In an effort to reduce risk and strengthen financial
flexibility the U.S. health insurer
), has announced it will shed its Run-off Reinsurance Segment.
To this effect, Cigna has entered into an agreement with
Berkshire Hathaway Life Insurance Company of Nebraska, one of the
companies of Berkshire Hathaway, Inc. (
Per the contract, Cigna arranged reinsurance cover for any future
liabilities arising from its Run off business, from February 4,
2013. Berkshire has assumed responsibility for future claims up
to $4 billion.
Berkshire has also entered into similar deals earlier for
CNA Financial Corp.
American International Group, Inc.
), to name a few.
Cigna's Run-off Reinsurance Segment had been discontinued and is
now an inactive business in the run-off mode since the sale of
the U.S. individual life, group life and accidental death
reinsurance business in 2000. This segment predominantly
comprised of guaranteed minimum death benefit (GMDB, also known
as VADBe), guaranteed minimum income benefit (GMIB), workers'
compensation and personal accident reinsurance products.
The transaction will cost Cigna $2.2 billion and will be funded
by $100 million in cash, approximately $1.8 billion of investment
assets in run-off businesses, and an estimated $300 million tax
benefit associated with the transaction.
Cigna is expected to incur an after-tax charge of $500 million,
in the first quarter 2013 in relation to this transaction.
Following the deal, rating agency Fitch Ratings gave its
favorable view on the transaction. It acknowledged that the step
will reduce Cigna's exposure to involuntary forces (interest
rates) that have over the past many years induced volatility to
its bottom-line earnings. The rating agency thus affirmed the
parent's 'BBB+' Issuer Default Rating (IDR) and 'BBB' unsecured
senior debt ratings. Fitch also backed the Insurer Financial
Strength (IFS) ratings of various Cigna subsidiaries at 'A'. All
the ratings have been given a stable outlook.
With this transaction, Cigna has unburdened one of its
significant liabilities and now will be able to focus on more
important aspects of its business. The company is readying itself
for the changing landscape of the health insurance industry.
International expansion also remains its high priority.
Cigna presently carries a Zacks Rank #3 (Hold).
AMER INTL GRP (AIG): Free Stock Analysis
BERKSHIRE HTH-A (BRK.A): Free Stock Analysis
CIGNA CORP (CI): Free Stock Analysis Report
CNA FINL CORP (CNA): Free Stock Analysis
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