Fitch Ratings has affirmed Cigna Corp's (Cigna) 'BBB+' Issuer Default
Rating (IDR) and 'BBB' unsecured senior debt ratings. In addition, the
'A' Insurer Financial Strength (IFS) rating of certain Cigna
subsidiaries were also affirmed. The Rating Outlooks are Stable. A
complete list of rating actions follows at the end of this release.
Today's affirmations follow the completion of a periodic review by Fitch
of Cigna's ratings. The rating actions are independent of the pending
U.S. Supreme Court ruling on Patient Protection and Affordable Care Act
(PPACA). Fitch continues to believe that near-term rating changes to
Cigna's, or other health insurance and managed care companies', ratings
are unlikely regardless of the court's decision.
Cigna's ratings reflect its sizeable position and scale in the health
insurance and managed care industry. Consistent profitability, well
capitalized operating subsidiaries and a diversified offering of
products favorably support Cigna's ratings. Balanced against these
strengths are high financial leverage and legacy issues tied to Cigna's
run-off reinsurance business.
Cigna offers health care products in all 50 states and internationally,
but has a smaller market share compared to market leaders. Cigna's
nearly 13 million medical members and revenue of $22 billion at year-end
2011 were consistent with Fitch's median guidelines for 'modestly-sized'
health care companies.
Cigna's profitability measured by five-year average pre-tax margin and
return on capital of 10% and 13.6%, respectively were superior to
Fitch's guidelines for the current rating category. The company's
profitability is a key component offsetting high financial leverage and
risks associated with run-off business segments.
Capitalization at Cigna's operating companies (Connecticut General Life
Insurance Company, Life Insurance Company of North America, Cigna Life
Insurance Company of New York); measured by NAIC Risk-Based Capital
(RBC) and operating leverage, have consistently exceeded Fitch's
guidelines for the current rating category. Over the most-recent
five-year period, the NAIC RBC ratio averaged 333% of the company action
level (CAL) and the ratio between managed care premiums and equity
averaged 1.7x. The newly acquired HealthSpring, Inc. (HealthSpring) was
historically carried at a lower RBC, and consequently the
organization-wide RBC is expected to be modestly below 300% of the CAL
During 2011 Cigna issued debt in anticipation of its acquisition of
HealthSpring, bringing debt as a percentage of total capital to 38% at
year-end 2011. This level of financial leverage is viewed as temporary
and Fitch expects Cigna to make meaningful progress toward lower
leverage by focusing on capital growth through retained earnings in
2012. The ratio between debt and annualized earnings before interest,
tax, depreciation and amortization (EBITDA) is somewhat elevated at 1.8x
at March 31, 2012, but remains consistent with Fitch's guidelines for
the current rating category.
Cigna's run-off variable annuity reinsurance business adds volatility to
results as seen in the $135 million loss from guaranteed minimum income
benefits (GMIB) business during 2011. Cigna exited this business in
2000, but the long-term nature of these liabilities makes it an ongoing
The key rating triggers that could result in an upgrade include:
--A change in run-rate debt-to-total capital toward 25%;
--A reduction in run-rate earnings and capital volatility associated
with run-off segments or a more fully funded pension.
The key rating triggers that could lead to a downgrade include:
--Failure to make meaningful progress in reducing debt-to-total capital
toward Fitch's median guideline of 30% for the current rating category;
--A material increase in either losses from Cigna's run-off business
segments or pension funding requirements;
--Deterioration in capitalization, measured by an NAIC RBC ratio below
250% of the CAL;
Fitch affirmed the following rating:
--Issuer default rating at 'BBB+';
--Senior unsecured notes at 'BBB';
--Short-term IDR at 'F2';
--Commercial paper rating at 'F2'.
Cigna Corp. Subsidiaries:
Connecticut General Life Insurance Company
Life Insurance Company of North America
Cigna Life Insurance Company of New York
Cigna Worldwide Insurance Company
--Insurer Financial Strength (IFS) ratings at 'A'.
Additional information is available at 'www.fitchratings.com'.
The ratings above were solicited by, or on behalf of, the issuer, and
therefore, Fitch has been compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--'Insurance Rating Methodology' (Sept. 22, 2011);
--'U.S. Health Insurance and Managed Care Rating Methodology' (March 31,
Insurance Rating Methodology
Health Insurance and Managed Care (U.S.) Sector Credit Factors
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Fitch RatingsPrimary AnalystDouglas Pawlowski, CFA,
+1-312-368-2054Senior DirectorFitch, Inc.70 W. Madison
StreetChicago, IL 60602orMark Rouck CPA, CFA,
+1-312-368-2085Senior DirectororCommittee ChairpersonJim
Auden, CFA, +1-312-368-3146Managing DirectororMedia
RelationsBrian Bertsch, New York, +firstname.lastname@example.org
Source: Fitch Ratings