Fitch Revises CIGNA's Outlook to Negative; Affirms 'A-' IDR & 'A+' IFS

CHICAGO--(BUSINESS WIRE)--Fitch Ratings has revised its Rating Outlook for CIGNA Corporation (NYSE:CI) (CIGNA) from Stable to Negative and affirmed all outstanding ratings. A full rating list is shown below.

The Outlook revision to Negative follows CIGNA's release of third quarter earnings and related announcements. While several aspects of CIGNA's operations are going well, there are many near-term challenges and uncertainties, including:

--Operating losses and capital requirements related to the run-off reinsurance business driven primarily by variable annuity death benefit guarantees, which will contribute to a modest weakening of CIGNA's operating capital over the near-term;

--Uncertain funding needs for CIGNA's pension plan; and

--An elongated period relative to expectations in which financial leverage will remain above management's target of 30% debt-to-capital.

In spite of solid performance, Fitch also anticipates CIGNA's asset portfolio may incur some modest impairment in the coming quarters. Anticipated asset losses are not currently likely to be material, though could compound issues outlined above and have an impact on operating capital.

Fitch believes CIGNA has adequate liquidity and financial flexibility to address its current challenges, assuming market conditions do not materially deteriorate from current levels and that the company's earnings expectations are met in 2009, which will provide significant cash flow that will help address the challenges outlined above. Fitch's concern will be alleviated if management is able to successfully address these issues. If conditions do deteriorate and / or management decides to not utilize the flexibility available, then the ratings will incur downward pressure. If CIGNA's balance sheet is strained by any combination of the above, Fitch could lower the ratings one notch.

In July 2008 Fitch revised the Health Insurance and Managed Care sector Outlook to Negative from Stable, citing concerns related to cash flow trends and higher financial leverage.

Fitch's ratings on CIGNA reflect the company's well-established competitive position in the U.S. health benefits and group insurance business, adequate profitability and good operating company balance sheet quality. CIGNA's business mix, including group benefits and international operations, differentiate the company relative to other health and managed care peers by providing diversity to its earnings base. Fitch favorably views CIGNA's large fee-based and experienced-rated business relative to their underwritten business due to is low exposure to underwriting risk.

Given the recent projections from CIGNA, Fitch's rating expectations include a modestly declining medical membership in the near term. Fitch anticipates CIGNA will witness generally stable to modestly declining operating margins during the remainder of 2008 and overall operating earnings levels are expected to remain relatively stable to slightly declining over the next several quarters.

Given Cigna's recent VA losses and pension issues, balance sheet quality is expected to remain solid although slightly strained. The balance sheet includes strong asset quality, adequate reserves levels and good operating company capitalization. Asset impairment risk has not been a material issue to date, and financial leverage is not materially outside of Fitch's expectations with debt-to-EBITDA not expected to deviate materially from 1.5 times (x).

Fitch has affirmed the following ratings and revised the Rating Outlook to Negative from Stable:

CIGNA Corporation

--Long-term Issuer Default Rating (IDR) at 'A-';

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

--5.375% Notes due 2017 '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+';

--Short-term IDR at 'F2';

--Commercial paper 'F2'.

Connecticut General Life Insurance Company

--Insurer financial strength (IFS) at 'A+'.

Life Insurance Company of North America

--IFS at 'A+'.

CIGNA Life Insurance Company of New York

--IFS at 'A+'.

CIGNA Worldwide Insurance Company

--IFS at 'A+'.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.