Fitch Affirms CIGNA’s Ratings on Acquisition Announcement; Outlook Negative

CHICAGO--(BUSINESS WIRE)-- Fitch Ratings has affirmed CIGNA Corporation's (CIGNA) 'BBB+' Issuer Default Rating (IDR) and related ratings (see full rating list below). The rating actions follow CIGNA's announced acquisition of Vanbreda International. The Rating Outlooks on CIGNA and its subsidiaries remain Negative.

The rating rationale for today's action is Fitch's belief that the acquisition's liquidity and balance sheet implications are modest for a company with CIGNA's financial and operating profile. Fitch views the company's operating cash flow as strong, and post-acquisition capitalization - both at the holding and operating company levels - to be supportive of the company's current ratings.

Vanbreda International is a privately held, Belgium-based company that specializes in providing worldwide medical insurance and employee benefits. Fitch views the acquisition as consistent with CIGNA's strategy to grow as an international health benefits provider.

Factors that continue to support CIGNA's ratings include the company's established competitive position in the U.S. health benefits and group insurance business, favorable operating profile including good capitalization, stable profitability, and diverse earnings base.

The Negative Outlook assigned to CIGNA and its operating company subsidiaries reflects uncertainty about the impact of the Patient Protection and Affordable Care Act (PPACA). Various potential consequential developments of PPACA that Fitch believes could increase downward ratings pressure include adverse risk selection, operating margin compression and membership declines. Fitch revised the Rating Outlook on all health insurance and managed care insurers to Negative in July 2009 in anticipation of PPACA's passage.

Fitch's current expectations are that sufficient clarity around PPACA's impact may emerge in the fourth quarter of 2010 for Fitch to evaluate CIGNA's Negative Outlook. Should Fitch's view of government mandates change to neutral or slightly negative, Fitch may move the Outlook to Stable.

Beside concerns with PPACA, CIGNA-specific key rating drivers that could lead to a downgrade include:

--A sustained decline from the company's target 300% risk-based capital ratio;

--A meaningful increase in financial leverage above the current 34% debt-to-capital ratio;

--A meaningful increase in pension cash funding demands;

--Heightened volatility in financial markets causing a dramatic increase funding needs for the company's run-off variable annuity reinsurance business.

CIGNA-specific key rating drivers that could lead to an upgrade include:

--Sustained increases in operating company risk-based capital ratios above the company's current targets of 300%;

--Run-rate financial leverage meaningfully below management's targeted 30% debt-to-total capital ratio;

--Moderating future pension cash funding demands.

The following ratings are affirmed, with a Negative Outlook:

CIGNA Corporation

--Long-term IDR at 'BBB+';

--7% notes due 2011 at 'BBB';

--5.375% notes due 2017 at 'BBB'.

--6.375% notes due 2011 at 'BBB';

--6.35% notes due 2018 at 'BBB'

--7.65% notes due 2023 at 'BBB';

--8.3% notes due 2023 at 'BBB';

--7.875% debentures due 2027 at 'BBB';

--8.3% step down notes due 2033 at 'BBB';

--6.15% notes due 2036 at 'BBB';

--8.5% notes due 2019 at 'BBB';

--5.125% notes due 2020 at 'BBB';

--Short-term IDR at 'F2';

--Commercial paper 'F2'.

Connecticut General Life Insurance Company

--IFS at 'A'.

Life Insurance Company of North America

--IFS at 'A'.

CIGNA Life Insurance Company of New York

--Insurer Financial Strength (IFS) at 'A'.

CIGNA Worldwide Insurance Company

--IFS at 'A'.

Additional information is available at 'www.fitchratings.com'

Related Research:

--'Insurance Rating Methodology', dated Aug. 16, 2010;

--'U.S. Health Insurance and Managed Care Rating Methodology' March 24, 2010.

Related Research:

Insurance Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=547766

U.S. Health Insurance and Managed Care Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=506365

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Fitch Ratings
Primary Analyst
Manish Patel, +1-312-368-3188
Associate Director
70 W. Madison Street
Chicago IL 60602
or
Mark Rouck, +1-312-368-2085
Senior Director
or
Peter F. Patrino, +1-312-368-3266
Group Credit Officer
or
Committee Chairperson
Julie Burke, CPA, +1-312-368-3158
Managing Director
or
Media Relations:
Sandro Scenga, +1-212-908-0278, New York
Email: [email protected]

Source: Fitch Ratings