order adopting report of examination - catalog.state.ct… · adequacy ofthe company's...

STATE OF CONNECTICUT INSURANCE DEPARTMENT

ORDER ADOPTING REPORT OF EXAMINATION

I, Thomas R. Sullivan, Insurance Commissioner of the State of Connecticut,

having fully considered and reviewed the Examination Report (the "Report") of CIGNA.

HEALTHCARE OF CONNECTICUT, INC. (the "Company") as of December 31, 2008,

do hereby adopt the findings and recommendations contained therein based on thc

following findings and conclusions, TO WIT:

1. I, Thomas R. Sullivan, as the Insurance Commissioner of the State of Connecticut, and as such is charged with the duty of administering and enforcing the provisions of Title 38a of the Connecticut General Statutes;

2. CIGNA HEALTHCARE OF CONNECTICUT, INC. ("Company") is a domestic insurer authorized to transact the business of insurance in the State of Connecticut;

3. On November 24,2009, the verified Examination Report ofCIGNA. HEALTHCARE OF CONNECTICUT, INC. ("Company") was filed with the Connecticut Insurance Department.

4. In accordance with Conn. Gen. Statues §38a-14(e)(3), CIGNA. HEALTHCARE OF CONNECTICUT, INC. was afforded a period of thirty (30) days within which to submit to the Connecticut Insurance Department a written submission or rebuttal with respect to any matters contained in the Report.

5. On December 21,2009, the Company filed a written submission indicating that they were in agreement with all the recommendations contained in the Report. A copy of the Report is attached hereto and incorporated herein as Exhibit A.

www.ct.gov(cid P.O. Box 816 • Hartford, CT 06142-0816

An Equal Opportunity Employer

NOW, THEREFORE, it is ordered as follows:

1. That the Examination Report ofCIGNA HEALTHCARE OF CONNECTICUT, INC. ("Company") hereby is adopted as filed with thc Insurance Department.

2. That CIGNA HEALTHCARE OF CONNECTICUT, INC. ("Company") shall comply with all of the recommendations set forth in the Report, and that failure by CIGNA HEALTHCARE OF CONNECTICUT, INC. ("Company") to so comply shall result in sanctions or administrative action as provided by Title 38a of the Connecticut General Statutes.

Dated at Hartford, Connecticut, this 29th day of December 2009.

Thomas R. Sulliv Insurance Commissioner

Exhibit A

EXAMINATION REPORT

FOR THE

STATUTORY EXAMINATION

OF

CIGNA HEALTHCARE OF CONNECTICUT, INC.

AS OF

DECEMBER 31, 2008

BY THE CONNECTICUT INSURANCE DEPARTMENT

CIGNA HealthCare of Connecticut, Inc.

Table of Contents

Salutation

Scope of Examination 1

History 2

Organizational Chart 3

Management and Control 3

Related Party Transactions 5

Insurance Coverage 6

Territory and Plan of Operation 6

Reinsurance 6

Information Systems and Controls 7

Accounts and Records 7

Financial Statements 8 Assets 8 Liabilities, Capital and Surplus 8 Statement of Revenue and Expenses 9

Claims Unpaid 9

Common Capital Stocks 10

Gross Paid-In and Contributed Surplus 11

Unassigned Funds (Surplus) 11

Conclusion 11

Signature 12

November 24, 2009

The Honorable Thomas R. Sullivan Insurance Commissioner State of Connecticut Insurance Department 153 Market Street, 6th Floor Hartford, Connecticut 06103

Dear Commissioner:

In compliance with your instructions and pursuant to the requirements of Section 38a-I4 of the Connecticut General Statutes (CGS), the undersigned has conducted a Financial Examination of the condition and affairs of the:

CIGNA HEALTHCARE OF CONNECTICUT, INC.

(hereinafter referred to as the Company or CHC-CT), a capital stock corporation incorporated under the laws of the State of Connecticut and having its home office located at 900 Cottage Grove Road, Bloomfield, Connecticut. The report of such examination is submitted herewith.

SCOPE OF EXAMINA-'IION

The previous examination of the Company was conducted as of December 31,2003. The current examination, which covers the subsequent five year period, was conducted under the direction of the National Association of Insurance Commissioners (NAIC) at the Company's statutory home office. The examination was conducted on a full scope, comprehensive basis in accordance with the procedures outlined in the NAIC Financial Examiners Handbook (Handbook). A concurrent examination was also conducted on Connecticut General Life Insurance Company (CGLIC), an affiliated Connecticut domiciled insurance company, which is a member of the CIGNA Group (the Group).

