A.M. Best Revises Issuer Credit Rating Outlook to Positive for Cigna Corporation and Key Subsidiaries
A.M. Best has affirmed the financial strength rating (FSR) of A (Excellent) and the issuer credit ratings (ICR) of “a” of the key life/health subsidiaries, the medical health maintenance organizations (HMO) and dental HMO subsidiaries of Cigna Corporation (collectively referred to as Cigna) (Bloomfield, CT) [NYSE: CI]. Concurrently, A.M. Best has affirmed the ICR of “bbb” and long-term debt ratings of Cigna Corporation. A.M. Best also has affirmed the FSRs of A- (Excellent) and the ICRs of “a-” of four Cigna supplemental benefit companies and six Cigna HealthSpring companies. The outlook for the majority of the ICRs has been revised to positive from stable. The outlook for the majority of the FSRs is stable. (Please see link below for a detailed listing of the companies and ratings.)
The rating affirmations reflect Cigna’s diversified business profile, favorable strategic position within the health insurance market, strong financial performance and good level of risk-adjusted capital. The organization continues to strengthen its position as one of the leading providers of health, group life and disability benefits. Over the past several years, Cigna further strengthened its business profile through the growth of international operations and successful expansion into U.S. senior markets. Cigna’s relatively low exposure to commercial full-risk and individual business provides a competitive advantage, as the impact of changes and potential membership losses related to the Patient Protection and Affordable Care Act (ACA) implementation are significantly smaller in comparison with its peers. In addition, Cigna’s proven ability to offer administrative services only (ASO) solutions for the middle market has become an engine for growth, as smaller employers are looking to transition to self-funded plans.
Cigna continues to report strong revenue and earnings growth that has allowed it to maintain sound risk-adjusted capitalization at the insurance entities. In addition, Cigna’s 2013 reinsurance agreement with Berkshire Hathaway Life Insurance Company eliminated volatility related to the run-off variable annuities business, and allowed Cigna to focus resources on its core segments. The revision of the rating outlook to positive from stable for most of the insurance entities reflects A.M. Best’s opinion that Cigna has successfully navigated through initial ACA market changes and is well-positioned for future profitable growth in various business segments.
Partially offsetting these strengths is earnings pressure at Cigna’s Global Health Care segment due to ACA fees, increased competition and lower Medicare Advantage reimbursement levels. In addition, Cigna experienced unfavorable financial results in its new individual exchange business in 2014; however, the exchange membership remains small and is not likely to grow substantially in 2015 following pricing actions and product modifications. Furthermore, dividends from regulated entities to Cigna Corporation increased significantly over the past three years, with dividends from Connecticut General Life Insurance Company (CG Life) totaling approximately $3.3 billion over the past 36 months. Higher dividends resulted in significantly lower risk-adjusted capitalization at CG Life. However, the current level of capitalization at the majority of Cigna’s life/health subsidiaries, including Cigna Health and Life Insurance Company (CHLIC), the largest entity following the transfer of health premium from CG Life, is considered sufficient for the ratings. In addition, the organization successfully reduced its financial leverage over the past few years, easing potential pressure on the subsidiaries.
Key rating drivers that may lead to an upgrade of the ratings of Cigna Corporation and its operating subsidiaries include stability and additional diversification of earnings, premium growth, enhanced risk-adjusted capital and a further reduction in financial leverage. Key factors that may lead to an outlook revision back to stable include an increase in financial leverage beyond A.M. Best’s expectations; deterioration in interest coverage; a decline in risk-adjusted capital at Cigna’s lead operating entities, CHLIC and CG Life; a weakening of operating performance; or material impairments within the investment portfolio.
For a complete listing of Cigna Corporation’s FSRs, ICRs and debt ratings, please visit The Cigna Corporation.
The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
Key insurance criteria reports utilized:
- Risk Management and the Rating Process for Insurance Companies
- Understanding BCAR for U.S. and Canadian Life/Health Insurers
- A.M. Best’s Liquidity Model for U.S. Life Insurers
- Rating Members of Insurance Groups
- Understanding Universal BCAR
- Insurance Holding Company and Debt Ratings
- Evaluating Country Risk
- Analyzing Insurance Holding Company Liquidity
This press release relates to rating(s) that have been published on A.M. Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please visit A.M. Best’s Ratings & Criteria Center.
A.M. Best Company is the world’s oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.
Copyright (c) 2015 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.
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