Ladies and gentlemen, thank you for standing by for CIGNA's third quarter 2008 results review. At this time, all callers are in a listen-only mode. We will conduct a question-and-answer session later during the conference and review procedures on how to enter the queue and ask questions at that time. (Operator Instructions). As a reminder, ladies and gentlemen, this conference including the question-and-answer session is being recorded. We will begin by turning the conference over to Mr. Ted Detrick. Please go ahead, Mr. Detrick.

Good morning, everyone, and thank you for joining today's call. I am Ted Detrick, Vice President of Investor Relations. We are speaking to you from our headquarters in Philadelphia, the home of the World Champion Philadelphia Phillies. With me this morning are Ed Hanway, CIGNA's Chairman and CEO; David Cordani, our President and Chief Operating Officer; Mike Bell, CIGNA's Chief Financial Officer; and Marcia Dall, Financial Officer for the CIGNA Health Care business. In our remarks today, Ed will begin by briefly commenting on CIGNA's third quarter result and the enterprise outlook for both 2008 and 2009. David Cordani will provide his perspective on the outlook for CIGNA's ongoing businesses and provide a current assessment of the health care marketplace. He will also comment on the integration status of our acquisition of Great-West Healthcare. Mike Bell will then review the financial details of the quarter and provide the financial outlook for full year 2008 and 2009. Ed will then make some concluding remarks and then, we will open the lines for your questions. Now, as noted in our earnings release, CIGNA uses certain financial measures, which are not determined in accordance with Generally Accepted Accounting Principles, or GAAP, when describing its financial results. Specifically, we use the term labeled "adjusted income from operations" as the principal measure of performance for CIGNA in our operating segments. Adjusted income from operations is defined as income from continuing operations, excluding realized investment results, special items, and the results of our guaranteed minimum income benefit business and our reconciliation of adjusted income from operations to income from continuing operations, which is the most directly comparable GAAP measure, is contained in today's earnings release which was filed this morning on Form 8-K with the Securities and Exchange Commission, and is also posted in the Investor…

Thanks, Ted. Good morning, everyone. Now as Ted noted, I am going to provide summary comments on the quarter as well as the '08 and '09 outlook. Then I would ask David to drill down on the pieces especially as it relates to health care. Our third quarter consolidated adjusted income from operations was $246 million, or $0.89 a share. Our consolidated third quarter results reflect solid earnings contributions from each of our ongoing businesses; Health Care, Group Insurance, and International. The results demonstrate the benefits of having a diversified portfolio particularly during periods of economic challenge. While our ongoing businesses had solid earnings, our Run-off Reinsurance results were adversely impacted by the capital market turmoil. Regarding the full year 2008 outlook, we now expect 2008 earnings per share to be in the range of $3.40 to $3.50. This is lower than our previous range, primarily due to higher than expected Run-off Reinsurance losses. Mike is going to discuss in detail the Run-off Reinsurance result and outlook in a moment. With regards to 2009, the challenging competitive and economic environment will collectively result in a much lower level of earnings growth for our ongoing businesses than we had previously expected. We now expect 2009 earnings per share to be in the range of $4 to $4.30, excluding any provision for future VADBe losses, which cannot be reasonably estimated. We now expect full year 2009 Health Care membership to decline by approximately 2%. We are clearly not satisfied with our outlook for 2009 for our ongoing businesses, but we view it as realistic given the current competitive and economic environment, including rising levels of unemployment which we anticipate will impact Health Care membership. Our 2009 earnings per share growth is not consistent with our long-term goals and also not fully reflective of our capabilities. While our Great-West acquisition is providing good earnings growth, our core Health Care earnings are lower than previously expected due to expected membership declines that disproportionately impact our higher margin businesses. Given this membership decline, our current expense levels are too high and exert further pressure on earnings for 2009. We are conducting a comprehensive review of all earnings levers to improve our health care results, with a particular emphasis on reducing operating expenses. By establishing and executing on a plan to improve our Health Care earnings, we are committed to creating greater value to the benefits of our customers and shareholders. With that, I am going to turn it over to David, who is going to cover in detail the outlook for our ongoing business. David?

Thanks, Ed, and good morning, everyone. The environment continues to be challenging for our customers, our competitors and for CIGNA. Despite the economic and competitive landscape, CIGNA's ongoing businesses remain well-positioned and we are addressing our short-term challenges while continuing to strategically build for sustainable, profitable growth. Today I am going to share some perspective on our third quarter results for Health Care, Group and International businesses, including a view of the current environments that we are operating in. I will also provide an overview of our 2009 outlook for each business and provide a brief update on the integration of Great-West Healthcare. We will share a more detailed view of our long-term growth strategy at our Investor Day meeting on November 21st. Now there is no doubt that the marketplace has changed considerably in the last few months. Additionally, the employer benefits marketplace remains competitive especially for guarantee costs and experienced-rated products. Through these challenging times, we remain focused on four key components of our strategy. First, we will continue to deliver service excellence. Second, we will maintain and in some lines expand our margins through our pricing discipline. Third, we will continue our approach to health, as we believe keeping people healthy is the only sustainable way to deal with escalating costs. Fourth, we will invest in our people and our technology, which are both required, to build success in the future. Specific to technology, these capabilities will lead to greater efficiencies and additional market-facing capabilities that will continue to differentiate CIGNA. Before I turn to each of our operating businesses, it is important to recognize the strength of our diversified earnings streams, which provide us with opportunities to grow profitably despite these challenging economic conditions. Let me begin with a view of Health Care. On a year-to-date…

