CIGNA Corporation

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CIGNA Corporation

One Liberty Place
Box 7716
Philadelphia, Pennsylvania 19192
U.S.A.
(215) 761-1000

Public Company
Incorporated: 1981
Employees: 47,677
Assets: $57.78 billion
Stock Exchanges: New York Pacific Philadelphia

CIGNA Corporation was formed in 1982, when INA Corporation, with its strong position in property and casualty insurance, and Connecticut General Corporation, with its strength in group employee benefits, combined. The resulting corporation immediately became one of the largest international, publicly owned insurance and financial-services companies based in the United States. CIGNA is a major provider of insurance, health care, employee-benefit products and services, pension and investment management, and related financial services.

CIGNA gained its preeminent position by combining some of the oldest and most important companies in the insurance marketplace. Its oldest subsidiary is Insurance Company of North America (INA), a company rich with tradition. INA was formed by a group of prominent Philadelphians in November 1792, in Pennsylvania’s State House, where the Declaration of Independence had been signed just 16 years earlier. Connecticut General Life Insurance Company was incorporated in 1865. That company began to expand from its focus on life insurance and employee benefits almost a century later, when it acquired another company with a long history of its own, Aetna Insurance Company, in 1962. Another major component of CIGNA was put in place in 1984, when the company acquired the American Foreign Insurance Association (AFIA) to expand its international operations.

Insurance Company of North America was organized in Philadelphia, then the financial center of the United States and its busiest port, when the country was just beginning to develop economically. With only 32 corporations and few native manufacturing concerns in the country, all marine insurance was written in London or in the United States by private individuals or partnerships that could afford to underwrite coverage.

In November and December 1792 a group of businessmen—including a carpenter, a cobbler, and a stationer, as well as bankers, lawyers, and merchants—met to set up a general insurance company. These businessmen had their own concerns at heart: they felt that their businesses could not grow unless reliable insurance was made available close to home. Only two small fire insurance companies had been formed in the new nation so far, and Philadelphia businessmen sought greater protection.

Insurance Company of North America wrote several policies on December 19, 1792, its first day in business. John M. Nesbitt, a Philadelphia merchant, was elected president of the company and Ebenezer Hazard, secretary. Hazard, a businessman, scholar, and historian, was responsible for the daily conduct of business, and, remaining in Philadelphia during the yellow fever epidemic of 1793, kept the office open. The Insurance Company of North America was incorporated by the Pennsylvania state legislature in 1794 and authorized to write marine, fire, and life insurance.

The company initially insured only ship hulls and cargoes in local and international commerce. In late 1794, however, INA’s directors and officers agreed to insure buildings and their contents against fire, becoming the first U.S. company to offer insurance on personal possessions and on business inventories.

In the early 19th century, INA followed the pioneers west. In 1807 INA set up its first agency, in Lexington, Kentucky, establishing the American agency system. The company appointed independent agents as far as the frontiers of Pennsylvania, Kentucky, Ohio, and Tennessee. Banking on westward expansion, INA invested in toll bridges and toll roads and bought bonds of the just-purchased Louisiana Territory.

INA’S westward expansion helped the company stay afloat when its marine insurance business lost money. Problems began in 1799 when Great Britain began to seize U.S. ships at sea. The maritime embargo of 1808, the War of 1812, and the depression of 1813 all had detrimental effects on the company’s marine profits.

After the War of 1812 ended in 1815, the insurance environment became more competitive. As rates fell, INA faced a different kind of threat. John Inskeep, who became INA president in 1806, had the company invest profits instead of paying dividends. This conservative investment and reserve policy, coupled with its expanding fire insurance business, kept the company profitable.

In the mid-19th century, INA played a major role in forming the Philadelphia Board of Marine Underwriters, an organization that standardized premium rates and policy formats, gathered statistics, reported on insurance fraud, and kept up with commercial regulations and maritime law. A committee of the board reported on the seaworthiness of all vessels that entered the Port of Philadelphia. The board helped reduce operating expenses for the companies involved.

