CIGNA HEALTHCARE OF MID ATLANTIC INC Maryland by liaoqinmei

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									CIGNA HEALTHCARE OF MID-ATLANTIC, INC.

    EXAMINATION: DECEMBER 31, 2008




                                NAIC NUMBER 95599
                                         TABLE OF CONTENTS
                                                                                                               Page
Salutation................................................................................................       1
Scope of Examination ............................................................................                1
Status of Prior Examination Findings................................................... .                        2
Summary of Significant Findings...........................................................                       2
Subsequent Events..................................................................................              3
History ....................................................................................................     3
     General............................................................................................         3
     Capital Stock...................................................................................            4
     Dividends to Stockholder................................................................                    4
     Management....................................................................................              4
            Board of Directors..................................................................                 4
            Officers ..................................................................................          4
            Committees ............................................................................              5
     Conflicts of Interest.........................................................................              5
     Corporate Governance and Corporate Records ..............................                                   5
Affiliated Companies .............................................................................               6
Intercompany Agreements .....................................................................                    7
Fidelity Bond and Other Insurance ........................................................                      10
Pension, Stock Ownership and Insurance Plans.....................................                               11
Statutory Deposits ..................................................................................           11
Territory and Plan of Operation .............................................................                   11
Insurance Products and Related Practices ..............................................                         12
Growth of Company ...............................................................................               13
Loss Experience .....................................................................................           13
Reinsurance ............................................................................................        14
Accounts and Records ............................................................................               14
Financial Statements...............................................................................             15
     Balance Sheet..................................................................................            16
            Assets .....................................................................................        16
            Liabilities, Capital and Surplus..............................................                      17
     Statement of Revenue and Expenses ..............................................                           18
     Capital and Surplus Account ..........................................................                     19
     Analysis of Examination Changes to Surplus.................................                                20
     Comparative Financial Position of the Company ...........................                                  21
Notes to Financial Statements ................................................................                  22
Comments and Recommendations .........................................................                          23
Conclusion..............................................................................................        25
Signatures ...............................................................................................      26
                                                                 Baltimore, Maryland
                                                                 February 18, 2010


Honorable Alfred W. Gross
Chairman, NAIC Financial Condition (E) Committee
Insurance Commissioner
SCC Bureau of Insurance Commonwealth of Virginia
1300 East Main Street
Richmond, Virginia 23219

Honorable Paulette Thabault,
Commissioner
Secretary, Northeastern Zone, NAIC
Vermont Insurance Division
Department of Banking, Insurance, Securities, and Health Care Administration
89 Main Street
Montpelier, Vermont 05620-3101

Honorable Elizabeth Sammis
Acting Insurance Commissioner
Maryland Insurance Administration
200 St. Paul Place, Suite 2700
Baltimore, Maryland 21202-2272

Dear Madams and Sir:

     In accordance with Section 2-205 of the Insurance Article of the Annotated Code of
Maryland, an association examination has been conducted of the financial condition and
activities of

                 CIGNA HEALTHCARE OF MID-ATLANTIC, INC.

(hereinafter called the Company), at its main administrative offices located at 900 Cottage
Grove Road, Bloomfield, Connecticut 06152, and the following Report on Examination is
submitted.

                                SCOPE OF EXAMINATION

    This examination, covering the period January 1, 2004 to December 31, 2008, including
any material transactions and/or events noted occurring subsequent to December 31, 2008,
was conducted under the association plan of the National Association of Insurance
Commissioners (NAIC) by examiners of the Maryland Insurance Administration
(Administration) representing the Northeastern Zone of the NAIC. The Southeastern zone
was invited to participate but did not respond to the examination call.


                                             1
    Our examination was conducted in accordance with examination policies and standards
established by the Maryland Insurance Administration and procedures recommended by the
NAIC. In accordance with the NAIC Financial Condition Examiners Handbook, we planned
and performed the examination to evaluate the financial condition and identify prospective
risks of the Company by obtaining and evaluating information regarding the Company’s
corporate governance, identifying and assessing inherent risks within the Company, and
evaluating controls and procedures in place to mitigate those risks under a risk-focused
examination approach. Accordingly, our examination included such tests of the accounting
records and such other procedures as we considered necessary in the circumstances.

     Our examination also included a review of the Company’s business policies and
practices, a verification and evaluation of assets, and a determination of the existence of
liabilities. In addition, our examination included tests to provide reasonable assurance that
the Company was in compliance with applicable laws, rules, and regulations. In planning and
conducting our examination, we gave consideration to the concepts of materiality and risk,
and our examination efforts were directed accordingly.

    The Company was audited annually by an independent public accounting firm. The firm
expressed unqualified opinions on the Company’s financial statements for calendar years
2004 through 2008. We placed substantial reliance on the audited financial statements for
calendar years 2004 through 2007 and, consequently, performed only minimal testing for
those periods. We concentrated our examination efforts on the year ended December 31,
2008. We reviewed the working papers prepared by the independent public accounting firm
related to the audit for the year ended December 31, 2008, and directed our efforts to the
extent practical to those areas not covered by the firm’s audit.


                   STATUS OF PRIOR EXAMINATION FINDINGS

    Our examination included a review to determine the current status of the eight exception
conditions commented upon in our preceding Report on Examination, dated April 5, 2005,
which covered the period from January 1, 1999 to December 31, 2003. We determined that
the Company had satisfactorily addressed six of those exceptions. The remaining two
exceptions concerning the board’s approval of significant transactions and obtaining
evidence to substantiate the effectiveness of an external third party’s procedures and controls
over claims received, are repeated in the “Comments and Recommendations” section of this
Report under the captions “Corporate Records”, and “Claim Records and Controls”,
respectively.


                       SUMMARY OF SIGNIFICANT FINDINGS

    Our examination did not disclose any significant adverse findings. There were no
changes to the Company’s surplus as a result of our examination. However, as briefly
described in the above section “Status of Prior Examination Findings”, we noted similar
issues in the areas related to corporate records and record keeping. See the “Comments and
Recommendations” section of this Report for more details and further comments regarding
these findings.