Thanks, David. Good morning, everyone. In my remarks today, I will review CIGNA's third quarter 2008 results and I will also discuss our outlook for the balance of this year and for full year 2009. In my review of consolidated and segment results, I will comment on adjusted income from operations versus income from continuing operations, excluding realized investment results, GMIB results and special items. This is also on the basis on which I will provide our earnings outlook. Our third quarter earnings were $246 million, or $0.89 a share, compared to $321 million, or $1.13 a share in 2007. Third quarter results for our ongoing businesses were strong, while results for our Run-off Reinsurance business emerged unfavorably. Based on market results in October, we expect that this trend for the run-off business will likely continue into the fourth quarter. I will review each of the segment results beginning with Health Care. Third quarter Health Care earnings were $187 million. The third quarter results included strong contributions from our specialty businesses and sequential improvement in both the guaranteed cost MLR and experience-rated earnings. Third quarter results also reflect the continued focus on managing operating expenses while increasing investments in key initiatives. Now to discuss our Health Care results by major components. Guaranteed cost earnings improved sequentially mainly reflecting an improved MLR due to higher renewal rate increases. Our guaranteed cost MLR for the third quarter improved to 83.8% excluding our voluntary business. Although, the improvement was less than we expected, the third quarter MLR reflected good progress on our renewal rate actions, partially offset by a higher level of benefit buy-downs. Medical cost trend for the first nine months of the year on a guaranteed cost book was approximately 7.5%, modestly higher than we had expected. Our experience-rated results also…

Thanks, Mike. Before we take your questions, I want to conclude on three key points. First, our three ongoing businesses: Health Care, Group Insurance and International are well-positioned to provide value to customers and investors in these very challenging times. Our products, customer service levels and consumer engagement and information capabilities are all recognized as competitively strong. Second, our Health Care earnings growth in 2009 is lower than we had expected. Competitive and economic pressures we face are significant. However, given our capabilities, we are committed to improving performance. We continue to review all earnings leverage to improve our Health Care results with a particular emphasis on reducing operating expenses. Third, our capital position is currently solid. We expect to have the financial flexibility to deal with these difficult capital markets. In addition, our investment portfolio is of high quality and very well-managed. Assuming more stable capital markets going forward, we also have programs in place to substantially manage our Run-Off Reinsurance exposure. Now in summary, while we are not satisfied with our 2009 outlook, we feel it is prudent one given our environment and we are committed to improving upon it and creating greater value for our shareholders. With that, Ted, I think we will go to the phones and take questions.

(Operator Instructions). Our first question comes from Matthew Borsch of Goldman Sachs.

Please give us a little bit more of your thinking on the pension funding for next year. In particular, what are the factors around which you would have flexibility to fund the pension plan at a lower level? You mentioned that as a potential option. I'm just not clear on what would go into either your ability to do that, vis-à-vis the regulations or your decision to do that if you can.

First, overall, we have a range of options that we'll be looking at here for 2009. Specific to your question, we believe that the true current minimum requirements would entail on a net basis over the full year 2009, apparent to on a net after-tax basis to contribute approximately a $100 million after-tax to the pension plan. That obviously assumes the current financial market levels. Now, that's obviously significantly less. That $100 million, which we believe to be the true current minimum requirement, is much less than the $600 million net after-tax item that I mentioned in my prepared remarks. The $600 million after-tax would, in fact, follow your nose what we've done historically. Again, we're in the process really of evaluating our options. We'll evaluate any regulatory changes that come out of Washington, where markets end up at year end. Based on a consideration of options, we'll likely provide you an update in the future.

Sorry, but if I could just ask a follow-up, and this is on a different topic. Maybe I got this wrong, but it sounds to me like your language around the health care competitive environment would indicate that maybe relative to how you saw things last quarter, you're seeing the competitive intensity is a little bit greater going into next year than you did last quarter or do I have that wrong?

I think that's fair, Matt. David, do you want to add?

We've continued, to flag the marketplace as being competitive and very competitive. As we've highlighted, where it's most pronounced is in the guaranteed cost, which is in the lower end of the buying segment and then it shows up in the experience-rated book of business, which is high end to small segment, low end to middle market. I would say we see it continuing. We don't see a pronounced firming up in the marketplace and we think it's premature to call that. Operator We will go next to Josh Raskin of Barclays Capital.

First question I guess, how do we think about sort of the decline in Health Care earnings excluding Great-West, you mentioned that that's due to economic and competitive pressures. How much of this is sort of economically related? Is that just an assumption of a continued worsening of the unemployment or how are you thinking about that?

I think it's fair to say that both the competitive conditions as well as the economic conditions are worse than what we had anticipated three months ago and are contributing to the lower outlook here for Health Care for 2009 actually from both Great-West as well as the legacy operations. Specifically that entails obviously a lower membership expectation for full year 2009. We are now estimating a 2% decline over the full year, which is obviously worse than what we had anticipated three months ago. But as David described a disproportionate impact on our highest margin product, so that combination is reflected in our current estimate for 2009. David, do you want to add?

Good morning Josh. Just to reinforce, as we commented in the prepared remarks. So point one with the membership being down although our total operating expense is ex-Great-West are flat in an environment like that, we are seeing negative earnings pressure from that relationship of the flat operating expenses per membership. Secondly, it's the guaranteed cost, the compound, in fact that the guaranteed cost and experience-rated downtick in volume in 2008 and 2009. I would contrast that with the comments I made in my prepared remarks. Looking at the ASO business for national accounts, our 1/1/2009 ASO sales were actually higher in 2009 than they were in 2008 in the higher end of the middle market buying segment. So, that 2000 to 5000 (inaudible) who typically buys ASO. Generally speaking our book is performing reasonably well even in those conditions.

