Fitch Affirms Cigna's Ratings; Outlook Stable

CHICAGO--()--Fitch Ratings has affirmed Cigna Corporation's (Cigna) Issuer Default Rating at 'A-' and unsecured senior debt ratings at 'BBB+'. In addition, Insurer Financial Strength (IFS) ratings of various Cigna subsidiaries are affirmed at 'A+'. The Rating Outlooks are Stable. A complete list of rating actions is at the end of this release.

KEY RATING DRIVERS

Cigna's ratings reflect its large market position, solid profitability and well capitalized operating companies. Balanced against these strengths are a high financial leverage ratio and the potential for a generally challenged earnings environment following changes in the healthcare industry from implementation of the Affordable Care Act (ACA).

Cigna offers healthcare products in all 50 states and internationally, reporting 14 million medical members and revenue of $32 billion in 2013. Consequently, Cigna's market position and size/scale are considered 'Large' under Fitch's sector credit factors. Insurers with these characteristics are typically rated in the 'A' category, but can reach 'AA'. Cigna's market position based on membership ranked fourth behind UnitedHealth Group, Inc., WellPoint, Inc., and Aetna Inc.

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, Cigna is likely to be impacted by this trend, but to a lesser degree than peers.

Capitalization at Cigna's operating companies, measured by NAIC risk-based capitalization (RBC) and operating leverage, has consistently been better than Fitch's guidelines for the current rating category. Consolidated RBC is expected to be near 285% of the company action level (CAL) at year-end 2014. The ratio between managed care premiums and equity ranged between 1.8x and 2.8x depending on whether health premiums only or consolidated premiums are included in the calculation.

Cigna's debt-to-rolling four quarter EBITDA was 1.3x at Sept. 30, 2014, exceeding Fitch's median guideline for the current rating category. Cigna's financial leverage ratio was 33% at Sept. 30, 2014 and remains elevated relative to a guideline of 28% for the current rating category. The debt-to-total capital ratio is anticipated to gradually decline through capital retention toward the 30% range.

Consistent, solid profitability and interest coverage are key rating components partially offsetting high financial leverage. During the third quarter of 2014, annualized EBITDA/revenue was 12.3% and annualized return on capital was 14%. Both ratios are better than Fitch's guidelines for the 'A' rating category.

EBITDA covered interest expense by 15.7x during the first nine months of 2014. This level of interest coverage is above the company's recent average which was in the low double digits. Interest coverage exceeded Fitch's median guideline for Cigna's current rating category.

RATING SENSITIVITIES:

The key rating triggers that could lead to a downgrade include:

--Elevated financial leverage measured by debt-to-total capital exceeding 35% or debt-EBITDA above 1.8x;

--Deterioration in capitalization, measured by an NAIC RBC ratio below 270% of the CAL;

--Disruption in Cigna's earnings profile as evidenced by EBITDA/revenue below 8.0x 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 RBC 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' category.

Fitch has affirmed the following rating with a Stable Outlook:

Cigna Corp.

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

--Senior unsecured notes at 'BBB+';

--Commercial paper rating at 'F2';

--Short-term IDR 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

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

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

Applicable Criteria and Related Research:

--'Insurance Rating Methodology', September 2014;

--'Health Insurance and Managed Care (U.S.) Sector Credit Factors', August 2014.

Applicable Criteria and Related Research:

Insurance Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=756650

Health Insurance and Managed Care (U.S.) (Sector Credit Factors)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=766788

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=934075

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Contacts

Fitch Ratings
Primary Analyst
Douglas Pawlowski, CFA
Senior Director
+1-312-368-2054
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
or
Mark Rouck CPA, CFA
Senior Director
+1-312-368-2085
or
Committee Chairperson
James B. Auden, CFA
Managing Director
+1-312-368-3146
or
Media Relations:
Brian Bertsch, +1-212-908-0549 (New York)
brian.bertsch@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Douglas Pawlowski, CFA
Senior Director
+1-312-368-2054
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
or
Mark Rouck CPA, CFA
Senior Director
+1-312-368-2085
or
Committee Chairperson
James B. Auden, CFA
Managing Director
+1-312-368-3146
or
Media Relations:
Brian Bertsch, +1-212-908-0549 (New York)
brian.bertsch@fitchratings.com