AM Best Revises Issuer Credit Rating Outlook to Positive for Cigna Corporation and Most of Its Subsidiaries; Affirms Credit Ratings
AM Best has revised the outlooks to positive from stable for the Long-Term Issuer Credit Rating (Long-Term ICR) and affirmed the Financial Strength Rating (FSR) of A (Excellent) and the Long-Term ICRs of "a" (Excellent) 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]. The outlook of the FSR is stable. Concurrently, AM Best has revised the outlooks to positive from stable and affirmed the Long-Term ICR of "bbb" (Good) and the Long-Term Issue Credit Ratings (Long-Term IRs) of Cigna. AM Best also has affirmed the Short-Term Issue Credit Rating of Cigna. At the same time, AM Best has revised the outlooks to positive from stable and affirmed the Long-Term IRs of Cigna Holding Company (headquartered in Bloomfield, CT). (Please see link below for a detailed listing of the companies and ratings.) The majority of Cigna's core U.S. operating entities are referred to collectively as the Cigna Life & Health Group.
Additionally, AM Best has affirmed the FSR of A (Excellent) and the Long-Term ICRs of "a" (Excellent) 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 [Medco]), as well as the Cigna HealthSpring Companies (HealthSpring). The outlook of these Credit Ratings (ratings) is stable.
The ratings of Cigna Life & Health Group reflect its balance sheet strength, which AM Best assesses as strong, as well as its strong operating performance, favorable business profile and appropriate enterprise risk management (ERM).
The positive outlook on the Long-Term ICRs of Cigna Life & Health Group reflect AM Best's expectation of a sustained and improved level of risk-adjusted capitalization, as measured by Best's Capital Adequacy Ratio (BCAR), and no weakening of balance sheet metrics at the parent, Cigna. Cigna Life & Health Group's risk-adjusted capitalization has strengthened and remained at the strongest level over the past few years, driven by capital expansion supported by favorable earnings, despite sizeable annual dividends from the insurance operations. Additionally, the sale of the group insurance business at year-end 2020, which removed long-tail risk from the balance sheet, improved the group's BCAR score.
The ratings of Cigna Life & Health Group also factor in its elevated financial leverage of approximately 42% and the very high level of goodwill at Cigna, the ultimate parent, largely relating to the Express Scripts merger, which has since been successfully integrated, including the moderation of its total leverage. While the leverage has since fluctuated, management has repeatedly indicated that it remains committed to managing the financial leverage at approximately 40%. Cigna's debt service is supported by its strong earnings and dividends from the group's insurance entities, as well as solid non-regulated earnings from its Health Services/Evernorth segment. Additionally, one-time special items, such as a portion of the proceeds from the sale of Cigna's group employee benefits business at year-end 2020 and the pending sale of a portion of its international business, have helped bolster holding company metrics, while also having other uses, such as its share repurchase program.
Cigna Life & Health Group's balance sheet strength assessment of strong is supported by its risk-adjusted capitalization, which is at the strongest level, as measured by BCAR. The Cigna entities have also been fortified by sources of contingent liquidity, which contributes to the fungibility of capital, with strong and stable metrics, and diverse opeating cash flows across its businesses. Cigna's insurance subsidiaries have consistently provided cash flow from operations upstream in the form of sizeable dividends, which have been growing given its ongoing favorable results.
Cigna Life & Health Group reported solid earnings in 2021, as there was a leveling in the impact of COVID-19, which resulted in lower earnings from 2020. Cigna has consistently reported double-digit profitability ratios, which are considered strong when compared with its peers. Earnings from the insurance operations have been largely driven by the group's core commercial segments. AM Best also notes that Cigna Life & Health Group continues to operate under a lower risk model as a majority of its commercial business is operated under self-funded/administrative services only (ASO) employer group contracts - verses fully insured. Cigna has generally reported premium growth in its core businesses and looking forward, growth is projected for 2022.
AM Best views Cigna Life & Health Group's business profile as favorable, driven by the combination of strong market presence in its core products in the United States. 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. While MA enrollment has been somewhat depressed, management believes the strategic initiatives to grow its footprint in this space will lead to further growth going forward. Finally, Express Scripts and the growth of its Evernorth health services business, as well as the parent's retained international core medical business, provide Cigna an expanded customer base and cross-selling opportunities, with further opportunity for premium, revenue and earnings growth for the overall organization.
The ratings of Cigna Life Insurance Company of Europe S.A.-N.V. (CLICE) (Belgium) reflect its balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, neutral business profile and appropriate ERM. The ratings also factor in rating enhancement from Cigna. The ratings of CIGNA Europe Insurance Company S.A.-N.V. (CEIC) factor in its strategic importance to CLICE and Cigna as the group's non-life insurance carrier in Europe. With its competitive position in Europe's health insurance market, CLICE is viewed as a key component to the group's strategy to access and develop domestic opportunities in a drive to provide further geographical diversification and to strengthen global presence.
The ratings of CIGNA Global Insurance Company Limited (CGIC) (Guernsey) reflect its balance sheet strength, which AM Best assess as very strong, as well as its adequate operating performance, limited business profile and appropriate ERM. The ratings also factor in rating enhancement from Cigna. CGIC is considered an important part of Cigna Corporation's strategy and has benefitted from capital contributions and operational support from its parent in the past. AM Best expects that the group will continue to provide support to the subsidiary when needed.
The positive Long-Term ICR outlook for CLICE and CGIC reflect the positive outlook on the lead rating unit, Cigna Life & Health Group, and the strategic importance of these entities to Cigna Corp.
The ratings of Medco reflect its balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, limited business profile and appropriate ERM. While the strategic use of these entities has evolved, AM Best's views Medco as a strategic part of Cigna's Employer Group Medicare offerings.
The ratings of HealthSpring's reflect its balance sheet strength, which AM Best assesses as adequate, as well as its adequate operating performance, neutral business profile and appropriate ERM. Additionally, the ratings reflect AM Best's view of the strategic position HealthSpring plays as a core part of Cigna's MA offerings.
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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