Josh, the only other thing I would add to that is within the guarantee cost and the experience-rated book, as Mike commented, we are actually seeing some modest margin improvement there. Now as a practical matter, the earnings in aggregate are not growing because we are expecting to see some continued pressure in medical membership there. But that's a conscious decision and I think it's reflective of the discipline we've had around the pricing and underwriting actions that we've taken and that we continue to believe is the right strategy.

Got it. And then just a follow-up on that membership, 2% decline, is that including all in Great-West? And if not, what's the Great-West expectation?

Good. Josh, its David. It is all in. So for 2009, our numbers are on all-in basis. The way to think about the 2% just at a macro level, you can think about the ASO portfolio for CIGNA it's being about flat. It's up a tad. As we noted the experience-rated and guarantee costs are down and then ASO memberships, specific to Great-West is down as we anticipated kicking into 2009. But the 2% is in on an all-in basis, that's correct.

Okay. Last question, this is maybe for Mike. What is the incremental pension expense that you guys are incorporating into the '09 guidance versus what you've experienced in '08?

Sure, Josh. At this point, we do not expect higher GAAP expenses for the pension plan in 2009 than what we experienced here in 2008. The reason for that is a few fold. First, interest rates currently are higher than our current discount rate for GAAP purposes. Now, obviously, that's subject to change between now and year end, but currently interest rates are higher. At the same time, for investment returns, we elect to spread the difference between the actual investment returns and our investment return assumptions over a period of something like five years. Those two things coupled with the fact that we are currently assuming in our earnings plan for 2009 that, in fact, we fund the pension plan to the historical levels, which would entail the $600 million after-tax item that I mentioned in my prepared remarks. That combination of all those things would suggest that from a GAAP expense standpoint, pension plan expenses would not be higher in full year '09 versus full year '08.

I guess, Mike, the only part I would question is just even if you amortize the difference between actual versus realized, that last portion of the pension costs, it still seems even over a five-year period if we assume two-thirds of your pension plan is in equities that it calculates, I still get numbers in that. Even not just component I think switches by $50 million, but, maybe we can take it offline or maybe I'm doing the math wrong.

We could certainly take it offline. I think the piece that you maybe underestimating is the significant impact of the higher interest rates. But we'd be more than happy to take that offline.

Meaning you'll increase your discount rate?

No, meaning that if the year ended today, the actual interest rates that would be used to project the 2009 expense…

Expected return, okay, got you. Thank you.

Thank you, Mr. Raskin. Our next question comes from Doug Simpson of Merrill Lynch.

Could you just give us a little more color on the reserve strengthening for the VADBe business? I apologize if I missed it, but did that relate to the hedges or was it surrender rates, partial surrender rates? I guess just as a follow-up, on the GMIB book, have you seen any change in the annuity income election rates?

Sure. Doug, its Mike. In answer to your first question, the VADBe charge is primarily market-related, both market conditions in third quarter as well as what we've seen thus far in October. The short answer to your second question is we've not seen a material change in the GMIB annuitization election rates. Just to give you a little more color on both of those items. First of all, in terms of the hedge program for VADBe, as you know, the hedge program is really designed to give us additional protection in downside scenarios. It's not intended obviously to guarantee that we'll have zero earnings in that book. But over the last five years, the hedge program has produced a VADBe result that's been pretty close to breakeven. There are really two items in third quarter that we also saw continue into October and roughly these two items are weighted equally. So they account for approximately 50% of the third quarter charge and approximately 50% of what we've seen thus far in October. The first for VADBe is the unhedged portion. So, we don't hedge for the provision for future partial surrenders…

Right.

…and between the equity market declining and bond funds, which we also don't hedge for, about half of the third quarter charge and about half of the estimated losses in October, relates to these unhedged items. Then roughly the other half relates to volatility related impacts. So, we've noted in our critical accounting estimates that volatility is an important assumption. We've seen much higher volatility in the last 60 days than what we've seen historically. Coupled with what we refer to as basis mismatch, which is the difference between the futures that we use as part of the hedging program as compared to the underlying mutual fund performance. The combination of all of those volatility-related impacts equates to approximately half of the third-quarter charge and also the October estimate at this point. Then in terms of GMIB, like I said, at this point no material change in annuitization is this correct word? rates. But the impact there has been the combination of the unhedged impact of the equity markets decline, but also the fact that U.S. treasuries which is a key assumption there have also declined. So that combination has led to those charges.

So there has been no change in your expectation or your forecast going forward for either partial surrender rates or annuitization rates?

Correct, Doug. No material change.

Okay, thanks.

Thank you, Mr. Simpson. We'll go next to John Rex of JPMorgan.

Thanks. I just wanted to come back to the capital discussion. In particular the decision to keep the capital down, the statutory subs, can you just go through where those subs are now? When I look at authorized control level down there, adjusted capital, it looks that they are pretty adequately capitalized. I just want to get a little better understanding of what's driving that decision.

Thanks, John. It's Mike. You're absolutely right. We capitalize our subs well above the regulatory statutory minimums. Specifically at this point, again, obviously there are a lot of factors. At year end 2008, we estimate that the year end RBC would be approximately 270% of the company action level, which to your question would be approximately 540% of the authorized control level. So well above our regulatory minimums, again, obviously lower than what we've targeted on historically, which is why we see a path at this point back closer to our long-term target for full year 2009. While I don't have a specific calculation for our third quarter, it would be in that ballpark for third quarter as well.