Formation of the Philadelphia Board of Marine Underwriters coincided with the high point for marine insurance in the 19th century. Between 1840 and 1861 U.S. foreign-trade tonnage quadrupled. The increase was due partially to the new clipper ships. Clipper ships were well built and had excellent safety records; in short, they were good insurance risks.

By 1859 INA had entered another lucrative area: it insured gold shipments from the California gold fields discovered a decade earlier. Its agent in California, Joshua P. Havens, sent premiums to INA’s Philadelphia office in gold dust, which the secretary exchanged for currency.

From 1861 to 1865, when the Civil War disrupted many of INA’s traditional markets, the company compensated by placing even more emphasis on the potential in the West. In 1861, as secession spread, the directors stopped accepting business or renewing policies in the South. In 1863 they organized offices in the West into a separate department. From 40 appointed local agents in the territory in 1860, the western-business department grew to 1,300 agents by 1876. In 1875, a decade after the Civil War, a southern department was also added.

Expansion in the West increased business, but also posed a new risk. Rapidly growing cities were not well-built cities, and INA suffered losses in a series of major fires: 700 buildings burned in New York City in 1835; 1,000 buildings were lost in Pittsburgh, Pennsylvania, in 1845; most of Saint Louis, Missouri was lost in 1851; and Portland, Maine, was destroyed almost totally by fire in 1866.

The Great Chicago Fire, which started on October 8, 1871, burned about 17,450 buildings valued at $200 million. Claims for that fire left many insurance companies bankrupt. Eighty-three other companies could settle their claims only in part. INA was one of 51 companies that did pay in full, settling legitimate claims totaling $650,000. Its reliability brought in new business.

INA, however, faced an even heavier loss a year later. The Boston Fire of November 9, 1872 gutted 600 buildings at a cost of $75 million, causing the collapse of 25 more insurance companies. INA faced the heaviest claim total— $988,530—but again paid in full.

On April 18, 1906, a 48-second earthquake shook San Francisco, California. Earthquake damage was slight, but the resulting fires were uncontrollable because water mains had ruptured. INA sent special agent Sheldon Catlin to the city to settle claims. Catlin found that most of the damage to property came from the fires, which had burned out of control for three days, not from the earthquake itself. Since INA was liable for fire damage but not earthquake damage, his determination was not a popular one within INA. Under pressure from other insurance companies, the home office decided to settle all claims at two-thirds value. On Catlin’s recommendation, however, INA reversed its own decision, and agreed to pay all claims in full. That amounted to a liability of $3.7 million, plus $1.3 million in claims due from INA’s affiliate, Alliance Insurance Company. INA was one of 27 companies to pay claims from the San Francisco Earthquake and Fire in full.

As the company was expanding its fire insurance coverage, it also expanded its marine coverage inland. In 1890 INA established a lake-marine department in Chicago to cover risks during transit on rivers, lakes, and canals. The company originally refused to insure steamboats, an important part of the movement to settle the Mississippi River Valley, because steamboat captains were considered too reckless. At the end of the century George W. Neare & Company, a steamboat operator, persuaded INA President Charles Platt that insurance coverage was necessary to revitalize river transport. The company selected its risks carefully, and eventually prospered in the field.

INA faced losses in its regular marine division in the last decade of the 19th century because such risks were hard to classify. During the mid 1890s Benjamin Rush, a conservative, old-line Philadelphian who came to work at INA as assistant to President Platt in 1894, worked nights and weekends with two young clerks to compile profit-and-loss statements for 198 route and cargo categories over a five-year period. His statistical analysis allowed the company to select risks more carefully. In 1900 INA posted the first profit in its marine line for many years, and the line remained profitable until World War I. Rush’s work earned him the title “father of modern marine underwriting.”

Expanding industry before World War I meant growth in fire insurance business. John O. Platt, a nephew of Charles Platt and head of INA’s fire branch, set up the improved-risk-engineering department to devise ways to make industry safer and lower insurance risks. The department eventually offered three services: property valuation, fire prevention, and rate analysis.