                                              2
                                 SUBSEQUENT EVENTS

     Subsequent to the filing of the Company’s December 31, 2008 Annual Statement, the
Administration received a Plan of Withdrawal (Plan) from the Company, dated May 28,
2009, notifying the Administration of the Company's intent to withdraw from the health
maintenance organization (HMO) market in the State of Maryland and eventually relinquish
its certificate of authority 18 months after claims run-off. The Plan indicated that all health
benefit plans will be discontinued beginning with group renewal dates effective January 1,
2010 and that all contract holders will be provided at least 180 days notice of such
discontinuance. Our follow-up indicated that on June 28, 2009, the Company had mailed
notification letters to all of its contract holders. The Company also notified the State of
Virginia and the District of Columbia of its intent to exit the HMO market.

    The Company declared and paid on June 30, 2009 an extraordinary cash dividend in the
amount of $8,500,000 to its sole shareholder, Healthsource, Inc. The dividend was approved
by the Administration.

    On January 21, 2010, the President (Mr. Thomas Martel) of the Company was elevated to
a higher position within the CIGNA group, and was replaced by Ms. Julia Huggins.


                                         HISTORY

General

     The Company was incorporated as CIGNA Healthplan of Maryland, Inc. under the laws
of the State of Maryland on April 2, 1985. The Company was formed primarily to provide
prepaid healthcare services. The Company was granted an original Certificate of Authority
by the Administration to operate a health maintenance organization (HMO) and commenced
operations on December 1, 1986. On August 17, 1987, the Company became federally
qualified as an HMO. Effective July 1, 1996, the Company voluntarily relinquished its
designation as a federally qualified HMO.

    On September 28, 1987, the Company’s Articles of Incorporation (Articles) were
amended to change the Company’s name to CIGNA Healthplan Mid-Atlantic, Inc. On
September 15, 1993, the Company amended its Articles to change its name to CIGNA
HealthCare Mid-Atlantic, Inc.

    The Company is a wholly owned subsidiary of Healthsource, Inc., a Delaware holding
company which owns several HMOs, and which in-turn is an indirect wholly-owned
subsidiary of CIGNA Corporation, a publicly traded insurance holding company.




                                              3
Capital Stock:

     The Company’s Articles of Incorporation authorized the Company to issue 1,000 shares
of common stock with a par value of $1.00 per share. As of December 31, 2008, all of the
authorized stock, with an aggregate par value of $1,000 was issued to the Company’s sole
shareholder, Healthsource, Inc.

Dividends to Stockholder:

     During the period under examination, the Company declared and paid the following cash
dividends to its sole shareholder, Healthsource, Inc. The dividends were approved by the
Administration.

                                       Dividend
        Date Paid                      Amount

        June 30, 2004             $     9,000,000
        October 20, 2006                2,000,000
        November 30, 2007               1,400,000
        June 26, 2008*                 11,750,000

          Total                   $    24,150,000

       *Extraordinary cash dividends paid of which $2,722,000 represented a return of paid in capital.

Management:

    The following persons were serving as the Company’s directors as of December 31,
2008:


           Name and Address                             Principal Occupation

    David Goldberg (Chairman)                 Financial Analysis Director
    West Hartford, Connecticut                 CIGNA Corporation

    Scott T. Josephs, M.D.                    Medical Officer
    Chapel Hill, North Carolina                CIGNA Corporation



    The following persons were serving as the Company’s officers as of December 31,
2008:

     Thomas J. Martel**                       President
     Leslie N. Campbell                       Vice President
     Z. Colette Edwards, M.D.                 Vice President


                                                    4
      John P. Frey                           Vice President, Assistant Treasurer
      Glenn M. Gerhard                       Vice President
      Nicholas J. Gettas, M.D.               Vice President
      David Goldberg                         Vice President
      Kathleen M. Hockmuth                   Vice President
      Scott T. Joseph, M.D.                  Vice President
      Scott R. Lambert                       Vice President, Treasurer
      William A. McGean                      Vice President
      Barry R. McHale                        Vice President, Assistant Treasurer
      Anthony Perez                          Vice President
      Robert D. Picinich                     Vice President
      David M. Porcello                      Vice President
      Vincent L. Shreckengast                Vice President
      Edward V. Stacey, Jr.                  Vice President
      Joseph E. Turgeon, III                 Vice President
      Edward P. Potanka                      Counsel, Assistant Secretary
      Shermona Mapp                          Secretary
     **Mr. Martel was promoted within the CIGNA group, and was replaced by Ms Julia Huggins effective
     January 21, 2010.

Committees:

   As of December 31, 2008, the Company’s board of directors had not established any
committees.

Conflicts of Interest:

     Directors and officers of the Company regularly complete conflict of interest
questionnaires. If any possible conflicts were disclosed, they were scrutinized further by
Company officials. Our review of the responses to the questionnaires completed for 2008
did not indicate the presence of any conflicts of interest. Furthermore, no additional potential
conflicts of interest were noted during our examination.

Corporate Governance and Corporate Records:

     As described below in the “Intercompany Agreements” section of this Report, the
Company is a party to a number of intercompany arrangements with other companies within
its holding company group. The Company has no employees. All services needed to operate
and manage the Company were obtained through services provided by affiliated companies,
including the management services arrangement with CIGNA Health Corporation (CHC).
CHC provides all employees and other direct and indirect administrative support to all
CIGNA entities, including the Company. For this reason, during our examination, we relied
upon the Connecticut Insurance Department’s (CID) review of the corporate governance
function as the CID had recently completed its review of the Connecticut domiciled
insurance companies as of December 31, 2008.




                                                   5
     The CID’s review of the corporate governance function focused primarily at the holding
company level as the governance structure and risk management processes occur at the
ultimate parent level regardless of legal entity. Focus of the review was on an assessment of
the parent’s board of directors (board) and its committees, obtaining an understanding of the
organization and management structure and understanding the enterprise risk management
processes. Our examination determined that the overall Corporate Governance framework
and structure (1) sets an appropriate tone from the top (board and management), (2)
facilitates an adequate control environment and (3) supports active participation between the
board, its committees, and management to address current and prospective risks.