And where do you target? Where do you want those to be?

Well, our specific benchmark targets, John, are more sophisticated than just the plain vanilla RBC calculations and when we review the benchmark capital levels with the rating agencies, again, subject to some moving parts, ballpark would be about 300% of the company action level. So 600% of the authorized control level. I can't emphasize enough. Our benchmarks are more specific than RBC, but that would kind of put you in the ballpark.

Strategically on that, what's driving that now I guess? In terms of obviously, it's not at a level where the regulators would be pushing you to do it. Kind of what drives it in terms of your comfort level and in terms of wanting to boost the capital down there?

Sure, John. The most important consideration that we have is really our ratings. It's really very important to us in the context of strategically where we're trying to take the business and meeting our 2009 business plans. The most important thing is to have that strong A rating from our insurance company operating subsidiaries specifically CG Life. While I believe we will maintain these A ratings, it's certainly important to the rating agencies and important to us that we increase the capital in those insurance company operating subsidiaries back closer to the longer term targets, certainly before we would do any additional share repurchase.

Okay. Back on the pension contribution, quickly again. So what level of contribution do you assume right now as you're looking at? I know you had to kind of from $100 million to $600 million, but did you make an assumption? Would the level of that funding impact the pension expense that would be recognized?

John, the short answer is yes. We have assumed at this point that we will make a $600 million net after-tax contribution in 2009 from the parent into the pension plan. That's assumed in our 2009 plans. That would be what we've done historically. That would follow the pattern that we've done historically with pension plan funding.

Then if you had gone at 100 instead, would there be an expense impact, then, that you'd have to recognize if you had gone lower?

John, I think that's fair. And again, we're looking at a wide variety of options. Going back to Matt's earlier question, we believe that would be based on current market conditions. That would be the true current minimum requirement would be that $100 million after-tax on a net basis for full year '09.

Okay. But at the lower level, there would actually be an expense impact also, just a GAAP expense non-cash GAAP expense.

That's correct, John.

Okay. On the med cost commentary for '09, just give a little color more on what you are seeing in terms of driving the medical costs higher over '08 versus the components and maybe utilization versus unit pricing?

John, sure, I'll start now ask Marcia if she wants to add. First, at this point, we've assumed in the 2009 plan a 50 basis point uptick in medical cost trend for the total book of business and that's consistent with what we had talked about three months ago. I would not try to be real specific in terms of attributing that 50 basis points back, but overall, we think it's prudent to assume that kind of modest level of acceleration. Marcia, anything you want to add?

Yes. As we look at the 50 basis point uptick projection for 2009, we believe that would primarily be driven by facility costs both inpatient and outpatient.

Can you tell us what you're seeing in utilization right now?

A modest uptick, John, but nothing at this point that I would characterize as a sea change in the total book of business.

So if I want to break it down to like I'm thinking about bed days per thousand members, you're seeing a modest uptick in bed days?

Good morning, it's David. I would think of on a facility base. Think about the inpatient side of it, primarily costs. Think about the outpatient side is where the utilization piece of it would come into play, of course, during the cost piece. But I would break the two apart. We're putting facility together, inpatient and outpatient. Costs more pronounced on the inpatient side within that 50 basis point smallest movement. On the outpatient side, more of that would be utilization.

One last thing. What are your assumptions for your disability book as you look into '09? I know you've typically talked about in a recession you can see several hundred basis points of margin deterioration in that book and maybe what you're seeing right now and your expectation for '09, if it's embedded.

Sure. John, its Mike. First, our disability results have been very strong on a year-to-date basis. In fact, the loss ratios improved relative to what we experienced in 2008. We've not tried to model a growth specific disability deterioration at this point in '09, other than to say that basically what we're modeling is wherever overall margins for the Group Insurance book. I think it's fair to say that, historically, there has been upward pressure on disability insurance. We expect that could certainly continue into 2009. The good news is on a year-to-date basis for 2008, we've done a particularly strong job in our disability claim operations of closing those claims. I would expect that we'd have good success in 2009 as well. David, did you want to add?

Just quickly, so a little uptick in presentation levels, but as Mike said, the closure rates are quite attractive. So why is that? That's where our return to work programs are at their best. We've added some people both at the clinical and vocational rehabilitation level. That's kept the pattern both at the end of this year in good check as well as, as we project next year. So it gives a little bit of that margin pressure that Mike made reference to, but the overall outcome is quite good. And again, it pivots off that return to work program.

So just to be clear, so I can get an order of magnitude. So your '09 outlook incorporates flat disability margins or maybe if you can get order of magnitude, 200 basis point deterioration, 400 basis points of deterioration, just an order of magnitude.

John, I'd rather not be that specific on the disability loss ratio, but I think it's fair to say that we're guiding towards current estimates for full year earnings in 2009 of low-single digits versus ballpark mid-single digits in terms of top line growth. You could conclude that all in, we would expect margins to be down approximately $5 million after-tax. So again, not a sea change for all the reasons David described.

Great, thank you.

Thank you, Mr. Rex. Our next question comes from Justin Lake of UBS.

A question first on the guaranteed cost MLR. Mike, I think if remember correctly, you had kind of spiked that out, expected to be 80%, 82%. In the back half of this year, obviously, running higher than that. Can you just give us some color around whether it's pricing, whether it's medical cost trend? What's driving that much higher MLR?

