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CIGNA HEALTHCARE OF MAINE, INC.
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| Donald M. Curry | President |
| Scott R. Lambert | V. President & Treasurer |
| Barry R. McHale | V. President & Asst. Treasurer |
| Vincent L. Shreckengast | V. President |
| Timothy Burton | V. President |
| Allan E. Hanssen | V. President |
| Aslam M. Khan M.D, M.M. | V. President |
| Jeffery L. Novak | V. President |
| Leslie N. Campbell | V. President |
| John P. Frey | V. President |
| Kathleen M. Hockmuth | V. President |
| Robert D. Picinich | V. President |
| Joseph E. Turgeon III | V. President |
| Karen E. Ferrell | V. President |
| Glenn M. Gerhard | V. President |
| Robert P. Hockmuth M.D. | V. President |
| David M. Porcello | V. President |
| James V. Vasquenza Jr. | V. President |
Title 24-A M.R.S.A. § 3413 requires that each director and officer of the Company associate and perform in a manner that is not in conflict with the interests of the Company. The Company employs a policy of requiring all directors and officers to complete a conflict of interest statement annually to disclose any material interest or affiliation which is likely to be in conflict with his/her official duties and responsibilities with the Company. Review of the Conflict of Interest Statements for the period under exam determined that the Company is in substantial compliance with its policy and the Maine State Statute.
The Articles of Incorporation, Bylaws and the Minutes of various meetings held during the period of examination were reviewed. Based on a review of these Minutes, the Company is conducting its affairs in accordance with its Charter and Bylaws.
On January 31, 1987, the Company was licensed to provide HMO benefits in the State of Maine.
The Company maintains networks of providers for its HMO products. The Company’s providers consisted of the following types: primary physicians, specialist physicians, ancillary services and hospital services. Maine Title 24-A M.R.S.A. § 4204(6) requires that a “hold harmless” provision be included in HMO provider contracts. Maine Title 24-A M.R.S.A. § 4204(7) requires that a provision for continuation of benefits be included in provider contracts. The Company is in substantial compliance with both of these requirements.
The Company maintains the following insurance coverages:
| Business Auto Liability | Workers’ Compensation |
| Commercial General Liability | Fidelity Bond Insurance |
| Commercial Property | Directors & Officers Liability |
The fidelity bond insurance in the amount of $5,000,000 was found to be in compliance with Title 24-A M.R.S.A. § 4204 (2-A) (H).
The Company is a member of an insurance holding company system and has filed annual Form B registration statements, as required under Title 24-A M.R.S.A § 222 (8)(B). Due to the number of entities within the holding company system, this report’s organizational chart presents only the Company’s immediate, intermediate and ultimate parents and the affiliates with whom it has agreements. The following is an abbreviated organization chart at December 31, 2005:
The Company had the following major agreements with affiliates in effect at December 31, 2005:
Management Services Agreement with CIGNA Health Corporation
Effective January 1, 1994, the Company entered into a management services agreement with CIGNA Health Corporation. Under the terms of this agreement, the affiliate provides management services, which include sales support, underwriting, premium billing and collection, claims processing, personnel services, systems services, legal services, and other support services. The Company is charged a monthly fee of allocated expenses based upon a reasonable allocation methodology.
Investment Advisory Agreement with CIGNA Investments, Inc.
Effective November 18, 1997, the Company entered into an investment advisory agreement with CIGNA Investments, Inc. Under the terms of the agreement, the affiliate was authorized to purchase, exchange, subscribe or dispose of the Company’s invested assets in its sole discretion in accordance with applicable law and subject to a general investment authorization. For these services, the Company, on a quarterly basis, provides consideration equaling 9.76 basis points in arrears on net average assets under management for that quarter.
On January 11, 2000, the agreement was amended to stipulate the name change of the investment advisor from CIGNA Investments, Inc. to TimesSquare Capital Management, Inc. Subsequent to the aforementioned name change and prior to January 1, 2002; CIGNA Investment Advisory Company, Inc. changed its name to CIGNA Investments, Inc. Effective January 1, 2002, TimesSquare Capital Management assigned the investment advisory agreement to CIGNA Investments, Inc., another affiliate.
Consolidated Federal Income Tax Allocation Agreement with CIGNA Corporation
The Company, its ultimate parent and other affiliates are parties to an amended and restated consolidated federal income tax agreement. This agreement was originally effective April 1, 1982. The Company became a party to the agreement on June 26, 1997 upon its acquisition by CIGNA Corporation for the tax year beginning January 1, 1997. Tax expenses or benefits are allocated as though each entity had filed a separate return. Settlements between the affiliates are to occur quarterly with the filing of estimated tax returns; a final annual adjustment is to occur upon the filing of the consolidated tax return.