As a part of the examination planning procedures, the Examination Division of the Connecticut Insurance Department (the Division) reviewed the following documentation submitted by the Company:

1. Audit reports completed by the CPA firm retained by the Company. 2. Annual reports to shareholders. 3. Form 10K reports filed with the Securities and Exchange Commission. 4. Annual statements filed with the Division. 5. Statements of actuarial opinion. 6. Reports of the Company's Internal Audit Department.


Workpapers prepared by the Company's independent public accountants, PricewaterhouseCoopers LLP (PWC), in connection with its annual statutory audit, were reviewed and relied upon to the extent deemed necessary. The review ofPWC's audit reports indicated no material concerns with respect to financial condition or regulatory compliance issues.

A comprehensive review was made of the financial analysis files and documents submitted to the Financial Analysis Unit of the Division.

The Division retained Lewis & Ellis, Inc. (L&E) to perform an analysis of reserve methodology and compliance with formula minimum reserve standards.

The Division retained INS Services, Inc. (INS) to perform a review of the Company's financially significant information systems general controls.

The Division retained Invotex Group (Invotex) to assist with the examination of the Company's investment strategies and initiatives. This included the evaluation of the adequacy of the Company's investment risk analysis and action plans and the review of the Company's processes and policies regarding valuation of derivatives and impairments.

HISTORY

The Company was incorporated on June 26, 1985, under Chapter 648a-part I of the CGS, licensed by the Insurance Commissioner of the State of Connecticut (Commissioner) on January 27, 1986, and commenced business on May 1, 1986. CHC was federally qualified as a Health Maintenance Organization (HMO) on December 24, 1986.

On June 25, 1997, CIGNA acquired all of Healthsource, Inc. (Healthsource) outstanding common stock. The acquisition was accounted for as a purchase. Healthsource was a New Hampshire based company that operated a large indemnity book of business and a number of HMO's licensed in various states. In connection with this acquisition, the Company assumed the role of a party to a coinsurance agreement with Provident Life an Casualty Company and Provident Life and Accident Insurance Company (collectively, Provident) through a previous assignment from Healthsource. The Company was also assigned contracts and assumed the business of administering self-funded employee benefit plans providing coverage for medical and dental care services from Healthsource Provident Administrators, Inc. (HPA). A plan of merger between the Company and Healthsource, Inc. was filed with the Department on July 24, 1998. Effective April 1, 1999, the merger resulted in CHC as the surviving company.

2


ORGANIZATIONAL CHART

An organizational chart of the insurance holding company system at the end of the examination period is as follows:

CIGNA Corporation

(Delaware)

I CIGNA

Holdings, Inc. I

Connecticut General Corporation

I CIGNA Health

Corporation

I I

Connecticut General Life Insurance

Company

(Connecticut)

I

Healthsource, Inc.

I CIGNA

Healthcare of CT, Inc.

(Connecticut)

MANAGEMENT AND CONTROL

The Company is a member of an insurance holding company system as defined in Sections 38a-138.1 to 38a-138.1b of the Connecticut Insurance Regulations (Regulations) and Section 38a-135 of the CGS.

The bylaws of the Company require all meetings of the Stockholders to be held at any location as the directors may detennine. The annual meeting of the Stockholders is held on any date and place that the directors may designate and if so designated, notices thereof need not be given. The annual meeting of the Stockholders shall include the election of directors and for the transaction of any other business that may come before

3

CIGNA HealthCare ofConnecticut, Inc.

the meeting. Special meetings may be called at any time by the Chairman, the President or the Board upon written request of the holders of not less than ten percent of all the shares entitled to vote at the meeting. A majority of the directors shall constitute a quorum at all meetings of the Board.

The bylaws provide that the property, business and affairs of the Company be managed by its Board. The number of directors shall be not less than one nor more than nine, as the Board shall from time to time determine. Where the issued and outstanding shares are owned beneficially and of record by three or more shareholders, the number of directorship shall not be less than three. Where the issued and outstanding shares are owned by less than three shareholders, the number may not be less than the number of shareholders.

Directors serving the Company at December 31, 2008, were as follows:

Name Title and Principal Business Affiliation Donald M. Curry President, CIGNA HealthCare Connecticut, Inc. David Goldberg Vice President, CIGNA HealthCare Connecticut, Inc. Aslam M. Khan, M.D., M.S. Vice President, CIGNA HealthCare Connecticut, Inc.