Sure, Justin, it's Mike. First, you've got the numbers in the ballpark. The MLR improved in third quarter, again, not as much as we had expected. As a result, we're now expecting a full year MLR of approximately 84%, which is higher than what we had previously anticipated. And specific to your question on the components, we did see strong rate actions here on July 1 and overall for third quarter. So, we did expand prices higher than expected medical cost trend for the third quarter renewals in that 100 to 200 basis point range that we had targeted. Specifically, we saw a couple other things in third quarter. Benefit buy downs were approximately 200 basis points higher in third quarter than we had projected. At the same time, medical costs have gone modestly higher for the guaranteed cost book now for nine months versus what we had anticipated and actually approximately 50 basis points higher than what we're seeing on the total book of business. Again, the underlying drivers there are primarily utilization driven. I do not see anything there that would drive me to believe that we're seeing, again, a sea change in the medical cost outlook. But that's the overall factor here for year-to-date. David, do you want to add?

Good morning, Justin. Just a couple of points to remind you. As Mike had previously described, in the first half of the year we had higher catastrophic claims that were projected not to reoccur in the second half of the year. So that speaks to a portion of the pattern. Secondly, was the renewal pricing execution. Thirdly, you can remember that the aggregate size of the book is relatively small, less than 1 million lives in total. So it's bouncing around a bit and tied to that as we expected a bit higher sales in guaranteed costs than we're seeing in the latter part of the year. That would typically have been smaller case sizes. Those smaller case sizes would've been written at lower loss ratios just because the smaller case sizes are written at lower loss ratios could be expense contribution. That also is contributing a little bit to the change in pattern that we are dealing with here.

Okay, that's all very helpful. The second question I have was on the membership side. Just thinking about your 2% membership decline, if we kind of think about versus year end, it's probably 200,000, 250,000 members. And yet if I remember correctly, you had talked about GW being down 10% alone, which would eat up most of that 2% decline for the company. I'm just thinking with that plus the guaranteed costs down, what gives you confidence that 2% number kind of encompasses, where you need to be?

Sure. Justin, let me try to put that picture together. So as we are stepping into the first quarter, we expect the first quarter and the full year to be about a 2% decrement. So we're not anticipating a larger stepdown in the first quarter and then acceleration in overall performance. To put it back in the categories as you just described, for the Legacy CIGNA Health Care ASO business, we're expecting to see a slight uptick, 0% to 1%. For guaranteed costs and experience-rated in 2009, we're expecting to see a decrease between 5% and 10% of their respected total books. And for Great-West, as you recall, slightly greater than 10%, that's ASO business. When you meld it all together, it's a 2% decrease. For a national segment about 85% of that portfolio occurs in the first quarter of the year. So as I referenced before, we understand what the sales pattern is there and we understand what the retention pattern is there. Our full year outlook for the experience-rated and guaranteed costs at least in our current projection does not expect a material improvement in the latter quarters of the year. If we're able to do that, we will obviously flag that in further calls, but we are looking at the best available projections in the first quarter, which is a minus 2 and expect to see that pattern as being around in line with our overall projection for the full year.

What are you using for in-group attrition? What is that running now? And where do you see that going next year as far as maybe on a monthly basis?

Justin, its David. Let me try to just put that in perspective. So the in-group attrition shows up for us in two ways. In prior calls, we flagged it that our net yield on new sales was a bit lower than we had initially expected because the ultimate employment levels that we're seeing on new business was a little lower as we are putting on new cases. I think your question goes specifically to month-in, month-out in-group disenrollment patterns. On order of magnitude for our total book of business, that runs anywhere between 2% and 4% in any given year on an all-in basis and it ebbs and flows depending on the underlying subsegment small, middle, national, et cetera. We're expecting in 2009 that that level of performance will be about what we saw in the second half of 2008. Said otherwise, we are not projecting a significant uptick in unemployment levels in 2009, rather continued challenging employment levels coming through our disenrollment levels.

Okay. What was that level into second half?

My second half was running more in that 2% to 4% disenrollment level. Higher end of the range as opposed to historically, we would have been at the lower end of the range on a more stable basis. So if you want to conclude its 1% to 2% higher of overall membership erosion that's coming through with that elevated pattern and disenrollment.

Okay.. Could I just slip in one more on '09 just a couple of quick numbers questions? I'm trying to figure out why the '09 Health Care income guidance range is twice as large as it was in '08. On the operating cost reductions, you are talking about taking a $50 million impact in the fourth quarter. What would be the accretion? Would that be accretive to '09 guidance of book? Could you spike out what that accretion would be if you were to undertake those cost changes?

Sure, Justin. It's Mike. First of all, in terms of our range of earnings estimates for 2009, I would acknowledge that it is a larger range than what we've done historically. We think that's prudent given just how much uncertainty there is in the environment, uncertainty around the competitive conditions, uncertainty around the economy. So really what we were trying to flag there is the greater level of uncertainty versus what we've seen in prior years.

Right.

On operating expenses, it's really too early for us to give you specific projections there. As Ed noted, further reducing operating expenses to right size our organization commensurate with the expected decline now in membership is a high priority. At this point, I would not try to size the specific fourth quarter potential special item or the potential accretion in 2009. All I wanted to do in the prepared remarks was flag that it's something that we are looking at. And obviously, we'll give additional updates in the future. Ed, do you want to add?

Yes, the only thing I would add, Mike, is just to reiterate that given the competitive environment we see, given the outlook for membership that we see, and given the mix of that membership particularly, we are very, very committed to working hard on the expense piece to drive the expense and the infrastructure down, to have a more appropriate per member expense level. As David noted, we've got flat spending built in here while we continue to invest. However, that gives us with the membership decline an increase in per member expenses. That's clearly unacceptable. And to Mike's point, we have work underway to identify exactly where and how we take those costs out. I just think it's a little early for us to be more definitive relative to how much of that benefit is in '09. It's clearly our intention to have a difference in the '09 expense picture vis-à-vis what we have built into our forecast.

