Fitch Affirms Cigna's Ratings; Outlook Stable

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

KEY RATING DRIVERS

Cigna's 'A+' IFS ratings reflect its 'large' market position and size/scale; insurers with these characteristics are typically rated in the 'A' category, but can reach 'AA'. The company consistently reports solid profitability with better margins than peers. The insurance operating subsidiaries are well capitalized, while the financial leverage ratio at the holding company remains high relative to the rating category.

Cigna Corporation (Cigna) offers healthcare products in all 50 states and internationally. Cigna's market position and size/scale are based on medical membership of greater than 14 million and full year 2014 revenue of nearly $35 billion. Cigna's market position based on membership ranked fourth behind UnitedHealth Group, Inc., WellPoint, Inc., and Aetna Inc.

Consistently solid profitability and interest coverage are key rating components partially offsetting high financial leverage. During the first quarter of 2015, annualized EBITDA/revenue was 11.3% and annualized return on capital was 13.9%. Both ratios are better than Fitch's guidelines for the 'A' rating category and similar to ratios reported at year-end 2014.

Capitalization at Cigna's operating companies, measured by NAIC RBC and operating leverage, has consistently been better than Fitch's guidelines for the current rating category. Consolidated RBC is expected to remain near 285% of the company action level (CAL) over the intermediate term. The ratio between managed care premiums and equity ranged between 1.9x and 2.5x depending on whether health premiums only or consolidated premiums are included in the calculation.

At the end of the first quarter of 2015 Cigna issued $900 million of 10-year senior notes, using the proceeds to redeem all outstanding $600 million 2.75% notes due in 2016 and $251 million 8.5% notes due in 2019.

Cigna's debt-to-rolling four quarters EBITDA was 1.3x at March 31, 2015, which was better than Fitch's median guideline for the current rating category. Cigna's financial leverage ratio (FLR) was 35% at March 31, 2015, adjusting for the debt redemption that was not fully complete at the quarter end. The FLR 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 toward the 30% range.

The run-rate interest coverage ratio was 15 times, calculated following the first quarter of 2015. This level of 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 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' category.

Fitch has affirmed the following ratings:

Cigna Corp.

--IDR at 'A-';

--Senior unsecured notes at 'BBB+';

--Commercial paper at 'F2';

--Short-term IDR at 'F2'.

The Rating Outlook is Stable.

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);

--'Exposure Draft: Insurance Notching Criteria' (May 2015);

--'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=686930

Exposure Draft: Insurance Notching Criteria (Proposed Methodology Changes)
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=865576

Additional Disclosure

Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=985078

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Contacts

Fitch Ratings
Primary Analyst
Douglas Pawlowski, CFA, +1-312-368-2054
Senior Director
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
or
Mark Rouck CPA, CFA, +1-312-368-2085
Senior Director
or
Committee Chairperson
Donald F. Thorpe, CPA, CFA, +1-312-606-2353
Senior Director
or
Media Relations, New York
Alyssa Castelli, +1-212-908-0540
alyssa.castelli@fitchratings.com
Elizabeth Fogerty, +1-212-908-0526
elizabeth.fogerty@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Douglas Pawlowski, CFA, +1-312-368-2054
Senior Director
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
or
Mark Rouck CPA, CFA, +1-312-368-2085
Senior Director
or
Committee Chairperson
Donald F. Thorpe, CPA, CFA, +1-312-606-2353
Senior Director
or
Media Relations, New York
Alyssa Castelli, +1-212-908-0540
alyssa.castelli@fitchratings.com
Elizabeth Fogerty, +1-212-908-0526
elizabeth.fogerty@fitchratings.com