OLDWICK, N.J.--(BUSINESS WIRE)--AM Best has affirmed the Financial Strength Rating (FSR) of A (Excellent) and the Long-Term Issuer Credit Ratings (Long-Term ICR) of “a” of the key U.S. life/health subsidiaries, health maintenance organizations and Europe-based insurance companies of Cigna Corporation (Cigna) (headquartered in Bloomfield, CT) [NYSE: CI]. Concurrently, AM Best has upgraded the FSR to A (Excellent) from A- (Excellent) and the Long-Term ICRs to “a” from “a-” of Medco Containment Life Insurance Company (Warrendale, PA) and Medco Containment Insurance Company of New York (Troy, NY) (collectively referred to as Medco Containment Group). Additionally, AM Best has upgraded the FSR to A (Excellent) from A- (Excellent) and the Long-Term ICRs to “a” from “a-” of the Cigna HealthSpring Companies (HealthSpring). AM Best also has affirmed the Long-Term ICR of “bbb” and the Short-Term Issue Credit Rating (Short-Term IR) of AMB-2 of Cigna. The outlook of these Credit Ratings (ratings) is stable. Furthermore, AM Best has withdrawn the Long-Term ICR of “bbb” and the Short-Term IR of AMB-2 on the intermediate holding company, Cigna Holding Company (Delaware). Lastly, AM Best has affirmed the Long-Term Issue Ratings (Long-Term IR) of Cigna Holding Company. The outlook of these ratings is stable. (Please see link below for a detailed listing of the companies and ratings.)
The majority of Cigna’s U.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 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 46% and the high level of goodwill at Cigna, the ultimate parent. In addition, execution risk related to the Cigna-Express Scripts merger remains, given the transaction’s complexity. However, Cigna has moderated its leverage post transaction, which was over 50%, and has indicated that it remains committed to an accelerated de-leveraging during 2020, which is expected to leave financial leverage closer to 40% by the end of the year. AM Best expects the lower financial leverage to be driven by the strong earnings and dividends from Cigna’s insurance entities, solid non-regulated earnings from its Health Services segment and additional one-time capital sources, such as a portion of the proceeds from the pending sale of its group employee benefits business, which is expected to help reduce outstanding debt.
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 (BCAR), along with excellent sources of liquidity supported by strong metrics and operating cash flows across its diverse businesses. The insurance entities have access to cash from the parent in the event any cash flow or capital is needed. Additionally, Cigna’s insurance subsidiaries have consistently provided cash flow upstream in the form of dividends, generally in excess of $1 billion a year. The dividend payments were higher for full-year 2019, given favorable operating results.
Cigna Life & Health Group reported strong earnings again in 2019, with consistently strong profitability ratios. The earnings and profit margins have been driven by Cigna Life & Health Group’s core commercial and Medicare-related operations. Furthermore, earnings improved across its core lines of business in 2019. AM Best also notes that Cigna Life & Health Group continues to have a majority of its commercial business in self-funded/administrative services only (ASO) employer groups. Premium growth has been increasing and is expected to continue into 2020.
AM Best views Cigna Life & Health Group’s business profile as favorable, driven by the group’s market presence in the United States, with its wide array of products and a solid market share in the medical insurance space. In addition, Cigna Life & Health Group continues to grow its government segment, primarily Medicare-related business, which includes Medicare supplement and Medicare Advantage (MA) and MA-Part D, along with its other ancillary/supplemental businesses. The acquisition of Express Scripts will provide Cigna cross-selling opportunities, and the aforementioned premium growth, 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. Additionally, the rating upgrades reflect AM Best’s view of the strategic position Medco plays as a core part of Cigna’s Medicare Part D offerings.
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 sustained solid overall liquidity and strong premium leverage. Given the nature of this business, the balance sheet positives are offset somewhat by cash-flow uncertainty, due to potential payment delays from the Centers for Medicare & Medicaid Service (CMS) reconciliation process; however, this is mitigated by implicit capital support from its ultimate parent. Medco Containment Group’s earnings remained positive on an annual basis, although they have declined, driven by increased management fees paid to the parent. Medco Containment Group has a limited business profile due to its focus on a single line of business, Medicare Part D, a highly regulated business in a very competitive market.
The ratings of HealthSpring reflect its balance sheet strength, which AM Best categorizes as adequate, as well as its adequate operating performance, neutral business profile and appropriate ERM. Additionally, the rating upgrades reflect AM Best’s view of the strategic position HealthSpring plays as a core part of Cigna’s MA offerings. HealthSpring’s BCAR is considered weak, but the implicit support of its intermediate holding company, NewQuest, LLC, and ultimate parent, Cigna, for any capital infusions should the entities encounter cash-flow uncertainty, supports the balance sheet assessment. Cigna is committed to growing its MA line of business and has demonstrated this through reduced dividend activity and allowing capital to remain in NewQuest, LLC, to support HealthSpring. Earnings have been favorable and grown in each of the past two years. The HealthSpring MA products provide strategic business diversification to Cigna’s commercial group and specialty products.
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 nonlife license in Europe.
A complete listing of Cigna Corporation and its subsidiaries’ FSRs, Long-Term ICRs and Long- and Short-Term IRs also is available.
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