Thank you, Mr. Lake. Our next question comes from [Anu Gupta] of Sanford Bernstein.

So my question is around how we should be thinking about growth in your Health Care business in this economy. The story as I have been hearing it is you are increasing your prices. You are experiencing membership declines, which is natural probably exacerbated by the deteriorating economy. When I back out some of the premium yields, I see 8% to 9% yields on a per month per member basis in your guaranteed cost book. I was wondering in addition to just thinking about improving MLR's with premium yields, are you looking at what your uptick is for products in your voluntary book with the Star HRG, CD, HPs? Are you looking at new product offerings? So that might in some way give you an opportunity to grow your book and cater to some of the cost management pressures that employers are facing today.

Let me give you two different pieces of the pie. First, as it relates to growth, important to look at our retention rates first. So, the retention rates we are seeing as we look into 2009 are actually overall consistent with what we've seen in the past. So for the overall enterprise, it's in the high 80s, with national in the low 90s, the regional segment in the mid to upper 80s. So, point one, the retention rates for our book of business continue to perform well and even in our important experience-rated book, we are seeing an uptick in the retention rates from the 2008 levels. Secondly, for the ASO portfolio, as referenced previously, we continue to see both relative to the market conditions good sales and good retention performance. Where it's most pronounced is in the guaranteed cost and experience-rated. So to your question, where are the stimulants to drive growth? I'll give you a couple of pieces to consider. One, our phased entry into the individual and small, meaning under 50 employer marketplace is rather important for us. It's a phased entry, two to three markets per quarter, began in the latter part of this year and it's critical that we show sustained progress launching into those buyer segments where we've been underrepresented, where they are predominantly, they are guaranteed cost sales and the package sales. Point two is, as we finalize our Great-West integration activities, we are rather excited about the ability to bring their ASO and stop loss, now our ASO and stop loss portfolio to the 51 to 250 like employer, where to-date their choice has solely been guaranteed cost alternatives. It is a nice alternative for an employer who wants higher transparency, who has a packaged purchase and wants to protect the top side of their losses through the stop loss. Finally, we've seen good CDHP growth to the point that you raised. We have seen good CDHP growth in the higher end of the middle market as well as in the national accounts segment and as we push into the under 250 employer segment, we'll be able to bring those CDHP capabilities there. So, we see that as an opportunity looking forward.

The only piece I would add just back to your earnings summary that you started with before asking about the membership growth, I would just reinforce the fact that the Great-West is obviously a source of significant earnings growth for us in 2009 as we had anticipated. With a substantial margin improvement coming primarily from giving their members, their historical members now our members access to stronger medical costs as well as some operating expense reductions. So remember, that's an important part of the earnings growth equation for 2009 and we expect, it's early, but we expect further improvement in that area in 2010 and obviously more updates on 2010 in the future.

I just had a follow-up on that. So on the individual book, what should we be thinking about in terms of membership growth as you are rolling out these products state-by-state for '09?

So important to put in context, the individual book you should think about it starting at a base of close to zero because we have historically now played in that space. In 2009, our expectations would be to grow that book on a net basis in the 30 to 55,000 member range for overall net growth. So there's not a large skyhook there, but when you're counting them one at a time, that's a significant amount of growth. It's a phased entry; first two markets were entered into the third quarter of 2008, additional markets in the fourth quarter of 2008 and then additional markets playing through in quarters going into 2009.

Thank you, Ms. Gupta. And as a reminder, please limit yourself to one question and one follow-up. We'll go next to Charles Boorady of Citi.

First question just on the Health Care business; I noticed significantly lower tax rate. I wonder if that's going to stick going forward. In health and other, the investment income was a lot higher than I expected and as a percent the cash and investments, seems to have gone up, which is out of sync with the rest of your peer group where because of lower interest rates, investment income has been significantly lower as a percent of cash investments. So, I just wonder how to project that also going forward and if there was anything unusual that benefited that item in the quarter?

Charles, this is Mike. First, in terms of the tax rate, I would suggest that it'd be more appropriate to model something closer to our historical tax rate going forward. The third quarter Health Care tax rate in particular benefited from some amended state tax filings, one in particular that hit all in the quarter. So I would suggest that you model what we've had historically there in Health Care in the 35% to 35.5% range going forward. On net investment income, again, that bounces around quarter-to-quarter. Again, I would suggest that you use something more like a rolling average on a year-to-date basis. I'd project that going forward. The major driver of our investment income in 2009 will be much were driven by asset levels than swings in interest rate since in fact our investor portfolio is reasonably long in duration in aggregate.

To what extent is price hardening for gen-one renewals in the national and regional businesses?

I will start and I will ask David if he wants to add. First of all on the regional side in particular for guaranteed cost in experience-rated, it's still pretty early to be real definitive about 1/1. Specifically, we have approximately a third of our guaranteed cost. 1/1/09 renewals at this point had been resolved. So, there's still two-thirds of the precincts have not reported, if you will. But based on what we've seen thus far, I would not characterize 2009 as a hardening pricing environment versus what we've seen in 2008 and obviously that's reflected in our updated forecast for full year 2009 earnings as well as full year membership. David, do you want to add?

No, Charles, I'd just reinforce Mike's point. Consistently we've seen it as a competitive market. There might be individual states where there's a little bit of activity, but too soon to declare an environment of hardening.