     There is also a board of directors at the Company level. We reviewed the minutes of the
meetings of this board and the sole shareholder, HealthSource, Inc., for the period under
examination, as well as for the subsequent period through December 31, 2009. Based on our
review, it appeared that the minutes did not document the board’s review and approval of all
the Company’s significant transactions and events. For example, our review of the minutes
did not indicate that the board of directors approved our prior report on examination, and
there was no indication of any discussion about the Company’s plan to withdraw from
marketing HMO products in Maryland, Virginia and the District of Columbia. See additional
comments regarding this condition in the “Comments and Recommendations” section of this
Report, under the caption “Corporate Records.”


                              AFFILIATED COMPANIES

     The Company is a wholly owned subsidiary of Healthsource, Inc., a Delaware holding
company which owns several HMOs, and which in turn is an indirect wholly owned
subsidiary of CIGNA Corporation (CIGNA). CIGNA is a publicly traded company. As of
December 31, 2008, no one individual or entity owned 10% or more of CIGNA’s outstanding
common stock.

      The Company had numerous affiliates. The holding company structure for those
affiliated companies which were directly related to the Company as of December 31, 2008 is
depicted in the following chart:




                                             6
                                ORGANIZATIONAL CHART


                          CIGNA CORPORATION
                                      Delaware



                         CIGNA HOLDINGS, INC.
                                      Delaware



         CONNECTICUT GENERAL CORPORATION
                                    Connecticut



                  CIGNA HEALTH CORPORATION
                                      Delaware



                          HEALTHSOURCE, INC.
                                      Delaware



      CIGNA HEALTHCARE OF MID-ATLANTIC, INC.
                                      Maryland
                                  Insurance Company



                          INTERCOMPANY AGREEMENTS

     The Company has entered into numerous agreements and cost-sharing arrangements
(collectively referred to as agreements) with affiliated companies described below.

     Prior to October 1, 2002, the Company was not subject to Title 7 of the Insurance
Article of the Annotated Code of Maryland (the Insurance Article), which requires approval

                                            7
of certain agreements between affiliates. Therefore, the agreements entered into by the
Company prior to October 1, 2002 did not require the Administration’s approval. Effective
October 1, 2002, Section 19-711 of the Health General Article of the Annotated Code of
Maryland (the Health General Article) was amended to apply the provisions of Title 7 of the
Insurance Article to HMOs. Agreements entered into after October 1, 2002 were approved
by the Administration. All agreements between affiliates are required to be fair and
reasonable according to the NAIC Accounting Practices and Procedures Manual.

Mental Health and Substance Abuse Services Agreement

    Effective January 1, 1990, the Company entered into a Mental Health Agreement with
CIGNA Behavioral Health, Inc. and CIGNA Health Corporation on behalf of their respective
subsidiaries and affiliates, including the HMOs. Under this agreement, CIGNA Behavioral
Health, Inc. provides mental health and substance abuse services to the enrollees of the
HMOs. Fees under this agreement are calculated on a per member per month basis. During
2008, the Company paid $1,232,343 under the terms of this agreement.

Management Services Agreement

      Effective January 1, 1994, the Company entered into a Management Services
Agreement with CIGNA Health Corporation. Under this agreement, CIGNA Health
Corporation and certain affiliates provide management services to the Company and its
affiliated HMOs. During 2008, the Company paid $4,634,821 under the terms of this
agreement.

Reinsurance Agreement

      Effective January 1, 1994, the Company entered into an Amended and Restated
Reinsurance Agreement with Connecticut General Life Insurance Company and certain other
affiliates. Under this agreement, Connecticut General Life Insurance Company reimburses
participating HMOs a percentage of covered claims in excess of a set deductible.
Connecticut General Life Insurance Company also provides the participating HMOs with
coverage of claims for all covered service in the event of the HMO’s insolvency. See the
“Reinsurance” section of this Report for details regarding the Company’s reinsurance
structure.

Investment Advisory Agreement

     Effective July 1, 1994, the Company entered into an Investment Advisory Agreement
with CIGNA Investments, Inc. Under this agreement, CIGNA Investments, Inc. acts as the
Company’s investment advisor. During 2008, the Company paid $24,339 under the terms of
this agreement.

Access Premium Billing Authorization Agreement

    Effective June 1, 1996, the Company entered into the CIGNA Health Access Premium
Billing Authorization Agreement with Connecticut General Life Insurance Company and the
HMOs. Under this agreement, the HMOs offer group and individual standard service

                                             8
agreements providing coverage of “in-network” health care services, and Connecticut
General Life Insurance Company provides “out-of-network” coverage. During 2008, the
Company paid $1,650 under the terms of this agreement.

Consolidated Federal Income Tax Agreement

     Effective January 1, 1997, the Company entered into an Amended and Restated
Consolidated Federal Income Tax Agreement with CIGNA Corporation and certain of its
subsidiaries. Under this agreement, the participants file a consolidated federal income tax
return as an affiliated group under CIGNA Corporation. Tax payments are paid to CIGNA
Corporation based on taxable income of the Company. In the case of a taxable loss, CIGNA
Corporation will pay each participant a refund based on such participant’s taxable loss, but
only to the extent CIGNA Corporation is able to utilize the loss in the consolidated tax
return. During 2008 there were no fees paid by or to the Company under this agreement.

Dental Consultation Agreement

     Effective October 1, 2000, the Company entered into a Dental Consultation Agreement
with CIGNA Dental Health, Inc., and the HMOs. Under this agreement, CIGNA Dental
Health, Inc. provides dental consultants at the request of the Company with respect to
selected dental cases. During 2008 no consultants were utilized thus no fees were paid by the
Company under this agreement.