Committees Pursuant to the corporate bylaws, the Company's business operations may be monitored through advisory committees approved by the Board. As of December 31, 2008, there were no Board appointed committees.

Officers At December 31,2008, the officers of the Company were as follows:

Name Title Donald M. Curry President Scott R. Lambert Vice President & Treasurer David Goldberg Vice President Scott R. Neumann Assistant Secretary Leslie N. Campbell Vice President John P. Frey Vice President Andrea D. Gelzer, M.D, M.S. Vice President Glenn M. Gerhard Vice President Kathleen M. Hockmuth Vice President Robert P. Hockmuth, M.D. Vice President Aslam M. Khan, M.D., M.S. Vice President William A. McGean Vice President Barry R. McHale Vice President Anthony Perez Vice President Robert D. Picinich Vice President David M. Porcello Vice President Vincent L. Shreckengast Vice President

4


Edward V. Stacey, Jr. Vice President Joseph E. Turgeon III Vice President

RELATED PARTY TRANSACTIONS

Investment Management and Lending Agreements: On July 13, 1992, the Company and other affiliates entered into separate agreements with CIGNA Investments, Inc. (CIl) and CIGNA International Investment Advisors, Ltd. (CIIA) to provide investment management and advisory services. The Company and other affiliates also entered into the line of credit agreement, providing funds to be loaned to the Company as needed, to meet its operational cash obligations.

Cost and Tax Allocation Agreement: The Company and other affiliates entered into a cost allocation agreement whereby a fair and reasonable share of corporate expenses are allocated in accordance with customary insurance accounting practices. The Company is also a party to the Federal Income Tax Sharing Agreement executed between CIGNA and each affiliated company included in the consolidated federal income tax return. In general, the agreement requires the federal income tax liability of each affiliate to be computed on a separate company basis and settled periodically with CIGNA.

Provider Network and Administrative Services Agreements: The network access agreement allows affiliated HMO's ofCGLIC access to its provider networks for group health benefit plans insured or administered by the Company.

International Rehabilitation Services, Inc. d/b/a INTRACORP provides utilization management, care management and other health care management services to the Company.

The Company also entered into agreements with CIGNA Behavioral Health, Inc. (CBHI) to receive utilization review and other administrative services from CBHI in connection with group coverage for mental health and substance abuse.

CIGNA Dental Health, Inc. (CDH) provides administration services with respect to utilization management, provider services, claims management and other administrative services to the Company.

5


mSURANCECOVERAGE

The Company is insured with affiliates on a primary fidelity bond policy providing $20 million liability coverage. Excess fidelity bond coverage is provided by four carriers for $85 million in coverage. The aggregate limit of liability provides fidelity coverage above the prescribed minimum set forth by the NAIC's schedule of suggested minimum amounts.

The Company, as a named insured on a series of master policies with its affiliates, maintains insurance coverage that includes: general liability; business automobile liability; workers' compensation; employers liability; fiduciary and pension trust liability; commercial umbrella; directors and officers liability; errors and omissions liability; computer crime; group travel; and commercial property. Premiums for insurance coverages are generally allocated to the insured subsidiaries in conjunction with the cost allocation arrangements for the companies being covered.

TERRITORY AND PLAN OF OPERATION

Licensing Information The Company is a federally qualified HMO corporation licensed to write managed care products and services in the State of Connecticut.

Plan of Operations The Certificate of Incorporation (Certificate), filed in the State of Connecticut with the Secretary of State and approved by the Commissioner, authorizes the Company to market, enroll and administer a HMO and to engage in any other lawful act or activity for which corporations may be formed under the Stock Corporation Act of the State of Connecticut.

The Company provides medical and dental HMO products to participating employees and dependents of employer groups and other sponsors of health benefit plans. The Company enters into contracts with primary and specialty care physicians and hospitals for the delivery of health care benefits to its members at negotiated rates of reimbursement with its providers.

Marketing The Company's group sales representatives distribute managed health care products and services through a diversified distribution network of independent agents, insurance brokers and registered representatives of the Company.

REmSURANCE

A stop loss coverage reinsurance agreement is maintained with CGLlC, providing coverage for 80% of the calendar year cost of hospital and related services exceeding $150,000 per individual health plan member.