Rush succeeded Eugene Ellison as president in 1916, in time to face claims due to attacks by German U-boats—INA paid $21, 740 as its share of the coverage for the Luisitania, for example—and fires caused by sabotage in U.S. munitions plants. Nevertheless, World War I did not seriously threaten profits.

Despite a generally conservative outlook, INA often insured unusual risks. Hence, in 1905, the company began to insure automobiles against fire and theft, and added collision coverage in 1907. By the end of World War I, demand for this type of coverage had grown so much that INA organized a casualty affiliate, Indemnity Insurance Company, in 1920. The Great Depression hit Indemnity hard, but in 1932 INA brought in John A. Diemand, who had extensive experience in casualty insurance, to improve the company’s performance.

With the approach of World War II, INA faced new problems. Male employees enlisted and the company was not fully staffed. Cities were unable to replace outdated fire-fighting equipment, increasing risks. Auto insurance fell off due to gas rationing, and the lack of new-home construction affected property insurance lines. Ships unused to taking wartime security measures were lost to the Germans.

INA again found new and unusual risks to insure. The company wrote policies covering the accidental death of war correspondents and photographers, expanded its aviation coverage, covered test pilots, and insured 30 scientists working on the Manhattan Project, which developed the atomic bomb. “We were pulling rates out of the air,” Edwin H. Marshall, underwriter for these unusual coverages, told William H.A. Carr, in Perils: Named and Unnamed.

In the postwar years INA boomed along with the economy. During the 1940s Diemand, by now president of the company, tackled a long-standing issue. INA had organized a casualty affiliate in 1920 because INA itself was forbidden by law to offer a full line of insurance. Diemand’s advocacy of multiple-line underwriting authority, earlier promoted by Rush, now became a crusade. “Every company should have the privilege of meeting the requirements of any policyholder at any time as long as there is no law or ruling of an insurance department to prevent it,” Diemand said in his address on INA’s 150th anniversary. Diemand felt that multiple-line underwriting would provide broader and more convenient coverage for policyholders, who would have access to insurance packages from one agent, and at the same time would enable companies to cut processing and marketing costs.

Diemand’s major opposition came from insurance cartels and conservative insurance associations that regulated insurance sales. In 1945 Public Law 15 left regulation of the insurance industry to the states, and slowly states extended the right to sell multiple-line insurance. By 1955 the right had been granted in all states. This victory allowed Diemand to pioneer the comprehensive homeowners policy, offering fire, theft, personal liability, medical payment, and extended coverages.

In 1964 Bradford Smith Jr. succeeded Diemand as chairman of the board and chief executive officer. Smith automated operations, reorganized the company along functional lines, and emphasized participative management, which he defined as taking individual responsibility and cooperating with all company branches.

Changes in the U.S. business environment as well as changes within the company prompted another reorganization in 1968. Insurance Company of North America became the major subsidiary of INA Corporation, which added diversified services through other subsidiaries and extended its regional and international network of offices. As part of its expansion, INA Corporation organized or acquired several life insurance subsidiaries, which remained relatively small compared to its major interests in property and casualty insurance. In the 1970s the company diversified into a related area when it began acquiring hospital management companies and health-maintenance organizations (HMO).

All of these moves reflected INA’s desire to become a major financial organization offering a broad range of services. In 1981 the company saw a business combination with Connecticut General Corporation (CG) as a way to achieve that goal. CG offered a major presence in employee benefits and life insurance to complement INA’s activities in property and casualty insurance, and a combination was a way to operate more efficiently through economies of scale.

Connecticut General dates back to 1865, when Guy R. Phelps, one of the founders of Connecticut Mutual Company, saw a need for “substandard” insurance, or life insurance for poor risks. Originally the new firm was to be called Connecticut Invalid, but because of concern that the word “invalid” could be read in two ways, it became Connecticut General Life Insurance Company and began to insure healthy lives along with substandard risks. Two years later the company withdrew completely from insuring higher risks, and through conservative management survived a period when many other life insurance companies failed.

