Press Release - SEPTEMBER 06, 2018
A.M. Best Removes From Under Review with Negative Implications, Affirms Credit Ratings of Cigna Corp. and Insurance Subsidiaries
FOR IMMEDIATE RELEASE
OLDWICK - SEPTEMBER 06, 2018
The rating actions follow the clarity on the timing of the debt issuance and discussions with the company regarding the Express Scripts Holding Company (Express Scripts) transaction.
The majority of Cigna’s operating entities are collectively referred to as Cigna Life & Health Group. The ratings of Cigna Life & Health Group reflect its balance sheet strength, which A.M. Best categorizes as strong, as well as its strong operating performance, favorable business profile and appropriate enterprise risk management (ERM).
Cigna Life & Health’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, and good liquidity with cash flows from operations and the insurance entities, which have a line of credit from an intermediate holding company for cash flow needs. However, the insurance subsidiaries provide sizeable dividends to the parent, in excess of $1 billion a year.
The forthcoming issuance of up to $23.5 billion of debt through a combination of debt securities and commercial paper at Halfmoon Parent, Inc., to pre-fund the acquisition of Express Scripts, which is expected to close in 2018, will substantially increase financial leverage at Cigna to more than 55%. However, financial leverage will decline slightly to below 50% in the new combined organization upon close of the transaction. The increased leverage will result in reduced interest coverage and limited borrowing capacity, and the level of goodwill and intangible assets will escalate substantially post-close. In addition, there is significant execution risk given the vertical nature and scale of the transaction. This concern is somewhat mitigated by the strong earnings from Cigna’s insurance entities and the sizeable non-regulated earnings from Express Scripts, which can be used to service the debt and de-leverage the organization.
Cigna Life & Health has reported a trend of strong earnings with return on revenue of more than 7%, and return on equity in excess of 25%, while exhibiting steady premium growth. The earnings are driven by Cigna Life & Health’s core medical operations and its group life and disability business. Additionally, earnings improved in 2017 from continued solid earnings in the medical business and initiatives implemented in its group life and disability business. Furthermore, Cigna has limited exposure to the Patient Protection and Affordable Care Act (ACA), as the majority of its medical business is employer group self-funded or administration services only (ASO) with a nominal amount of individual business. The addition of Express Scripts’ clinical capabilities also could strengthen Cigna’s clinical platform.
Cigna maintains a strong market presence in the United States, offering a diverse product portfolio with solid market share in employer medical insurance, particularly ASO, as well as group life and disability insurance. Additionally, Cigna has been growing its Medicare business, which includes Medicare Supplement and Medicare Advantage, along with its supplemental business. The transaction with Express Scripts also could provide Cigna with the potential for cross-selling opportunities and an expansion of its customer base.
The rating upgrades of Cigna Supplemental Benefits Group reflect the companies’ closer integration with Cigna operations.
The ratings of Cigna Life Insurance Company of Europe S.A.-N.V. (CLICE) (Belgium) reflect its balance sheet strength, which A.M. 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 have received capital injections and operational support from its 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 A.M. 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 A.M. 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.
For a complete listing of the members of Cigna Corporation’s FSRs, Long-Term ICRs and Long- and Short-Term IRs, please visit Cigna Corporation.
This press release relates to Credit Ratings that have been published on A.M. 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 A.M. 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 A.M. Best press releases, please view Guide for Media - Proper Use of Best’s Credit Ratings and A.M. Best Rating Action Press Releases.
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