Medicare Advantage plan
offerings in targeted geographies
• Outstanding physician engagement, care
coordination and clinical quality
• 85% of MA customers serviced through value-based
care arrangements
• Strong MA Part D networks and formularies focused
on improving total pharmacy costs
4.5 Star MA
NPS scores as
Corporate
high as 80
Rating for 2020
Well positioned for growth in existing and new
Medicare Advantage markets
© 2019 Cigna 10Health Services
• Broad range of solutions customized to customer
and client needs while enabling further alignment
Commercial Health plan with health care professionals
employer clients clients
• Technology-focused solutions, with applied analytics
to prevent, detect and help close gaps in care
Medicare Part D
Advantage customers
• Deep clinical capabilities and specialized care
customers models for chronic and complex conditions
• Unparalleled expertise in Specialty Pharmacy
Government Value-based
agency clients health care
partners Innovative 1B+ customer
value-based touchpoints
solutions annually
Highly innovative, customer-centric solutions
enabling better care at lower cost
© 2019 Cigna 11International Markets
INDIVIDUAL EMPLOYER
CUSTOMERS CLIENTS
U.K.
Belgium China
USA
SUPPLEMENTAL Turkey South Korea GLOBAL
Spain India Taiwan
HEALTH, UAE Hong Kong HEALTH
LIFE & ACCIDENT Singapore Thailand BENEFITS
Indonesia
PRIVATE MEDICAL DOMESTIC
INSURANCE HEALTH CARE
New Zealand
Locally managed and licensed, 30+ years in-country experience
Proven global platform for employer solutions
Continuous innovation of products, services and
distribution strong sustained growth and margins
© 2019 Cigna 12Momentum into 2019 and beyond 2X EPS
$20 to $21
2018 EPS growth of 36% to 38%
$14.20 to
2017 EPS growth of 29% $14.40
xxx xxx
$10.46 $10.46 $10.46
$8.10
2017 2018 2017 2021
2016 2017
All ongoing reporting segments driving significant growth
2018 outlook as of Cigna’s 3rd quarter earnings release on November 1, 2018. Cigna does not undertake to review or update this information.
Ongoing reporting segments refers to the Cigna’s Global Health Care, Global Supplemental Benefits and Group Disability & Life reporting segments.
© 2019 Cigna 13Outlook for 2019
Organic Express Scripts
medical customer core pharmacy claims
growth of 300,000 – growth of
400,000 lives 2 to 3%
Strength and
growth across
each of our
businesses
Mid-single digit % Continued
Individual MA strong growth
Customer Growth in International Markets
Pharmacy claims growth of 2 to 3% pertains to Express Scripts core business adjusted claims, which excludes contributions from transitioning clients.
© 2019 Cigna 14Longer-term outlook
Four well-positioned growth platforms
10 - 13% average annual EPS growth objective
Anticipate exceeding high end
of annual 10-13% EPS growth target on path to 2021
Operating model and talent that embrace disruptive change
© 2019 Cigna 15Capital deployment priorities
Reinvest in businesses to drive long-term growth
Return to normalized leverage (upper 30’s debt to capitalization ratio)
within 18-24 months following close of ESRX transaction
Strategic M&A in areas of focus
Return capital to shareholders
Significant capacity to externally deploy capital even during
18 - 24 month deleveraging period
© 2019 Cigna 16Clear path to 2021 EPS target
Expect ~15% EPS average annual growth through 2021
$21
↑ ~ $3
$20 to $21
↑ $3 to $4
~ $14*
2018 guidance 2019-2021 2019-2021 2021 EPS target
incl. baseline earnings growth capital deployment
adjustments ex combination** including
combination**
*2018 EPS outlook of $14.20 to $14.40 excluding $0.55/share in net baseline reductions as of Cigna’s 3 rd quarter earnings release on November 1, 2018. Cigna does not undertake to review or update this information.
Baseline adjustments consist of expected year-over-year reductions from U.S. Individual outperformance of approximately $0.40/share and prior year reserve development
of approximately $0.35/share, partially offset by a year-over-year increase from the industry tax suspension of $0.20/share.
“*Combination” refers to Cigna’s acquisition of Express Scripts.
© 2019 Cigna 17Compelling valuation
2009 – 2018 EPS CAGR 2019 PE Ratio
15%
• Above-market organic growth
13%
11%
• Strong margins, FCF and ROIC
Cigna MCO S&P 500
peers average 16.1
• Thrive amid disruptive change 14.7
2009 – 2018 Revenue CAGR
• Responsible capital deployment
11% 11.9
8% 5%
• 441% TSR since 2009 2.6x S&P 500
Cigna MCO S&P 500
peers average
Cigna MCO S&P 500
2009 – 2017 Average ROIC peers average
Expect to exceed high end As of 12/31/18
14% of strategic EPS growth
11% 11% range and deliver ~15%
Cigna MCO S&P 500 average annual growth
peers average
through 2021
2018 revenue and earnings for MCO peers ANTM, HUM and UNH are based on the companies’ most recent guidance and for AET are based on consensus estimates prior the company’s
acquisition. 2018 revenue and earnings for S&P 500 are based on consensus expectations. 2019 PE ratios are based on consensus expectations and For MCO peers includes
ANTM, HUM and UNH. 2018 outlook as of Cigna’s 3rd quarter earnings release on November 1, 2018. Cigna does not undertake to review or update this information.
© 2019 Cigna 18Well positioned to continue thriving amid change
• Consistent strong growth in customers, revenue, earnings, EPS
Track record • Strong margins and ROIC
• Industry leading medical cost trend
• Commercial • Health Services
Four growth businesses • Government • International Markets
• Integrated, transparent, personalized solutions
Innovation • Cigna Collaborative Care
• Safeguard Rx
• Open architecture to maximize choice
Strategic flexibility • Aligned incentives to improve health quality and affordability
• Optionality in dynamic environment
• Efficient service-based model
Financial strength • Strong free cash flow generation
• Reinvestment & capital deployment to drive long-term growth
Cigna Investor Day – May 31, 2019 – New York City
© 2019 Cigna 19Appendix
Reconciliation of GAAP to Non-GAAP Financial Measures
(Dollars in millions, except per share amounts)
YEAR ENDED
12/31/2009 12/31/2016 12/31/2017
EPS (FULLY DILUTED):
Shareholders' net income $ 4.69 7.19 8.77
Results of guaranteed minimum income benefits (0.76) - -
Net realized investment losses (gains) 0.09 (0.42) (0.61)
Amortization of other acquired intangible assets 0.13 0.36 0.26
Special items (0.08) 0.97 2.04
Adjusted income from operations $ 4.07 8.10 10.46
© 2019 CignaCIGNA CORPORATION 37th Annual J.P. Morgan Healthcare Conference January 7, 2019 David Cordani President and Chief Executive Officer
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