A.M. Best has affirmed the financial strength rating (FSR) of A (Excellent) and issuer credit rating (ICR) of "a" of the key life/ health subsidiaries as well as the medical health maintenance organizations (HMO) and dental HMO subsidiaries of Cigna Corp. (Cigna) (Bloomfield, CT) [NYSE:CI].
Concurrently, A.M. Best has affirmed the ICR of "bbb" and long- term debt ratings of Cigna.
A.M. Best also has affirmed the FSRs of A- (Excellent) and ICRs of "a-" of four Cigna supplemental benefit companies and six Cigna HealthSpring companies. The outlook for the above ratings is stable, with exception of the outlook for the Cigna HealthSpring companies, which was revised to positive from stable. (See link below for a detailed listing of the companies and ratings.)
The rating affirmations reflect the organization's revenue growth, increased focus on core businesses, strong financial performance and sound risk-adjusted capital. The Cigna health, life and disability insurance entities have consistently reported strong earnings with return on revenues typically exceeding 7 percent. Cigna's low exposure to commercial full-risk business provides a competitive advantage, as the impact of changes related to The Patient Protection and Affordable Care Act implementation is less significant relative to its peers. Moreover, Cigna's operations are diversified both geographically and by product. The addition of both HealthSpring'sMedicare Advantage products and Great American'sMedicare supplemental business in 2012 added product diversity to the company's health care segment. Furthermore, Cigna's reinsurance agreement with Berkshire Hathaway eliminated potential earnings volatility related to its run-off variable annuity (VA) reinsurance business, allowing Cigna to focus resources on its core segments.
Partially offsetting these strengths are the organization's compressing margins, higher dividends to the holding company and albeit sufficient but lower risk-adjusted capitalization than the recent past. While earnings have remained strong, Cigna's medical loss ratio has increased across all segments, in line with industry trends. In addition, 2013 net earnings results were impacted by charges related to its VA exit, as well as charges from the organizational efficiency plan. Dividends from regulated entities to Cigna increased significantly over the last three years, with a dividend from Connecticut General Life Insurance Company (CG Life) of approximately $1 billion for each of the past three years. This has resulted in a declining trend of risk-adjusted capitalization at CG Life, the group's largest legal entity. However, the level of capitalization at the majority of Cigna's regulated entities, as well as holding company cash and marketable securities, remains more than sufficient for its ratings.
Key rating drivers that may lead to positive rating actions on Cigna and its subsidiaries include stability and further diversification of earnings, enhanced risk-adjusted capital at the operating subsidiaries as well as a further reduction in financial leverage. Key rating drivers that may lead to negative rating actions 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 major operating entities; a significant weakening of operating performance; or material impairments within its investment portfolios.
The revised outlook for the Cigna HealthSpring entities reflects their partial integration into Cigna as well as the increased strategic importance of the Medicare Advantage product and HealthSpring's low-cost care delivery model. Key rating drivers that may lead to positive rating actions on the Cigna HealthSpring subsidiaries include continued integration with Cigna and increased brand awareness of the HealthSpring entities as part of the Cigna organization. Key rating drivers that may lead to negative rating actions include substantial deterioration of operating performance, significant membership losses or diminished support by Cigna.
For a complete listing of Cigna Corp. and its subsidiaries' FSRs, ICRs, and debt ratings, please visit www.ambest.com/press/ 021302cigna.pdf.
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: ambest.com/ratings/methodology.
A.M. Best Company is an insurance rating and information source.
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