Under Secretary, then President Thomas W. Russell, the company prospered from post-Civil War growth in life insurance sales. Within a few years, CG had agents in over 25 states, but increasing competition, rate cutting, and poor public perception of a company that had insured the disabled caused the sales force to shrink as quickly as it had grown. By the 1870s CG concentrated on New England and a few surrounding states.

The company’s early policies, handwritten by clerks who had to demonstrate good penmanship to get the job, reflected the society it served. Death from drinking, hanging, or dueling canceled a policy. Travel was also restricted: a policy-holder could not travel south of Virginia or Kentucky from June to November because of additional risk of illness due to heat. Late premium payments led to the automatic cancellation of the policy in question, with no grace period. Policies had no cash value, and benefits were paid only in a lump sum 90 days after proof of death, signed by five witnesses, was received.

Under Thomas Russell, CG weathered the depression following the panic of 1873 and a takeover attempt by Continental Life Insurance Company of Hartford, Connecticut. By 1880 the firm was again stable and began to grow.

Russell died in 1901 and was succeeded by Robert W. Huntington, who had joined the company as a clerk 11 years before. CG had only 12 home-office employees and was licensed to do business in four New England states, New York, Pennsylvania, and Ohio. Huntington emphasized good investments, especially in farm mortgages, railroads, and utilities. He also cut operating expenses, and used the savings to enter new areas.

In 1912 CG created an accident department. The next year CG began to offer group insurance when it insured the 100 employees of the Hartford Courant. Group insurance developed slowly for CG until 1917, when changes in corporate taxes made it a deductible expense. CG established its group department in 1918, and got its first big contract—covering the 5,400 employees of Gulf Oil—that year. Business picked up again in 1919, when contributory plans were developed. Previously, employers had paid the total cost of coverage.

World War I meant a growing economy and more group insurance coverage, but when an influenza epidemic struck in the autumn of 1918, CG was hit particularly hard because it had a high proportion of very young policyholders. Although claims were high, the epidemic eventually encouraged more life insurance business.

During the 1920s Frazar Bullard Wilde, head of the Accident Division, brought CG into another new area of insurance, aviation insurance. Wilde had served in the field artillery in France during World War I, where the use of airplanes caught his imagination. In 1926, when other insurance companies were not yet convinced of the validity of insuring flight, Wilde began writing policies that covered aircraft passengers. In 1930 the company wrote a group life insurance policy for Western Air Express, which included 46 pilots, and in 1932 CG insured 1,000 employees of United Airlines as well.

When the stock market crashed in 1929, CG’s diversified investments kept the company going, but within two years new business had decreased sharply and business cancellations mounted. In addition, the company’s heavy investment in farm mortgages meant that—with increasing foreclosures and the inability to lease farms—CG became a farm owner. In most cases, the company retained the former owners as managers and encouraged them to save their pay to buy back the property.

In 1936 Wilde succeeded Huntington as president. Wilde emphasized high-quality products and a good sales force. Ten years later he supported a new approach to marketing life insurance that would have a major impact on the company: estate planning. Stuart Smith, who had joined the company during the Depression, brought the estate-planning concept to CG. Smith emphasized the sale of life insurance as part of complete estate planning. When he was promoted to the home office in 1946, CG made estate planning its only approach to selling insurance. Smith taught the technique to Connecticut General agents, which enabled them to plan insurance coverage by taking into consideration a client’s total assets, family circumstances, and plans for the future. Smith emphasized planning services for CG policyholders.

Another area of emphasis after the war was developing group hospital and surgical benefits to compete with the Blue Cross and Blue Shield plans that had just been developed. Just as CG had supported emerging technology after World War I by insuring airline pilots and passengers, after World War II the company began insuring atomic energy workers, covering employees of the Brookhaven and Argonne laboratories.

CG established a group pension service in 1929 to serve its group insurance policyholders. The Revenue Act of 1942 provided some tax incentives for employers to establish pension programs; and the Social Security Act, passed in 1935, stimulated private savings for pensions to supplement the government program, and thus benefited CG. After 1960 changes in Connecticut state law led to significant growth in CG’s pension business.