Intracorp Service Agreement

      Effective January 1, 2001, the Company entered into a Service Agreement (aka
Intracorp Agreement) with International Rehabilitation Associates, Inc., Connecticut General
Life Insurance Company, and CIGNA Health Corporation on behalf of certain of its
subsidiaries. Under this agreement, Intracorp provides consultative services with respect to
utilization management, case management, demand management, disease management, care
management and any other consultative services in conjunction with the administration of
such plans to the enrollees of participating Plans. During 2008, the Company paid $187,260
under the terms of this agreement.

Network Access Agreement

     Effective June 12, 2001, the Company entered into a Network Access Agreement with
Connecticut General Life Insurance Company and certain subsidiaries of CIGNA
Corporation, including the HMOs. Under this agreement, an HMO may also provide to or
receive from other participants certain administrative services associated with network
access. During 2008 no administrative services were utilized thus no fees were received/paid
by the Company under this agreement.




                                             9
Tel-Drug Agreement

     Effective January 1, 2005, the Company entered into a Participating Mail Order
Pharmacy Agreement (aka “Tel-Drug Agreement”) with Tel-Drug, Inc., Tel-Drug of
Pennsylvania, LLC, its affiliates, and certain subsidiaries of CIGNA Health Corporation,
including the HMOs. Under this agreement, Tel-Drug, Inc. and Tel-Drug of Pennsylvania,
LLC provide mail order pharmaceutical services to the enrollees of the HMOs. During 2008
no pharmaceutical services were utilized, therefore no fees were paid by or to the Company
under this agreement.

Line of Credit Agreement

     Effective October 1, 2005, the Company along with certain other affiliates entered into a
Line of Credit Agreement with CIGNA Health Corporation (CHC). CHC provides short
term funds to participants to ensure the borrower will be able to continue to meet its
operational cash obligation while maximizing income from return on investment. As of
December 31, 2008, the Company had no outstanding loan obligation related to this line of
credit.


                     FIDELITY BOND AND OTHER INSURANCE

     The Company and several of its affiliated insurance and non-insurance companies were
named insureds on a $5,000,000 fidelity bond issued to its ultimate parent, CIGNA
Corporation (CIGNA). The fidelity bond coverage exceeded the minimum amount of
fidelity bond coverage recommended by the NAIC for these companies on a consolidated
basis.

     Health-General Article Section 19-710 of the Annotated Code of Maryland requires
health maintenance organizations to have an insolvency plan that provides for continuation of
benefits to subscribers and enrollees for the contract period for which premiums have been
paid, and for those admitted to an inpatient health care facility on the date of Company’s
insolvency until the earlier of their discharge or 365 days. As described in the
“Intercompany Agreements” and “Reinsurance” sections of this Report, the Company
entered into a Reinsurance Agreement with its affiliate, Connecticut General Life Insurance
Company to provide, in part, insolvency protection to its enrollees. See additional comments
regarding this agreement in the “Reinsurance” section of this Report. The Administration
determined that the Company’s “Insolvency” provision of the Reinsurance Agreement meets
the requirements of the aforementioned section of the Health-General Article of the
Annotated Code of Maryland.

     Code of Maryland Regulations (COMAR) 31.12.01.14 requires health maintenance
organizations to maintain general liability and medical malpractice insurance. As of
December 31, 2008, the Company was a named insured under a general liability policy
issued to the Company’s ultimate parent, CIGNA, with an aggregate limit of $5,000,000.




                                             10
      In addition, the Company had other insurance policies (e.g., director’s and officer’s
liability, business property, etc.). Based upon our review, the Company’s insurance coverage
for these risks appears adequate.


            PENSION, STOCK OWNERSHIP AND INSURANCE PLANS

    Since the Company had no employees, there were no employee pension, stock
ownership, or insurance plans.

                                  STATUTORY DEPOSITS

     In compliance with Section 19-710 of the Health General of the Annotated Code of
Maryland, as of December 31, 2008 the Company had deposited United States Treasury
Notes with a par value of $140,000 and a market value of $143,346, in trust with the
Maryland State Treasurer. In addition, the Company had deposited Special Revenue Bonds
with a par value totaling $2,420,000 and market value totaling $2,720,216 with the
Commonwealth of Virginia. The deposits in Maryland were for the benefit of all
policyholders, while the deposits in Virginia were for the benefit of the policyholders in the
Commonwealth of Virginia.

     The above-mentioned deposits are included in the Company’s balance sheet under the
caption “Bonds.”


                        TERRITORY AND PLAN OF OPERATION

     The Company is a group model health maintenance organization that provides a
prescribed range of health care services to its enrolled population, generally, for a
predetermined, prepaid monthly fee, regardless of the extent or nature of services provided to
the enrollees. These services included physician, hospital and prescription drug services. A
significant portion of the Company's enrollment was derived from large employer group
accounts.

     As of December 31, 2008, the Company was licensed to transact business in Maryland,
Virginia and the District of Columbia. During 2008, the Company wrote $50,586,418 in direct
premiums, the majority of which were written in Virginia (approximately, 89% of the
Company’s total direct premiums), and the rest were written in Maryland (7%), and in the
District of Columbia (4%).


     The delivery of virtually all professional health services was rendered by physicians
who were under contract with the Company. Benefits are provided for services rendered by
participating providers. The member’s Primary Care Physician (PCP) oversees the
member/patient care and generates a referral for specialty services deemed necessary.




                                             11
Provider Contracts:

     As a group-model HMO, the Company contracted with outside providers, practitioner
associations, and administrative service providers for the delivery of all medical services to
its members. The Company contracts with these outside providers on a capitated or fee-for-
service basis. Ancillary services (e.g. prescriptions, podiatry, surgery, mental health,
chiropractic etc.) were obtained under a variety of contractual methods: capitation, fee-for-
service, and third party administrator agreements.

Hospital Services:

    The Company has entered into formal agreements with various hospitals in its service
areas for the purpose of providing services to its members. The hospital services were
obtained at negotiated rates or at rates set by regulatory bodies.

