) made a rating action on
), wherein it affirmed the Baa2 Senior debt rating of the
company. The company's insurance financial strength (IFS) ratings
were also reaffirmed at A2. Concurrently, the rating agency also
raised the ratings' outlook for the company to positive from
The rating agency acknowledges Cigna's superior operating
performance along with a diversified business profile. The
company has forayed into the much sought-after business of
serving the senior population with the acquisition of
Moody's also views Cigna's recent reinsurance transaction forged
Berkshire Hathaway, Inc.
) as a favorable one. The transaction has unburdened Cigna of
significant liabilities, enabling it to focus on more important
aspects of its business.
The rating agency also acknowledges Cigna's acquisition of
HealthSpring, which has helped the company enter the growing
Medicare Advantage market.
Cigna has also made a move forward by improving its debt profile.
This has brought down its leverage ratio that traditionally
stayed around 45%, to about 41% as of Sep 30, 2013. Steps taken
by the company such as freezing of pension plans and making
higher contribution to reduce the unfunded liability has bettered
the company's leverage ratio.
Cigna also remains more reform-resistant compared with its peers,
primarily because 85% of its U.S. healthcare business comprises
administrative services only (ASO). This limits the company's
exposure to unanticipated increase in medical utilization.
Other positives are limited exposure to risk associated with
health insurance exchanges, well-diversified product profile, and
a growing membership base along with a niche market presence in
Financial strength and credit ratings measure a company's ability
to meet policyholder obligations. These are important factors
affecting public confidence and creditworthiness of a company and
hence reflect the company's competitiveness. Securing an
investment grade debt rating with a positive outlook reflects
optimism about Cigna's future performance.
The rating agency may pull up its rating on Cigna if it maintains
its EBIDTA above 10%; interest coverage of 9x; NAIC RBC ratio
equal to or higher than 300% of company action level; grows
membership annually by 1% to 2% and debt ratio is lowered to 40%.
A negative rating action may, however, follow if Cigna fails to
achieve expectations regarding membership growth, reducing
leverage and EBIDTA margin.
Cigna currently holds a Zacks Rank #2 (Buy).
), another industry major, also carries an investment grade
rating from Moody's.
AETNA INC-NEW (AET): Free Stock Analysis
BERKSHIRE HTH-A (BRK.A): Free Stock Analysis
BERKSHIRE HTH-B (BRK.B): Free Stock Analysis
CIGNA CORP (CI): Free Stock Analysis Report
MOODYS CORP (MCO): Free Stock Analysis Report
To read this article on Zacks.com click here.