U.S. health insurer CIGNA Corp. ( CI), has been rated by A.M. Best Co. As a result of its rating action the agency has affirmed the issuer credit rating (:ICR) of "bbb" and debt ratings of Cigna.
The rating agency has also reviewed the operations of Cigna’s major subsidiaries, as a result of which A. M. Best reiterated financial strength rating (:FSR) of "A" and ICR of “a” for the company’s major life, health, medical health maintenance organizations (:HMO) and dental HMO subsidiaries.
The rating agency acknowledges Cigna’s superior operating performance along with a diversified business profile.The company has made a foray in the business of serving the senior population, a much sought-after line of business, with the acquisition of HealthSpring.
Cigna also remains ahead of the other players UnitedHealth Group Inc. ( UNH) and Aetna Inc. ( AET), in the same industry in terms of expanding international operations. Cigna has an active presence in Asian markets and is continuing its efforts to further penetrate other international markets.
The rating agency also views favorably Cigna’s recent reinsurance transaction entered with Berkshire Hathaway, Inc. (BRK.A), (BRK.B). The transaction has helped to unburden Cigna’s significant liabilities and will enable it to focus on more important aspects of its business.
Despite the strengths the rating agency is concerned with dwindling margins in the company’s health care and disability line of business. The decline is due to higher share of Medicare Advantage business, which is less profitable than commercial business.
Cigna also carries a high degree of financial leverage witnessed by a ratio of 34%. Such high level of debt in the capital structure might weaken the capital ratio.
The rating agency also conferred an FSR of A- and ICRs of “a-” to HealthSpring, recently acquired by Cigna. The rating agency has taken into consideration, the fact that the company has been witnessing a membership growth and that it holds a prominent place in Medicare Advantage line of business. It also acknowledges HealthSpring’s contribution to Cigna in providing access to the Medicare Advantage business and towards collaborative care provider relationship experience.
Further positive rating actions may come from factors such as stability of earnings, enhanced risk-adjusted capital at the operating subsidiaries and a decline in financial leverage. However, a negative rating action may not be ruled out in case of decline in interest coverage; a decrease in risk-adjusted capital at Cigna's lead operating entity and significant weakening of operating performance; or material impairments within the investment portfolio.
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