    As noted in the “Subsequent Events” section of this Report, the Company has notified the
Administration of its intention to withdraw from the health maintenance organization (HMO)
market in the State of Maryland and eventually relinquish its certificate of authority 18
months after claims run-off The Company indicated that all health benefit plans will be
discontinued beginning with group renewal dates effective January 1, 2010 and that all
contract holders will be provided at least 180 days notice of such discontinuance. Our
follow-up indicated that on June 28, 2009, the Company had mailed notification letters to all
of its contract holders informing them of its intent to withdraw and their options to
enroll/migrate to other CIGNA products.


               INSURANCE PRODUCTS AND RELATED PRACTICES

      The Maryland Insurance Administration’s Life and Health Section’s Market Conduct
Unit conducted an examination of the market conduct affairs of the Company covering the
period of January 2, 2003 through December 31, 2003. The examination report, dated April
8, 2009, contained a number of violations related to market conduct issues, including but not
limited to the following, none of which impact the financial condition of the Company:

         •   Failing to process claims within 30 days of receipt
         •   Failing to pay interest on claims processed in excess of 30 days
         •   Delaying payment of a clean claim to obtain additional information
         •   Failing to make an initial determination on whether to authorize or certify
             treatment within 2 working days.

     During our examination, we did not review the following market conduct related areas:

          Policy Forms
          Fair Underwriting Practices
          Advertising and Sales Materials
          Treatment of Policyholders:
               Claims Processing (Timeliness)
               Complaints

                                             12
                                GROWTH OF COMPANY

      Premiums written have decreased steadily from a high of $169.5 million in 2006 to a
low of $50 million in 2008. This reduction was a result of members terminating or migrating
to other CIGNA products. The following represents the premium activity as it relates to
surplus over the period of our examination:

                     2008          2007               2006           2005           2004

Net premium
income            $49,944,083   $98,869,353    $169,261,434       $146,020,832   $89,564,071

Surplus            14,467,121    21,861,500         18,908,805      18,003,206    11,561,474

Premium-to-
  surplus           3.5 to 1      4.5 to 1           9 to 1          8 to 1        8 to 1


                                  LOSS EXPERIENCE

      The Company is required to establish and maintain “Unpaid claims” and “Unpaid
claims adjustment expense” reserves (collectively referred to as “reserves”), in an amount
estimated to be sufficient to cover all known unpaid claims and loss adjustment expenses, as
well as incurred losses that have not yet been reported. The following represents the 5-year
history of the required reserves. As shown in the schedule, “Claims unpaid” and “Unpaid
claims adjustment expenses” began decreasing starting year-end 2006 in correlation with the
decrease in members as a result of terminations or migration to other products offered by
other CIGNA companies.


                      2008          2007              2006            2005           2004

Claims unpaid      $3,297,798    $5,619,942         $10,162,416    $14,352,610   $10,359,770

Unpaid claims
adjustment
expenses              $70,758      $137,456            $267,454       $588,866      $553,371

Incurred claims
and loss
adjustment
expenses          $38,730,274   $80,701,154        $143,285,680   $123,760,463   $75,677,729




                                              13
                                      REINSURANCE

Assumed Reinsurance:

    The Company had not entered into any assumed reinsurance arrangements during the
examination period.

Ceded Reinsurance:

    Effective January 1, 1994, the Company entered into a reinsurance agreement with
Connecticut General Life Insurance Company (CGLIC), an affiliate. The reinsurance
agreement was administered by CIGNA Health Corporation (CHC). Under this agreement,
the Company paid CGLIC, and CHC as administrator, a monthly reinsurance premium and
administrative fees based on an established rate per health plan member. In return for
premiums paid, CGLIC reimbursed the Company 80 percent of covered claims in excess of a
$150,000 deductible. During 2008, premiums paid to CGLIC totaled $642,335, and
administrative fees paid to CHC totaled $15,744. Recoveries for covered charges totaled to
$320,863.

     CGLIC also provided the participating affiliated HMOs, including the Company, with
coverage of claims for all covered service in the event of the Company or HMO’s
insolvency.


                               ACCOUNTS AND RECORDS

     The Company utilized an electronic data processing system to process the majority of its
significant applications (e.g., policy and claims processing, investment, general ledger, etc.).
These critical applications were processed by the Company’s affiliate, CHC. In our review
of IT general controls, we considered and relied upon the work conducted by the Connecticut
Insurance Department (CID) during their 2008 examination of the Connecticut domiciled
insurance companies. Our review did not disclose any significant deficiencies in the
electronic data processing system controls.

    However, we noted certain areas in which the Company’s record-keeping and
procedures and controls could be improved. These conditions are further discussed in the
“Comments and Recommendations” section of this Report, under the captions “Corporate
Records” and “Claim Records and Controls”.




                                              14
                              FINANCIAL STATEMENTS

   The following financial statements reflect the financial condition of the Company as of
December 31, 2008, as determined by this examination:


         STATEMENT                                                         PAGE

         Balance Sheet:

              Assets                                                        16
              Liabilities, Capital and Surplus                              17

         Statement of Revenue and Expenses                                  18

         Capital and Surplus Account                                        19

         Analysis of Examination Changes to Surplus                         20

         Comparative Financial Position of the Company                      21


    The accompanying Notes to Financial Statements are an integral part of these Financial
Statements.




                                             15
                                                                              BALANCE SHEET

                                                                                  ASSETS
                                                                                                                                            Examination
                                                                                                 Nonadmitted           Admitted             Adjustments            Net Admitted
                                                                               Assets              Assets               Assets           Increase (Decrease)        Assets Per
                                                                                                                                                                   Examination

Bonds                                                                     $    17,192,430    $                 0   $   17,192,430    $                    0    $      17,192,430
Cash (($517,322) and short-term investments $581,876)                              64,553                      0           64,553                                         64,553

Subtotals, cash and invested assets                                       $    17,256,983    $                 0   $   17,256,983    $                    0    $      17,256,983

Investment income due and accrued                                         $       266,520    $               0     $       266,520   $                    0    $         266,520
Uncollected premiums and agents’ balances in the course of collection           1,935,663              217,247           1,718,416                        0            1,718,416
Current federal and foreign income tax recoverable and interest thereon           622,763                    0             622,763                        0              622,763
Net deferred tax asset                                                            962,939              817,941             144,998                        0              144,998
Aggregate write-ins for other than invested assets                              1,827,661            1,412,080             415,581                        0              415,581