Okay. Finally for a point of clarification, in response to one of Rex's questions on the ACL versus CAL and why you might need to put more capital in even though according to the RBC calc, things look okay. Just so I understand that, is this because RBC relies on the rating of the investments you hold to establish the value, whereas the market value may be significantly below the value that RBC would determine?

Charles, it's Mike. No, that is not a material driver in the capital issue. The primary driver of the capital adequacy here for 2008 and 2009 is driven by our benchmark capital targets that we've reviewed with the rating agency. So, it really is based upon long-term how we expect to capitalize our business in these operating subsidiaries and is not primarily investment management driven. Ed?

The only thing I would add, Charles, is remember our mix of business relative to the extent to our ASO business here and so our profile is somewhat less risk intensive.

Thank you, Mr. Boorady. We'll go next to Brian Wright of Banc of America Securities.

Thanks, good morning. Could you give us the actual authorized control level at CIGNA Life and the current statutory level of that subsidiary?

Brian, it's Mike. Let's see, you are specifically referring to CG Life?

Yes.

See, for CG Life at September 30th, we estimate that the overall statutory capital on a rating agency basis for calculations was approximately $2.4 billion. We don't specifically calculate the authorized control level on a quarterly basis. But we would expect that at year end 2008, that our overall on a consolidated basis, statutory capital would be approximately 540% of the authorized control level or approximately 270% of the company action level.

Okay. But you won't give us that number for CG Life?

Well, in terms of year end 2008?

Yes.

At year end 2008, I wouldn't expect it to be materially different. It will likely be down a little bit because of the fourth quarter anticipated items, but if you assume for CG Life at year end, that it was in $2.25 billion to $2.3 billion range, you'd be pretty close.

And your RBC level for CG Life wouldn't be that different from the 540? It'd be lower than that, but would it be in the fours?

Oh, God, no. It would be modestly below the 540, but it would be pretty close to that.

The primary reason you have to have it at a higher level is because that's where you're running your Life business. And what's kind of the level you need to have that at for your Life business?

Well, just to be clear…

Just to keep the A rating that you're targeting?

So, a couple things. First, it's not primarily the Life business that we're concerned about. What we're really concerned about is having a capital over time overall in our operating subsidiaries that support a strong A rating for these insurance company operating subsidiaries. And while the rating agencies would not give you a bright line that you need X amount or an A rating and if you drop down to a Y level, you'd be at BBB or BAA for Moody's. The point is that over time we would expect to be much closer to that 300% of company action level or 600% of the authorized control level. Again, I would not try to speak for the rating agencies. I think it's something like the 270% level as long as they understood, which I believe they do, understand that we're committed to returning to those targeted capital levels over a reasonable period of time. I don't anticipate that being a rating agency trigger. Now again, as I mentioned earlier, it obviously has an impact on 2009 projecting current company cash flows and it means that we do not have repurchase capacity or don't expect to have repurchase capacity in 2009.

Thank you, Mr. Wright. We'll go next to Peter Costa of FTN Midwest Securities.

A question on pricing. You are raising price above cost trend and your margins are going up. So the market didn't really get worse, did it? People just didn't follow your lead to raise prices. Is that correct?

I think that's fair. I mean I think it certainly is tougher in some places than others. Where we have seen increasingly challenging conditions here in 2008 as we have gone through the year and we anticipate that staying the same in terms of 1/1/09 is at the lower end of the market, which primarily impacts our higher margin products, guaranteed costs in the ER. Ed, do you want to add?

I was going to add Peter, I think that's a good representation. David made this point earlier, our retention rates have actually been pretty good. So we've been very focused on maintaining the book of business effectively and getting that book of business to an appropriate margin level. Mike's point is right. We've seen less success in the lower end size of the market. We've also seen less success with new business. So I think as a reflection of kind of the competitive state of the market, people who have us, like us, we can get good margins there. We're very comfortable with that book of business. It's simply we haven't seen the level of new business across that book that we would ultimately like. And I think that's reflective of the competitive nature of the market.

Okay. And then on the pension funding, another one of your competitors shows oppositely rather than to sort of refill the coffers of the pension funds to take the charges on an ongoing basis going forward in terms of pension expense. I think mathematically it's probably better to use the $1 billion of cash that goes away anyway when you fund the pension permanently to repurchase shares as opposed to refunding the pension. Why did you choose what you chose to do the refunding?

First of all, we are evaluating options. So we'll provide updates in the future. Again, what I characterized for you in my prepared remarks is what's built into our current 2009 plan. I'm not going to try to give you a lead pipe block here that that's all locked in here for 2009. We are going to continue to evaluate options and we'll give you updates on any of those options in the future. Second, I would point out that contributions to our pension plan is not throwing that $1 billion away, to use your words, but in fact, would be invested in investment management assets including equities, which several of us believe and maybe even Warren Buffett would say, that it's a good buying opportunity. So I would not characterize it as throwing away. And certainly at this point, we would prioritize higher targeting our pension plan at historically funded levels. We'd target that as a higher priority than share repurchase at this point.

Thank you, Mr. Costa. We'll go next to Scott Fidel of Deutsche Bank.

Thanks. First question just to nail down an actual number for your pricing yield expectations for 2009 in the GC, should we assume that is that 7.5% to 8.5% just 50 bps above the 7% to 8% cost trend guidance?

Scott, it's Mike. Yes, that's a fair assumption for full year '09.