Network Access Agreement with Connecticut General Life Insurance Company
Effective June 6, 2001, the Company, Connecticut General Life Insurance Company (CGLIC) and other affiliates entered into a network agreement. This agreement’s provisions allow each health maintenance organization, including the Company, to provide or receive network access to providers and certain associated administrative services for other affiliates.
Line of Credit Agreement with CIGNA Corporation
Effective October 1, 2005, the Company (borrower) entered into an agreement with Cigna Health Corporation (lender). Under this agreement, CIGNA Health Corporation would loan funds to the Company, from time to time, to ensure that the Company would be able to meet its operational cash obligations while earning additional investment income.
CIGNA Health Corporation subsidiaries, including the Company, are entered into a reinsurance agreement with CGLIC, an affiliate. The reinsurance treaty provides reinsurance coverage for 80% of covered hospital, and related services in excess of $250,000 retention per individual per contract year. In addition, this reinsurance provides for insolvency coverage as required by Title 24-A M.R.S.A. § 4231.
The Company does not use outside counsel. The Company advised the examiners that it is not involved in any actual, pending or threatened non-claims litigation at this time that would result in a material judgment against the Company.
The following financial statements show the Company’s financial position at December 31, 2005 as determined by this examination. Comments on the financial statements have been made in the section of this report captioned Notes to Financial Statements.
BALANCE SHEET
December 31, 2005
| BONDS (Note 1) | $ 16,725,253 |
| CASH (Note 2) | 1,150,940 |
| SUBTOTAL CASH & INVESTED ASSETS | $ 17,876,193 |
| A & H PREMIUMS DUE AND UNPAID (Note 3) | 1,209,944 |
| INVESTMENT INCOME DUE AND ACCRUED | 293,438 |
| FEDERAL INCOME TAX RECOVERABLE (Note 4) | 1,632,534 |
| NET DEFERRED TAX ASSET (Note 4) | 215,892 |
| TOTAL ASSETS | $ 21,228,001 |
| LIABILITIES, CAPITAL AND SURPLUS | |
| CLAIMS UNPAID (Note 5) | $ 5,740,542 |
| ACCRUED MED INCENTIVE POOL AND BONUS | 399,270 |
| UNPAID CLAIMS ADJUSTMENT EXPENSES | 249,188 |
| PREMIUMS RECEIVED IN ADVANCE (Note 6) | 304,790 |
| GENERAL EXPENSES DUE & ACCRUED | 1,001,180 |
| AMOUNTS DUE TO PARENT, SUB. AND AFFILIATES (Note 7) | 2,920,279 |
| AGGREGATE WRITE-INS FOR OTHER LIABILITIES | 275,469 |
| TOTAL LIABILITIES | $ 10,890,718 |
| COMMON CAPITAL STOCK | $ 100 |
| GROSS PAID IN & CONTRIB. SURPLUS | 3,738,169 |
| UNASSIGNED FUNDS (SURPLUS) | 6,599,014 |
| TOTAL CAPITAL AND SURPLUS (Note 8) | $ 10,337,283 |
| TOTAL LIABILITIES & SURPLUS | $ 21,228,001 |
STATEMENT OF REVENUE AND EXPENSES
For the Year Ended December 31, 2005
| UNDERWRITING INCOME | |
| NET PREMIUM INCOME | $ 64,283,954 |
| TOTAL REVENUE |
$ 64,283,954 |
| MEDICAL AND HOSPITAL DEDUCTIONS: |
|
| HOSPITAL/MEDICAL BENEFITS |
$ 36,686,322 |
| OTHER PROFESSIONAL SERVICES |
3,240,834 |
| OUTSIDE REFERRALS |
2,216,346 |
| EMERGENCY ROOM AND OUT-OF-AREA |
2,802,367 |
| PRESCRIPTION DRUGS |
7,443,389 |
| AGGREGATE WRITE-INS FOR OTHER |
391,593 |
| SUBTOTAL |
52,780,851 |
| LESS NET REINSURANCE RECOVERIES |
491,015 |
| TOTAL MEDICAL AND HOSPITAL |
52,289,836 |
| UNDERWRITING DEDUCTIONS: | |
| CLAIMS ADJUSTMENT EXPENSE |
2,030,711 |
| GENERAL ADMINISTRATIVE |
3,377,197 |
| TOTAL U/W DEDUCTIONS |
5,407,908 |
| NET U/W GAIN OR LOSS |
$ 6,586,210 |
| NET INVESTMENT INCOME EARNED |
1,441,229 |
| NET REALIZED CAPITAL GAIN OR LOSS | 252,720 |
| NET INVESTMENT GAIN OR LOSS |
1,693,949 |
| NET INCOME OR LOSS BEFORE FEDERAL TAXES |
8,280,159 |
| FEDERAL INCOME TAX INCURRED |
2,013,553 |
| NET INCOME |
$ 6,266,606 |
| CAPITAL & SURPLUS ACCOUNT | |
| SURPLUS PRIOR YEAR | $23,705,519 |
| CORRECTION OF ERROR (Note 4) | (741,771) |
| NET INCOME | 6,266,606 |
| CHANGE IN DEFERRED INCOME TAX | (335,821) |
| CHANGE IN NON-ADMITTED ASSETS | 117,750 |