    Totals                                                                $    22,872,529    $       2,447,268     $   20,425,261    $                    0    $      20,425,261




                                                                                        16
                               LIABILITIES, CAPITAL AND SURPLUS




Claims unpaid (NOTE 1)                                      $      3,297,799

Unpaid claims adjustment expenses (NOTE 1)                           70,758

Premiums received in advance                                         11,283

General expenses due or accrued                                      18,635

Remittance and items not allocated                                   26,250

Amounts due to parent, subsidiaries and affiliates                 2,361,872

Aggregate write-ins for other liabilities                           171,543

        Total liabilities                                   $      5,958,140


Common capital stock                                        $          1,000

Gross paid in and contributed surplus                             17,334,491

Unassigned funds (surplus)                                        (2,868,370)

         Total capital and surplus                          $     14,467,121

Total liabilities, capital and surplus                      $     20,425,261




                                               17
                            STATEMENT OF REVENUE AND EXPENSES



Net premium income                                                                   $   49,944,083
        Total revenues                                                               $   49,944,083

Hospital and Medical:
   Hospital/medical benefits                                        $   27,441,581
   Other professional services                                           1,773,925
   Outside referrals                                                        58,348
   Emergency room and out-of-area                                        2,559,088
   Prescription drugs                                                    6,174,965
      Subtotal                                                      $   38,007,907
Less:
   Net reinsurance recoveries                                              320,863
         Total hospital and medical                                 $   37,687,044

Claims adjustment expenses, including cost containment expenses          1,043,230
General administrative expenses                                          5,446,348
         Total underwriting deductions                                                   44,176,622
Net underwriting gain or (loss)                                                      $    5,767,461

Net investment income earned                                        $   1,074,800
Net realized capital gains (losses) less capital gains tax               (43,995)
Net investment gains (losses)                                                             1,030,805
Net income or (loss) after capital gains tax and before all other
     federal income taxes                                                            $    6,798,266

Federal and foreign income taxes incurred                                                 2,099,476
    Net income (loss)                                                                $    4,698,790




                                                      18
                             CAPITAL AND SURPLUS ACCOUNT

Capital and surplus per examination, December 31, 2003     $   17,549,742

  Net income or (loss), 2004                               $    2,684,514
  Change in net deferred income tax                               (30,150)
  Change in non-admitted assets                                   357,368
  Surplus adjustments: Paid in                                 (8,790,509)
  Aggregate write-ins for gains or (losses) in surplus           (209,491)

  Net change in capital and surplus, 2004                  $   (5,988,268)

Capital and surplus, December 31, 2004                     $   11,561,474

  Net income or (loss), 2005                               $    6,327,100
  Change in net deferred income tax                               (53,775)
  Change in non-admitted assets                                   168,407

  Net change in capital and surplus, 2005                  $    6,441,732

Capital and surplus, December 31, 2005                     $   18,003,206

  Net income or (loss), 2006                               $    4,201,215
  Change in net deferred income tax                               574,878

  Change in non-admitted assets                                (1,870,494)
  Dividends to stockholders                                    (2,000,000)

  Net change in capital and surplus, 2006                  $      905,599

Capital and surplus, December 31, 2006                     $   18,908,805

  Net income or (loss), 2007                               $    4,146,170
  Change in net deferred income tax                              (209,435)
  Change in non-admitted assets                                   614,912
  Dividends to stockholders                                    (1,400,000)
  Aggregate write-ins for gains or (losses) in surplus           (198,956)

  Net change in capital and surplus, 2007                  $    2,952,691

Capital and surplus, December 31, 2007                     $   21,861,496

  Net income, 2008                                         $     4,698,790
  Change in net deferred income tax                                (89,529)
  Change in non-admitted assets                                   (253,636)
  Dividends to stockholders                                    (11,750,000)

  Net change in capital and surplus, 2008                  $    (7,394,375)

Capital and surplus per examination, December 31, 2008     $   14,467,121




                                                   19
    ANALYSIS OF EXAMINATION CHANGES TO SURPLUS

There were no changes to the Company’s surplus as a result of our examination.




                                   20
                                COMPARATIVE FINANCIAL POSITION OF THE COMPANY

             The comparative financial position of the Company for the five- year period ended
         December 31, 2008, was as follows:

                                      2008           2007           2006           2005           2004

Assets                             $ 20,425,261   $ 30,952,539   $ 34,271,979   $ 36,089,744   $ 25,980,261

Liabilities (Note 2)                  5,958,140      9,091,043     15,363,174     18,086,538     14,418,787

Capital and surplus                  14,467,121     21,861,496     18,908,805     18,003,206     11,561,474

Net premium income                   49,944,083     98,869,353    169,261,434    146,020,832     89,408,201

Net underwriting gain (loss)          5,767,461      4,335,645      4,498,581      8,565,634      2,495,459

Net investment gains (losses)         1,030,805      1,452,747      1,481,460      1,041,885      1,077,145

Net income (loss)                     4,698,790      4,146,170      4,201,215      6,327,100      2,684,514




         Note: Amounts in the preceding financial statements for years ended December 31, 2004
         through 2007 are from the Company’s Annual Statements as filed with the Administration.
         Amounts for the year ended December 31, 2003 and December 31, 2008 are amounts per
         examination.




                                                      21
                  NOTES TO FINANCIAL STATEMENTS


1. The Company reported “Claims unpaid” totaling $3,297,799 and “Unpaid claims
   adjustment expenses totaling $70,758 (collectively referred to as reserves). These
   amounts represented the Company’s estimate of all claims and related adjustment
   expenses that had been incurred but still unpaid or incurred but not reported as of
   December 31, 2008. The methodologies utilized by the Company to compute this
   amount and the adequacy of this amount as of December 31, 2008 were reviewed
   by our contracted actuary. The actuary determined that the methodologies
   utilized by the Company were appropriate, and the reported reserves liability
   appeared to be adequate in accordance with actuarial standards.