Also in the postwar years, CG pioneered financing of shopping centers, in addition to financing commercial agricultural enterprises and providing loans on residential and business properties in the cities. Company investment became a major factor in the development of the modern suburban shopping mall.

In 1962 CG purchased Aetna Insurance Company (Aetna), a major firm in fire and casualty insurance, in order to broaden its position in insurance. Aetna brought a history even longer than its new parent’s to the acquisition. The company was established in 1819, and two years later it became the first U.S. company to sell insurance in Canada. In 1851 the company began to sell life insurance too, but just two years later this part of its operations was spun off into a separate company, now known as Aetna Life and Casualty Company. Aetna faced the same marine insurance risks as did INA, and was also hit by massive claims due to urban fires in the late nineteenth century. Aetna’s directors acted on a policy they voiced frequently after the Chicago Fire in 1871: “Every dollar must be paid,” and pay they did. The company paid $3.78 million after the Chicago Fire, $1.6 million a year later in Boston, and almost another $3 million following the San Francisco Earthquake and Fire. Aetna’s ability to cover all its losses in full enhanced its reputation as a major fire insurance company.

By the 1960s the acquisition of Aetna, with its sound fiscal management and preeminent position in fire and casualty insurance, was attractive to CG, which aimed to gain market position in property and casualty insurance, where it had virtually no operations at all. The acquisition was part of a trend in the industry toward larger companies that could offer full lines of insurance.

After acquiring Aetna as its property and casualty arm, CG began dramatic expansion of employee benefits programs, such as group health insurance and pensions. CG was most successful in life, health, and pensions, and its property and casualty operations remained small. By 1981 group life and health benefits accounted for 33% of its operating income; individual life, health, and annuities accounted for 28%; and property and casualty business for only 18%— down from almost 35% a decade earlier.

As the trend toward larger multiline insurers continued, in 1981 INA and CG announced that they would bring their complementary interests together by forming CIGNA Corporation. INA was most successful in the property and casualty fields where it had operated the longest, and group insurance had remained a relatively small part of its operations. INA also had a strong international presence, while CG had focused primarily on U.S. markets. By March 31, 1982, all necessary approvals had been secured and CIGNA was formed. Robert D. Kilpatrick of Connecticut General and Ralph Saul of INA became co-CEOs, and the board of directors was drawn equally from both predecessor organizations.

The new company got off to a difficult start because of a declining economy in the early 1980s, but the anticipated economies of scale did materialize, and the company continued to expand. In 1984 CIGNA acquired AFIA, formerly the American Foreign Insurance Association, to strengthen its position abroad. AFIA had been formed in 1918 by a group of insurance executives to offer insurance written by its members overseas. After exploring conditions for insurance sales in Australia, New Zealand, Japan, Hong Kong, India, and Singapore, the board of AFIA established agencies in South America, Asia, and the Far East. AFIA weathered the Depression, but World War II, which engulfed many of the areas where it was most profitable, slowed growth and cut profits. By 1949, however, AFIA was back on its feet and ready to expand along with the booming postwar economy. In 1984 the company had contacts in over 100 countries and offered CIGNA a good way to expand its international market. Merged into CIGNA’s own substantial international operations, AFIA “Worldwide” became part of CIGNA International, which was renamed CIGNA WorldWide.

By 1990 CIGNA was operating effectively in an insurance marketplace noteworthy for ever-larger competitors, and it continued the trend when it acquired EQUICOR-Equitable HCA Corporation, a large group insurance and managed-health-care company. The acquisition accelerated the growth of CIGNA’s managed medical-care programs.

CIGNA is still subject to the perils of insurance. Fire and natural disasters in 1989 that included Hurricane Hugo and a California earthquake resulted in losses and led CIGNA to raise rates. CIGNA’s growth and acquisitions, however, have made the company strong in a broad line of insurance products and financial services, both at home and abroad. This foundation has positioned it to perform well against growing competition.