| DIVIDENDS TO STOCKHOLDERS | (18,700,000) |
| AGGREGATE WRITE-INS FOR GAINS IN SURPLUS | 25,000 |
| CHANGE IN SURPLUS | (13,368,236) |
| SURPLUS CURRENT YEAR | $ 10,337,283 |
| Note 1 – Bonds | $ 16,725,253 |
Bonds are stated at amortized value and at December 31, 2005 consisted of the following:
| Cost | Par Value |
Fair Value |
Book/Carrying Value |
|
|---|---|---|---|---|
| Political Subdivisions of States, Territories, and Possessions. |
$ 4,441,659 | $ 4,280,000 | $ 4,605,366 | $ 4,442,841 |
| Special Revenue | 12,309,458 | 12,405,000 | 13,324,034 | 12,282,412 |
| $ 16,751,117 | $ 16,685,000 | $ 17,929,400 | $ 16,725,253 |
As required by Title 24-A M.R.S.A. § 412, the Company maintained the required security deposit with the Treasurer of Maine.
| Note 2 – Cash | $ 1,150,940 |
Certifications confirming bank balances at year end were received through direct correspondence with the various depositories and reconciled with balances reported in the Company’s general ledger as of December 31, 2005 with no exceptions.
| Note 3 – Accident and Health Premiums Due and Unpaid | $ 1,209,944 |
Accident and health premiums due and unpaid are properly reported as admitted assets in substantial compliance with NAIC Accounting Practices and Procedures Manual, SSAP 6, and Interpretation 01-01.
| Note 4 – Federal Income Taxes Recoverable | $ 1,632,534 |
| Net Deferred Tax Asset | $ 215,892 |
As a result of the audit for year-end 2005 by independent auditors, PriceWaterhouseCoopers (PWC), an error was found. A restatement of financial statements for 2004 was not deemed necessary. However, PWC adjusted the statutory financial statements for year ending 2005; based on this finding, our examination has made the same adjustments.
During 2006, the Company corrected this error in the reporting of premium revenue in the amount of $741,771, which was recorded as a charge to surplus. This adjustment was a result of membership assignment error related to a product that the Company and a related party participate. This caused premiums, net of related expenses and taxes, to be transferred to the Company from a related party.
This resulted in an adjustment to Federal Income Taxes Recoverable of $401,689 which increased the asset to $1,632,534.
| Note 5 – Claims Unpaid | $ 5,740,542 |
The Company properly reports unpaid claims and estimates of incurred but not reported claims as claims unpaid.
The Bureau of Insurance contracted with an outside actuary to perform an actuarial analysis of the Company’s claims liabilities and reserves. The actuarial review determined that the reported claims unpaid are adequate. (See Appendix A for Actuarial Opinion)
| Note 6 - Premiums Received in Advance | $ 304,790 |
Premiums received in advance of the effective policy period are properly reported here as a liability.
| Note 7 – Amounts Due to Parent, Subsidiaries and Affiliates | $ 2,920,279 |
Amounts due to parent & affiliates represent amounts due under several inter-company agreements, primarily the management services agreement.
See Note 4 regarding the correction of an error. This error caused an adjustment (increase) to this account for $1,143,460.
| Note 8 -Capital and Surplus | $ 10,337,283 |
| Common Stock | $ 100 |
| Paid In Surplus | 3,738,169 |
| Unassigned Funds (Surplus) | 6,599,014 |
| Total Capital and Surplus | $ 10,337,283 |
As of December 31, 2005, the Company had authorized 3,000,000 shares of common stock, par value $0.10; issued and outstanding 1000 shares.
During 2005, the Company paid dividends to its Parent of $18,700,000 with the approval of the Maine Bureau of Insurance.
Total capital and surplus at December 31, 2005 was in compliance with the minimum net worth requirement of the State of Maine per Title 24-A M.R.S.A. § 4204 (2).
See Notes 4 and 7 above regarding the correction of an error and resulting adjustments. By correcting this error in the reporting of premium revenue, an adjustment was made for $741,771, which was recorded as a charge to surplus.
