Press Release - JANUARY 04, 2019
AM Best Affirms Credit Ratings of Cigna Corp and Subs; Removes from Under Review, Affirms Ratings of Medco Containment Group
FOR IMMEDIATE RELEASE
OLDWICK - JANUARY 04, 2019
Lastly, AM Best has withdrawn the indicative Long-Term IRs of Cigna Holding Company.
The majority of Cigna’s operating entities are collectively referred to as Cigna Life & Health Group. The ratings of Cigna Life & Health Group reflect is balance sheet strength, which AM Best categorizes as strong, as well as its strong operating performance, favorable business profile and appropriate enterprise risk management (ERM).
The ratings of Cigna Life & Health Group also reflect high financial leverage of approximately 49%, and high level of goodwill at Cigna, the ultimate parent. In addition, there is a significant execution risk related to the Cigna-Express Scripts merger given the vertical nature of the transaction. However, Cigna stated its intention to accelerate de-leveraging from its strong earnings from its insurance entities and its solid non-regulated earnings from Express Scripts.
Cigna Life & Health Group’s balance sheet strength assessment of strong is supported by risk-adjusted capitalization at the strongest level, as measured by Best’s Capital Adequacy Ratio, along with good liquidity and cash flows from operations. The insurance entities have a line of credit from an intermediate holding company in the event that any of them face cash flow uncertainties. However, the insurance subsidiaries continue to provide sizeable dividends in excess of $1 billion a year to the parent.
Cigna Life & Health Group continues to report strong earnings, with a five-year return on revenue of 7% and a five-year return on equity of 28%, while maintaining premium growth. The earnings stem from Cigna Life & Health Group’s core medical operations and its group life and disability business. Furthermore, earnings improved in all lines of business during 2018. Cigna Life & Health Group continues to have a majority of its medical business in self-funded employer groups, also known as administrative services only (ASO).
Cigna Life & Health Group continues to have a strong market presence in the United States, with its wide array of products, while maintaining a solid market share in medical insurance, primarily ASO along with life and disability insurance. Also, Cigna Life & Health Group continues to grow its Medicare business, which includes Medicare Supplement and Medicare Advantage, along with its supplemental business. The acquisition of Express Scripts may provide Cigna with more cross-selling opportunities due to the expansion of its customer base.
The ratings of Medco Containment Group reflect its balance sheet strength, which AM Best categorizes as strongest, as well as its adequate operating performance, limited business profile and appropriate ERM.
Medco Containment Group has maintained the strongest level of risk-adjusted capital despite a slight decline from the prior year due to dividend payments. The group also has maintained solid overall liquidity and strong underwriting leverage. These positive balance sheet attributes are offset by cash-flow uncertainty due to potential payment delays from the Centers for Medicare & Medicaid Service (CMS) reconciliation process; however, this is mitigated by the capital support that Cigna can provide. Medco Containment Group’s earnings remained positive, although they declined in 2017and in 2018, primarily driven by an increase in management fees paid to the parent. Medco Containment Group continues to focus on a single line of business, Medicare Part D, a highly regulated business that is a very competitive market.
The ratings of Cigna Life Insurance Company of Europe S.A.-N.V. (CLICE) (Belgium) reflect its balance sheet strength, which AM Best categorizes as very strong, as well as its adequate operating performance, neutral business profile and appropriate ERM. Furthermore, the ratings of CLICE factor in rating enhancement from the Cigna organization. CLICE, together with its sister company, CIGNA Europe Insurance Company S.A.-N.V. (CEIC) (Belgium), form the European arm of the Cigna group, and both companies have received capital injections and operational support from their U.S. parent in recent years. The ratings of CEIC reflect its strong level of integration and strategic importance to Cigna’s European operations as the carrier with a non-life license in Europe.
The ratings of CIGNA Life Insurance New Zealand Limited (CLINZ) (New Zealand) reflect its balance sheet strength, which AM Best categorizes as very strong, as well as its adequate operating performance, neutral business profile and appropriate ERM. Furthermore, the ratings of CLINZ factor in rating enhancement from the Cigna group. This reflects AM Best’s expectation that the group would provide capital support to the subsidiary in the event that it is unable to maintain appropriate capital adequacy.
A complete listing of Cigna Corporation and its subsidiaries’ FSRs, Long-Term ICRs and Long- and Short-Term IRs also is available.
This press release relates to Credit Ratings that have been published on AM Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Understanding Best’s Credit Ratings. For information on the proper media use of Best’s Credit Ratings and AM Best press releases, please view Guide for Media - Proper Use of Best’s Credit Ratings and AM Best Rating Action Press Releases.
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