PART I ITEM 1 Business Most contracts permit premium rate changes at least annually. The profitability of Medicare supplement products is dependent upon the accuracy of projections for health care inflation (unit cost and utilization), customer retention, customer demographics, and the adequacy of fees charged for administration. The operations of Cigna’s Global Supplemental Benefits segment are diversified by line of business. South Korea, however, represents the single largest geographic market for this segment. In 2012, South Korea generated 54% of this segment’s revenues and 90% of its segment earnings. For information on the concentration of risk with respect to the Global Supplemental Benefits segment’s business in South Korea, see ‘‘Other Items Affecting Results of Global Supplemental Benefits’’ in the Global Supplemental Benefits section of the MD&A beginning on page 46 of this Form 10-K. A global approach to underwriting risk management allows for each local business to underwrite and accept risk within specified limits. Retentions are centrally managed through cost effective use of external reinsurance to limit segment liability on a per life, per risk, and per event (catastrophe) basis. Cigna’s supplemental health, life and accident insurance products sold in foreign countries are generally marketed through distribution partners with whom the individual insured has an affinity relationship. These products are sold primarily through direct marketing channels, such as outbound telemarketing and in-branch bancassurance (where Cigna partners with a bank and uses the bank’s sales channels to sell its insurance products). Marketing campaigns are conducted through these channels under a variety of arrangements with affinity partners. These affinity partners primarily include banks, credit card companies and other financial and non-financial institutions. Cigna also markets directly to consumers via direct response television and the Internet. Cigna’s Medicare supplement product line acquired in 2012 is primarily distributed through independent agents and telemarketing directly to the consumer. For Cigna’s supplemental health, life and accident insurance products sold in foreign markets, a significant portion of premiums are billed and collected through credit cards. A substantial contraction in consumer credit could impact Cigna’s ability to retain existing policies and sell new policies. A decline in customer retention would result in both a reduction of revenue and an acceleration of the amortization of acquisition related costs. Changes in regulation around permitted Pressure on social health care systems and increased wealth and education in emerging markets are leading to higher demand for products providing health insurance and financial security. In the supplemental health, life and accident business, direct marketing channels are growing and attracting new competitors while industry consolidation among financial institutions and other affinity partners continues. See ‘‘Risk Factors’’ beginning on page 19 of this Form 10-K for a discussion of risks related to the Global Supplemental Benefits segment. distribution channels may also impact Cigna’s business or results. See the Regulation section beginning on page 14 and the Risk Factors section beginning on page 19 of this Form 10-K. Competitive factors in Cigna’s supplemental health, life and accident and health care businesses include product and distribution innovation and differentiation, efficient management of marketing processes and costs, commission levels paid to distribution partners, and quality of claims and customer services. In most overseas markets, perception of financial strength is also an important competitive factor. For Cigna’s supplemental health, life and accident insurance businesses operating in foreign markets, competitors are primarily locally based insurance companies, including insurance subsidiaries of banks primarily in Asia and Europe as well as multi-national companies. Insurance company competitors in this segment primarily focus on traditional product distribution through captive agents, with direct marketing being secondary channels. Cigna estimates that it has less than 2% market share of the total life insurance premiums in any given market in which it operates. The principal competitive factors that affect Cigna’s Medicare supplement business are underwriting and pricing, relative operating efficiency, broker relations, and the quality of claims and customer service. The primary competitors of the Medicare supplement business include U.S.-based health insurance companies. Cigna expects that the competitive environment will intensify as U.S. and Europe-based insurance and financial services providers pursue global expansion opportunities. Until 2000, Cigna offered reinsurance coverage for part or all of the risks written by other insurance companies (or ‘‘ceding companies’’) under life and annuity policies (both group and individual) and accident policies (workers’ compensation, personal accident, and catastrophe coverages). The products and services related to these operations were offered by subsidiaries of Cigna Corporation. reinsurance businesses) into run-off as of June 1, 2000, and stopped underwriting new reinsurance business. As of December 31, 2012, Cigna’s remaining exposures resulted primarily from its annuity reinsurance business, including its reinsurance of GMDB and GMIB contracts. Effective February 4, 2013, the Company reinsured 100% of the Company’s future exposures for the Run-off GMDB and GMIB businesses, net of retrocessional arrangements in place prior to February 4, 2013 up to a specified limit. For additional information regarding this reinsurance transaction, see Note 25 to the Consolidated Financial Statements. In 2000, Cigna sold its U.S. individual life, group life and accidental death reinsurance businesses. Cigna placed its remaining reinsurance businesses (including its accident, international life, and annuity 12 CIGNA CORPORATION -  2012 Form  10-K Industry Developments Run-off Reinsurance E. Markets and Distribution Competition