The Company’s financial condition, as disclosed by this examination, is reflected in statements and supporting exhibits contained in this report. The basis of preparation of such statements conforms to law, rules and regulations prescribed and/or permitted by the Maine Bureau of Insurance.
Acknowledgment of cooperation and assistance extended to the examiners by all Company personnel is hereby expressed.
STATE OF MAINE
COUNTY OF KENNEBEC, SS
Michael R. Nadeau, CPA, CFE, CISA, AES being duly sworn according to law deposes and says that in accordance with the authority vested in him by Eric A. Cioppa, Acting Superintendent of Insurance, pursuant to the Insurance Laws of the State of Maine, he has made an examination of the condition and affairs of the
CIGNA HEALTHCARE OF MAINE, INC.
of Falmouth, Maine as of December 31, 2005, and that the foregoing report of examination subscribed to by him is true to the best of his knowledge and belief.
The following examiners from the Bureau of Insurance assisted:
Jill C. Tobey, CPA, CFE
Faith A. Talbot
April M. Pinkham
Debra L. Blaisdell
____________________________________
Michael R. Nadeau, CPA, CFE, CISA, AES
Examiner-In-Charge
Subscribed and sworn to before me this _______day of February, 2007
| _________________________________ Patricia Galouch Notary Public |
My Commission Expires |
STATEMENT
OF ACTUARIAL OPINION
CIGNA HEALTHCARE OF MAINE, INC.
ANNUAL STATEMENT AS OF DECEMBER 31, 2005
I, Arthur Lucker, ASA, MAAA, a member of the American Academy of Actuaries,
am associated with the firm of INS Consultants, Inc (INS). INS has been
retained by the Maine Bureau of Insurance to render this opinion as
stated in the letter to INS dated July 17, 2006. I meet the Academy
Qualification Standards for rendering the opinion and am familiar with
the valuation requirements applicable to life and health insurance companies.
I have examined the actuarial assumptions and actuarial methods used in determining reserves and related balance sheet items listed below, as shown in the Annual Statement of CIGNA Healthcare of Maine, Inc. (CIGNA), as prepared for filing with the State of Maine officials, as of December 31, 2005.
| Policy Reserves and Other Balance Sheet
Items as of December 31, 2005 CIGNA |
||
| Item | Statement Reference |
Amount |
| Claims unpaid | Page 3, Line 1 | $ 5,740,542 |
| Accrued medical incentive pool and bonus amounts | Page 3, line 2 | 399,270 |
| Unpaid claims adjustment expenses | Page 3, Line 3 | 249,188 |
| Aggregate health policy reserves | Page 3, Line 4 | 0 |
| Aggregate health claim reserves | Page 3, Line 7 | 0 |
In making my determination, I have relied upon listings and summaries of policies and contracts and other liabilities in force prepared by CIGNA. Maine’s Bureau of Insurance has verified the accuracy and completeness of this data. In other respects, my examination included such review of the actuarial assumptions and actuarial methods and such tests of the actuarial calculations as I considered necessary. If the underlying data or information is inaccurate or incomplete, the results of my analysis may likewise be inaccurate or incomplete.
In my opinion, the amounts carried in the balance sheet on account of the actuarial items identified above:
(1) Are computed in accordance with those presently accepted actuarial standards that specifically relate to the opinion required under this section.
(2) Are based on actuarial assumptions that produce reserves at least as great as those called for in any contract provisions as to reserve basis and method, and are in accordance with all other contract provisions.
(3) Meet the requirements of the insurance laws and regulations of the state of Maine and are at least as great as the minimum aggregate amounts required by the state in which this statement is filed.
(4) Are computed on the basis of assumptions consistent with those used in computing the corresponding items in the annual statement of the preceding year-end with any exceptions as noted below.
(5) Include provision for all actuarial reserves and related statement items which ought to be established. The actuarial methods, considerations, and analyses used in forming my opinion conform to the appropriate compliance guidelines as promulgated by the Actuarial Standards Board, which guidelines form the basis of this statement of opinion.
(6) Make good and sufficient provision for all unpaid claims and other actuarial liabilities of the organization under the terms of its contracts and agreements.
It should be emphasized that actuarial liabilities referred to in this Statement of Opinion are estimates. The exact liabilities will only be determinable after a sufficient passage of time permits the settlement of potential payments under the inforce contract.
________________________________
Arthur Lucker, ASA
Member, American Academy of Actuaries
December 20, 2006
INS Consultants, Inc.
NewMarket Suite, 206
419 So. 2nd Street
Philadelphia, PA 19147
(215) 625-9877
Last Updated: July 16, 2008
| Copyright © 2006 All rights reserved. |