(The following statement was released by the rating agency)
CHICAGO, July 09 (Fitch) Fitch Ratings has upgraded Cigna Corp's
long-term IDR to 'A-' from 'BBB+' and unsecured senior debt
ratings to 'BBB+'
from 'BBB'. In addition, Fitch has upgraded the Insurer
Financial Strength (IFS)
ratings of various Cigna subsidiaries to 'A+' from 'A'. The
Rating Outlook is
Stable. A complete list of rating actions is listed below.
KEY RATING DRIVERS:
The rating upgrade reflects Cigna's strong operating results
relative to current
rating category guidelines that Fitch believes are sufficient to
expectations for margin pressure industry-wide. The upgrade also
Cigna's improved credit profile after addressing variable
under-funded pension obligation issues.
Balanced against these strengths is potential for a generally
earnings environment following changes in the healthcare
implementation of the Affordable Care Act (ACA).
Consistently solid profitability and interest coverage are key
partially offsetting high financial leverage. During first
(1Q'14), annualized EBITDA/revenue was 12.6% and annualized
return on capital
was 13.8%. Both ratios are better than Fitch's guidelines for
the 'A' rating
category. EBITDA covered interest expense by 15.3 times during
level of interest coverage is above Cigna's recent average which
was in the low
double digits. Interest coverage exceeded Fitch's median
guideline for Cigna's
current rating category.
Fitch's view is that the employer group market for health
insurance is likely to
see membership dislocation to the individual market, largely
though the public
exchanges with the implementation of the ACA. In the
intermediate term, Fitch
believes that Cigna is likely to be impacted by this trend, but
to a lesser
degree than peers.
Cigna's debt-to-rolling four-quarter EBITDA was 1.4x at March
improving due to stronger earnings and exceeding Fitch's median
the current rating category. Cigna's debt-to-total capital
ratio was 34% at
March 31, 2014 and remains elevated relative to Fitch's
guideline of 28% for the
current rating category. Fitch expects the debt-to-total
capital ratio to
gradually be reduced through capital retention over the next 2
years to the low
Cigna addressed a potential source of earnings and capital
reinsuring most of its variable-annuity reinsurance business
Hathaway in 1Q'13. A combination of rising interest rates and
markets during 2013 increased the funded status of Cigna's
pension plan. Fitch
believes this improvement reduces the potential for future
Cigna offers healthcare products in all 50 states and
14 million medical members and revenue of $32 billion in 2013.
Cigna's market position and size/scale are considered "Large"
sector credit factors. Cigna's market position based on
fourth behind UnitedHealth Group, Inc., WellPoint, Inc., and
The key rating triggers that could lead to a downgrade include:
-- Elevated financial leverage measured by debt-to-total capital
or debt-EBITDA above 1.8x;
-- Deterioration in capitalization, measured by an NAIC RBC
ratio below 270% of
-- Disruption in Cigna's earnings profile as evidenced by
8% and net return on average capital ratios below 10%.
The key rating triggers that could result in an upgrade include:
-- Lower financial leverage ratios, specifically debt-EBITDA
better than 1.2x
and debt-to-total capital near 25%;
-- Stronger risk-based capitalization measured by a NAIC RBC
ratio near 350% of
the company action level;
-- Enhanced market position and size/scale comparable to peers
rated in the 'AA'
Fitch has taken the following rating actions:
--IDR upgraded to 'A-' from 'BBB+';
--Senior unsecured notes upgraded to 'BBB+' from 'BBB'.
--Short-term IDR affirmed 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
-- IFS upgraded to 'A+' from 'A'.
Douglas Pawlowski, CFA
Fitch Ratings, Inc., 70 W. Madison Street, Chicago, IL 60602
Mark Rouck CPA, CFA
Jim Auden, CFA
Media Relations: Brian Bertsch, New York, Tel: +1 212-908-0549,
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Insurance Rating Methodology' (Nov. 13, 2013);
--'Health Insurance and Managed Care (U.S.) Sector Credit
Factors', Dec. 18,
Applicable Criteria and Related Research:
Insurance Rating Methodology
Health Insurance and Managed Care (U.S.) Sector Credit Factors
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