6


INFORMATION SYSTEMS (IS) AND CONTROLS

An evaluation of IS controls was conducted to gain familiarity with the existing controls, policies and procedures established by the IS area. The Division engaged INS to evaluate the Company's responses to the Handbook's IS Controls Questionnaire (ISQ) and test the Company's IS control environment to assess the degree of reliance that should be placed on internal controls and to establish the appropriate approach to the examination of the Company's financial records.

The evaluation of IS controls was performed over the Company's financially significant systems and focused on the following areas: management control; organizational control; changes to applications; system and program development; operations; processing; documentation; logical and physical security; contingency planning; local area networks (LAN); personal computers; wide area networks; and internet controls.

Based on the review of the ISQ and through inquiries and observations of Company information technology personnel and tests of key IS controls, an overall high reliance on IS controls was determined.

ACCOUNTS AND RECORDS

Financial accounting records are processed and maintained through the Oracle corporate general ledger system. Oracle is a nationally recognized software application developed by an external vendor. The system maintains the Company's financial accounting records and supports all statutory reporting and accounting requirements processed and maintained through the Company's general ledger system. General ledger account balances were reconciled and traced to appropriate asset, liability and income statement balances on the annual statements.

7


FINANCIAL STATEMENTS

The following statements reflect the assets, liabilities, capital and surplus, and statement of revenue and expenses as of December 31,2008, as reported by the Company and as determined by the examination:

ASSETS

Account Description Assets Nonadmitted Assets

Net Admitted Assets

Bonds Cash, cash equivalents and short-term

investments Investment income due and accrued Uncollected premiums and agents'

balances in the course of collection Amounts recoverable from reinsurers Net deferred tax asset Receivable from parent, subsidiaries and

affiliates Health care and other amounts receivable Aggregate write-ins for other than invested

assets

$19,758,290

1,044,731 243,157

1,248,903 276,862

1,524,782

1,676,950 18,501

400,487

$624,242 28,577

237,304

18,501

12,153

$19,758,290

1,044,731 243,157

624,661 248,285

1,287,478

1,676,950 0

388,334 Total assets excluding Separate Accounts,

Segregated Accounts and Protected Cell Accounts 26,192,663 920,777 25,271,886

Total $26,192,663 $920,777 $25,271.886

LIABILITIES, CAPITAL AND SURPLUS

Account Description Covered Uncovered Total Claims unpaid Unpaid claims adjustment expenses Aggregate health policy reserves Premiums received in advance General expenses due or accrued Current federal and foreign income tax payable Amounts due to parent, subsidiaries, affiliates Aggregate write-ins for other liabilities

$4,418,397 118,797

1,500,000 2,910,458

44,866 1,210,982

885,496 170,054

$4,418,397 118,797

1,500,000 2,910,458

44,866 1,210,982

885,496 170,054

Total liabilities 11,259,050 11,259,050 Common capital stock Gross paid in and contributed surplus Unassigned funds

1,000 17,010,000 (2,998,170)

Total capital and surplus $14,012,830 Total liabilities, capital and surplus $25,271.880

8


STATEMENT OF REVENUE AND EXPENSES

Account Description Uncovered Total Net premium income Hospital and Medical:

Hospital/medical benefits Other professional services Outside referrals Emergency room and out-of-area Prescription drugs

$89,886,639

54,044,683 6,685,054 7,235,482 3,696,381 8,343,991

Subtotal Less:

Net reinsurance recoveries

80,005,591

1,930,904 Total hospital and medical Claims adjustment expenses General administrative expenses Increase in reserves for life and accident and health contracts Total underwriting deductions Net underwriting gain or (loss) Net investment income earned Net realized capital gains (losses) less capital gains tax Net investment gains or (losses) Net income or (loss) before federal income taxes Federal and foreign income taxes incurred

78,074,687 2,062,149

11,869,524 700,000

92,706,360 (2,819,721 )

926,264 (37,332) 888,932

(l ,930,789) (80,466)

Net income (loss) $( 1,850,32j)

CLAIMS UNPAID $4,418,397

The Division engaged L&E to conduct the actuarial review on this examination. The following is a summary of the review:

Formula Reserves-Scope The review consisted of independent actuarial tests of the Company's managed care business to determine whether the Company's reserves were established in accordance with minimum standards for the valuation of liabilities specified in the Connecticut Standard Valuation Law and applicable Actuarial Standards of Practice. The review was conducted to determine whether the formulation of loss reserves was in compliance with applicable valuation laws and practices and the liability was adequate to support the company's obligations. In performing the reserve review and analysis, L&E conducted the following tests:

• Reviewed and analyzed statutory annual statements for 2008 and other recent years covered under the examination period.