   As the Company will be in run-off effective on January 1, 2010, the actuary also
   reviewed the reserves as of September 30, 2009. The actuary concluded that the
   reserves for “Claims unpaid’ totaling $2,041,036 and “Unpaid claims adjustment
   expenses” totaling $43,443 as reported in its September 30, 2009 Quarterly
   Statement appeared to be adequate.


2. In the ordinary course of conducting business, CIGNA Corporation (CIGNA) and
   its subsidiaries including the Company, have been named as defendants to various
   lawsuits. These lawsuits include, but are not limited to, employment litigation
   and claims of bad faith, medical malpractice, non-compliance with state and
   federal regulatory requirements, marketing misconduct, failure to timely or
   appropriately pay medical claims, and other legal matters arising from the
   ordinary course of the business of administering and insuring employee benefit
   programs. CIGNA and its subsidiaries including the Company believe that they
   have valid defenses to the legal matters currently pending against them and
   intend to defend these matters vigorously. Nevertheless, it is possible that
   resolution of one or more of the legal matters currently pending or threatened
   could result in losses material to the Company’s consolidated results of
   operations, liquidity or financial condition.




                                       22
                     COMMENTS AND RECOMMENDATIONS


Corporate Records:

     Our review of the minutes of the meetings of the board of directors for the period
under examination disclosed that the minutes did not document the board’s review of all
the Company’s significant transactions and events. Specifically:

   •   There was no indication that the board reviewed and accepted the
       Administration’s Report on Examination as of December 31, 2003.
   •   There was no indication of any discussion regarding the Company’s decision to
       withdraw from the HMO market in the States of Maryland, Virginia, and the
       District of Columbia.

     A similar condition was also noted in our prior report on examination. In its
response, the Company indicated that the board of directors would meet on a quarterly
basis and that consent in lieu of minutes may be also be utilized if necessary to review
and approve all significant transactions or events. Accordingly, we again recommend
that the Company’s board of directors actively oversee all aspects of the Company’s
operations and approve all significant corporate transactions and events. We
further recommend that the minutes of the board of directors’ meetings clearly
document such oversight and approval of all significant transactions and events.


Claim Records and Controls:

    As of December 31, 2008, the Company’s “Claims unpaid” liability, as reported in its
Annual Statement, totaled $3,297,798, and “Unpaid claims adjustment expenses totaled
$70,758. During 2008, the Company’s claim payments totaled $40,330,050. These
claims are initially received in either electronic or paper format, and at various locations,
including third-party clearinghouses.

    As previously noted in the “Intercompany Agreements” section of this Report, the
Company entered into Administrative Service Agreements with CIGNA Health
Corporation (CHC) under which CHC was responsible for performing virtually all of the
services needed to operate the Company. Under this agreement, CHC contracted with
several third party vendors (clearinghouses) on the Company’s behalf to electronically
transmit the Company’s claims from physicians, hospitals and other providers to CHC.

     Our review of the Company’s procedures and controls over the claims received at
clearinghouses disclosed that the Company (and its administrator CHC) could not
provide SAS 70 report documentation of the control environment over the claims
processed through clearinghouses. A similar condition was noted in our prior
examination report dated April 5, 2005, and we recommended that the Company obtain,
at least annually, independent reviews (i.e., SAS-70) of the claims processing control


                                             23
environment at clearinghouses used to process the Company’s claims. In its response,
the Company indicated that it would take this recommendation under advisement, and
adding that a process change was implemented in April 2004, therefore, EDI input files
from the clearinghouses are now maintained.

      Instead of obtaining SAS 70 reports, the Company, conducts due diligence
assessments of the third party vendors (clearinghouses). The Company also informed us
that it requested the clearinghouses to obtain accreditation from the Electronic Healthcare
Network Accreditation Committee (EHNAC). EHNAC is an independent 501(C)(3) not-
for-profit accrediting agency providing peer evaluation of an organization’s ability to
perform at industry-established levels within the healthcare electronic network industry.
EHNAC accreditation and SAS 70s are by no means equivalent, thus one can not replace
the other. EHNAC accreditation thoroughly addresses electronic data interchange issues
and compliance with HIPAA security/privacy policies. SAS 70s include an in-depth
discussion and description of both financial and information systems general controls.
The SAS 70 control testing performed is documented in detail in an issued report with
weaknesses and control inadequacies identified, while EHNAC’s report, if any, is
confidential. Accordingly, we again recommend that the Company obtain, at least
annually, independent reviews (i.e., SAS-70) of the claims processing control
environment at third-party clearinghouses used to process the Company’s claims.
In addition, we recommend that the Company ensure that all clearinghouse vendor
agreements include a requirement that the clearinghouse obtain an annual SAS-70
review and submit the report to the Company.

Additional Comments and Recommendations:

    In addition to the above Comments and Recommendations, during our examination,
we made a number of other suggestions and recommendations to the Company with
regard to record keeping and other procedures relating to its operations.




                                            24
                                    CONCLUSION

    Our examination disclosed that as of December 31, 2008 the Company had:

       Admitted Assets                                      $ 20,425,261

       Liabilities and Reserves                             $ 5,958,140

       Common Capital Stock                                 $        1,000

       Gross Paid in and Contributed Surplus                    17,334,491

       Unassigned Funds (Surplus)                               (2,868,370)

       Total Capital and Surplus                            $ 14,467,121

       Total Liabilities, Capital and Surplus               $ 20,425,261


     Based upon our examination, the accompanying balance sheet properly presents the
statutory financial position of the Company at December 31, 2008, and the accompanying
statement of income properly presents the statutory results of operations for the period
then ended. The supporting financial statements properly present the information
prescribed by the Annotated Code of Maryland, the Code of Maryland Regulations and
the National Association of Insurance Commissioners.