Okay. Then just relative to the experience-rated business, if you can update us on the percentage of accounts in deficit in the third quarter, how that tracked relative to 2Q? And then also in terms of on renewals for 2009, what percentage of the accounts in deficits are looking to renew for 2009?

Sure, Scott, it's Mike. First, in terms of the deficit balances here at third quarter 2008, not materially different than where we ended second quarter of 2008, which net-net is a good thing and in fact, better than we had anticipated. At this point, we ended the third quarter 2008 with approximately 34% of the active cases in deficit. So, same as the second quarter of 2008. The cumulative book of business deficits for the active cases stands at $150 million in third quarter versus $151 million at second quarter. So the good news there is that we saw a relative improvement in the pattern of deficits in third quarter versus second quarter, which is obviously the biggest contributor to the improved loss ratio for the experience-rated book. Well, there is certainly some favorable medical costs relative to what we've seen historically, but it was also driven by strong rate execution in underwriting in the third quarter. We achieved in the 9% to 10% range for the third quarter renewals. That's the kind of level that we're targeting here for first quarter on the renewal book and hence we do expect full year 2009 to show margin expansion in the experience-rated book versus what we saw here in full year '08. Now, that will come at some cost in terms of membership, but overall, we expect to continue down that track. David, do you want to add?

Specific to your retention question, as Mike said, from 1/1 all the precincts aren't reported in yet, but as we look forward to '09, we expect to see based on what's renewed to date a meaningful improvement in our retention rates overall for the experience-rated book from 2008 to 2009. Therefore, you should expect to see both an improvement in cases in surplus as well as those that are in deficit. Said otherwise, for us to improve the margins in the latter part of 2008 and then into 2009, we need to renew those deficit cases and recover a bit of those deficits which in line with our expectations.

One last follow-up question just around the international business and if you could hone in a bit on your top line growth expectations for international for '09? And then maybe just talk a bit in terms of the global economic slowdown, what type of assumptions you are assuming for revenue growth around the expat business relative to the international health and life products?

Scott, David. So, the portfolio is broken up into two components, the expatriate component and the LA&H component. For the expat portfolio, we expect in 2009 to see continued strong retention rates, so growth starts to [retain] in the business, continued strong retention rates as well as new sales to generate some attractive top line growth there, so a healthy outlook for the top line performance of that book of business. For the LA&H portfolio, we expect to see another step-up in what we call annualized new premiums or new sales as we look into 2009, not driven by, important to note, not driven by any one country, although as we said in our prepared remarks, Korea represents our largest individual country. We are seeing a good uptake in the health, supplemental life, and other products more broadly. Finally for the LA&H portfolio, the 2009 outlook has an expectation of retention rates for those individual policyholders about at the level that we saw in 2008. So increasing the top line with new sales, retaining business at a consistent rate for the LA&H portfolio as well as for the CIEB portfolio, consistent retention levels and good new business sales. Ed?

The only thing I would add to David's is it's interesting. Remember, the products in individual life, accident and health are fairly low cost, simple products, which interestingly we have seen historically when economies may be more challenged actually have some benefit because they are lower cost and people often times will view them as alternatives to what they might have done otherwise. So while I wouldn't say they are recession proof or depression proof, they are certainly products that seem to have reasonably good demand through ups and downs of economic cycles. When you combine that back with the fact that we are expanding in terms of the markets and the sponsors that we are working with, it gives us the opportunity to continue to expect some pretty reasonable growth.

Thank you, Mr. Fidel. Our final question is from Greg Nersessian of Credit Suisse.

Most of my questions have been answered. I just wanted to just understand the pension contribution again. I guess the $600 million, did you say that gets you to your fully funded status or I guess if not, how close to your fully funded status would that get you? And then what is built into your '09 guidance in terms of a potential capital raise I guess in terms of interest expense? Are you assuming you are raising that capital externally, and what kind of rates are you [assuming]?

Let me answer your second question first and I'll come back to your first one. The 2009 earnings estimates assume that we raise an additional $500 million in longer-term debt. Now that's an assumption and obviously we will update that as we go through the year, but we assume that we will raise $500 million of external long-term debt and that that will replace the current commercial paper outstanding. That's what built into the earnings. In terms of the interest rate that's assumed there, if you thought something in the high single digits, you would not be far off. And again, that's what is booked in the earnings numbers. In terms of the pension plan in particular, what I described in my prepared remarks, which would be a $600 million net after-tax contribution from the parent company into the pension plan would not fully fund the plan, but it would increase the funding levels of the plan back to what we've done historically. So specifically, it would assume that as we've done historically that we would fund up to the 80% and then grade from the 80% funded level to the 100% over a period of years. And that's what we've done historically.

Okay, that's very helpful. A last quick question. The fair value of the assets that you provided in this schedule, which is very helpful, declined less than I expected it to have particularly maybe the corporate bonds in the financial services segment. So, just wondering, I guess what percentage of these assets that you've listed here are tier-1 that are based on market prices versus based on your estimates?

First, the majority of our fixed investment portfolio are in fact calculated based on tiers two and three pricing calculations and not literally tier-1. Having said that, we believe that our tier-2 pricing for example for the private placements continues to be appropriate and I would not try to use tier-1 versus tier-2 as a determination of your confidence level in those underlying prices.

Thank you, Mr. Nersessian. Ladies and gentlemen, this concludes CIGNA's third quarter 2008 results review. CIGNA Investor Relations will be available to respond to additional questions shortly. A recording of this conference will be available for 10 business days following this call. You may access the recorded conference by dialing 888-203-1112 or 719-457-0820. The passcode for the replay is 6083437. Thank you for participating.