• Reviewed and analyzed the Company's actuarial reserve methods and assumptions, and conducted trend and detailed analysis supporting the December 31, 2008, reserves.

9


• Conducted interviews with the Company's division and/or line of business actuary responsible for the reserve liabilities to discuss information relevant to the reserve analysis.

• Analyzed the Company's Annual Statement reserve adequacy analysis for the managed care business contained in Part 2 of the Underwriting and Investment Exhibit of the Annual Statement.

• Reviewed and analyzed the Company's Statement of Actuarial Opinion for 2008 and other recent years covered under the examination period.

Reinsurance Agreements-Scope A review was conducted of the ceding reinsurance treaty with CGLIC and the Connecticut Small Employer Health Reinsurance Pool (CSEHRP) and the associated transactions reported on Schedule S of the Company's annual statement. The review also included an evaluation of reinsurance reserve implications and reserve credits in relation to the respective reserve held by the reinsurers.

Reinsurance agreements providing significant coverage and material reserve credits was evaluated to ensure compliance with Connecticut Regulations and risk transfer requirements.

Formula Reserve Analysis Based on the review of the Company's formula reserves as outlined above, it was determined that the reserve liabilities are reasonably stated as of December 31, 2008, and are in compliance with the applicable provisions of the CGS, Regulations and Actuarial Guidelines.

COMMON CAPITAL STOCK $1,000

Common capital stock of the Company consisted of 1,000 shares authorized, issued and outstanding, with a par value of $ 1 per share. All shares are owned held by Healthsource which is an indirect wholly-owned subsidiary of CIGNA Corporation.

The Division approved the following dividends that the Company paid to its parent during the examination period:

Dividend Type Form Date Paid Amount Extraordinary Cash 2005 $ 6,100,000 Extraordinary Cash 2006 $10,000,000

10


GROSS PAID-IN AND CONTRIBUTED SURPLUS $17,010,000

The following exhibit reflects the balance of this account during the five year period under review:

2004 $12,010,000 2005 $12,010,000 2006 $17,010,000 2007 $17,010,000

UNASSIGNED FUNDS (SURPLUS) ($2,998,170)

The following exhibit reflects the balance of this account during the five year period under review:

2004 $1,122,950 2005 ($1,914,573) 2006 ($5,524,814) 2007 ($2,047,432)

CONCLUSION

The results of this examination disclosed that, as of December 31, 2008, the Company had admitted assets of $25,271 ,880, liabilities of $11 ,259,050, and surplus of $14,011,830. During the period under examination, admitted assets increased $4,270,122, liabilities increased $2,738,080, and surplus as regards policyholders increased $1,532,042.

It was determined that the Company's assets were fairly stated in accordance with guidance outlined in the NAIC Accounting Practices and Procedures Manual. Assets were acceptable under Section 38a-102 of the CGS. The liabilities established were adequate to cover the Company's obligations to policyholders.

11


SIGNATURE

In addition to the undersigned, the following members of the State of Connecticut Insurance Department participated in the examination: William Arfanis, CFE; Cecilia Arnold, AFE; Ronald Jankoski, CFE; Grace Jiang, CFE; Kent Krajick, CFE; Daniel Levine, CPA; Donna Nowakowski, AFE; Kenneth Roulier, AFE, AES, CISA; William Tacy, CFE, CISA; the consulting firms of INS and Invotex; and the actuarial firm of L&E.

I, Thomas H. Corrigan, CFE, solemnly swear that the foregoing report on examination is hereby represented to be a full and true statement of the condition and affairs of the subject insurer as of December 31, 2008, to the best of my information, knowledge and belief.

>----. Corrigan, CFE

Exa in r-In-Charge State of Connecticut Insurance Department

State of Connecticut ss. Hartford

County of Hartford

Subscribed and sworn to before me, I Jy~'1. )0+ fh ~e l't, 'f / Notary Pubhc on thIs ;) 22 f2.d.. day of (\J(t>V(/'f?1 k ',./' ,2009.

IZ kk 6lj [If !4C/&6<k'-A / Notary PUb~Q

My Commission Expires G_"):3 <.)/:7 £-') /0

12

order adopting report of examination - catalog.state.ct… · adequacy ofthe company's...

Documents