     Health-General Article, Section 19-710 of the Annotated Code of Maryland and Title
4 of the Insurance Article of the Annotated Code of Maryland, specify the level of capital
and surplus required for the Company. We concluded that the Company met the
minimum requirements during the period under examination.




                                            25
                                   SIGNATURES

    In addition to the undersigned, the following examiners representing the Maryland
Insurance Administration participated in certain phases of this examination:

              Marcus Canady, RSM McGladrey, Inc.

    The actuarial portions of this examination were completed by Michael A. Mayberry,
F.S.A., M.A.A.A., of Lewis & Ellis, Inc.



                                    Respectfully submitted,

                                    Original Signature on File

                                    ___________________________
                                    Alea P. Talbert-Pence, CFE, CIA
                                    RSM McGladrey, Inc.
                                    Representing the Maryland Insurance Administration




                                    Under the Supervision of,


                                    Original Signature on File

                                    ____________________________
                                    Antonio S. Sadorra, CFE, CIE
                                    Assistant Chief Examiner
                                    Maryland Insurance Administration




                                          26
MARTIN O’MALLEY                                                                   ELIZABETH SAMMIS
    Governor                                                                       Acting Commissioner

ANTHONY G. BROWN                                                                KAREN STAKEM HORNIG
    Lt. Governor                                                                  Deputy Commissioner

                                                                                   LESTER C. SCHOTT
                                                                                  Associate Commissioner
                                                                                 Examination and Auditing


                           525 St. Paul Place, Baltimore, Maryland 21202-2272
                             Direct Dial: 410-468-2120 Fax: 410-468-2101
                                Email: dpalmer@mdinsurance.state.md.us
                                 1-800-492-6116 TTY: 1-800-735-2258
                                      www.mdinsurance.state.md.us


                                          April 23, 2010



    Thomas J. Martel
    President
    CIGNA HealthCare of MidAtlantic, Inc.
    900 Cottage Grove Road
    Bloomfield, Connecticut 06152

    Dear Mr. Martel:

        Enclosed is a draft copy of the Report on Examination of the affairs and financial
    condition of the Cigna Healthcare of the Mid-Atlantic, Inc., as of December 31, 2008,
    dated February 18, 2010. Please call our attention to any errors or omissions.

         Unless a written request for a Hearing with respect to the Report (in accordance with
    the provisions of Sections 2-209 and 2-210, Insurance Article of the Annotated Code of
    Maryland) is received on or before May 23, 2010, the Report will become final, and will
    be filed as a public document within this Administration.

        All of your comments concerning these matters must be in writing and shall be
    furnished to this Administration within thirty (30) days from the date of this letter (May
    23, 2010). In addition to the hard copy mailed to the Administration, also please
    send our response electronically in Microsoft Word format to
    pgiles@mdinsurance.state.md.us.

         The Report on Examination should be called to the attention of your Board of
    Directors at its next meeting. Each Director should review the Report and acknowledge
    such review over his signature. Documentation of such review should be maintained for
    future verification.
    If you have any questions or if you would like to discuss these recommendations,
please do not hesitate to call me at 410-468-2120.

                                                Sincerely,

                                                Original Signature on File

                                                David A. Palmer, CFE
                                                Chief Examiner
MARTIN O’MALLEY                                                                             BETH SAMMIS
    Governor                                                                              Acting Commissioner

ANTHONY G. BROWN                                                                        KAREN STAKEM HORNIG
    Lt. Governor                                                                          Deputy Commissioner




                       200 St. Paul Place, Suite 2700, Baltimore, Maryland 21202-2272
                               Direct Dial: 410-468-2120 Fax: 410-468-2101
                                  Email: dpalmer@mdinsurance.state.md.us
                                   1-800-492-6116 TTY: 1-800-735-2258
                                        www.mdinsurance.state.md.us

                                             June 7, 2010

    Thomas J. Martel
    President
    CIGNA HealthCare of MidAtlantic, Inc.
    900 Cottage Grove Road
    Bloomfield, Connecticut 06152

    Dear Mr. Martel:

         We are in receipt of a letter, dated May 20, 2010, from Kimberly Schoolcraft,
    Healthplan Audit Coordinator, which addresses the corrective action taken by Cigna
    HealthCare of MidAtlantic, Inc., to comply with the recommendations made in the
    Report on Examination as of December 31, 2008, dated February 18, 2010. Your
    response adequately addresses the recommendations made in the Report, except for the
    following:

    Corporate Records:

         We recommended that the Company obtain, at least annually, independent
    reviews (i.e., SAS-70) of the claims processing control environment at third-party
    clearinghouses used to process the Company’s claims.            In addition, we
    recommended that the Company ensure that all clearinghouse vendor agreements
    include a requirement that the clearinghouse obtain an annual SAS-70 review and
    submit the report to the Company.

       As indicated in the comments and recommendations, EHNAC accreditation and
    SAS 70s are by no means equivalent, thus one can not replace the other.

        Our examination standards require evidence or documentation on examination
    work performed, and as explained in the comments, the SAS 70 control testing
    performed is documented in detail in an issued report with weaknesses and control
    inadequacies identified, while EHNAC report, if any, is confidential. In other
    words, for EHNAC, there is nothing to include in our work papers as a support and
    basis of whether or not we would rely upon the control environment of the
    clearinghouses. In this regard, we insists that the Company comply with our
    recommendation to obtain, at least annually, independent reviews (i.e., SAS 70) of
the claims processing control environment at the third party clearinghouses used to
process the Company’s claims.

     During our next examination of the Company, we will review the implementation of
the corrective actions taken.
     As the May 20, 2010 letter did not request a hearing, pursuant to § 2-209 of the
Insurance Article, Annotated Code of Maryland, the Report is Final and is attached for
your records. The Report will be forwarded electronically, along with a copy of this
letter, to each Commissioner whose name is set forth on Page 1 of the Report, as well as
to each of the participating zone examiners, to the National Association of Insurance
Commissioners, and to each state in which the Company is licensed, according to your
Annual Statement.


                                                Sincerely,

                                                Original Signature on File

                                                David A. Palmer, CFE
                                                Chief Examiner

								
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