Standard & Poor's undertook a favorable rating action
on the credit worthiness of health insurer
) and its main operating subsidiaries, Connecticut General Life
Insurance Co. ("CG Life") and Cigna Health and Life Insurance Co.
The agency affirmed its 'BBB/A-2' counterparty credit rating on
the parent company, and its long-term counterparty credit and
financial strength ratings of 'A' on CG Life and CHLIC. The
outlook on the company was raised to positive from stable.
These are investment grade ratings and carry a positive
The financial strength and credit ratings of a company are
important metrics to determine its ability to fulfill policyholder
obligations. These also affect investor confidence in the company's
potential and its competitiveness.
An investment-grade debt rating with a positive outlook reflects
optimism about Cigna's future performance. A positive outlook
implies that the company's rating may be raised over the following
S&P was particularly impressed with Cigna's sound balance
sheet, favorable operating results, strong cash flow generation,
sufficient liquidity and financial flexibility. According to
S&P, Cigna is less exposed to the effects of the Health Reform
Act compared with its peers as a greater percentage of its business
belongs to the non-risk category. It also noted that the gradually
improving health insurance marketplace will further strengthen the
S&P also acknowledged the strategic investments made by
Cigna recently, such as the acquisition of HealthSpring, to
diversify its business in the fast growing Medicare Advantage
Cigna's ratings may be raised by a notch, if the company
performs in line with the earnings expectations of the rating
agency. The rating agency expects total revenue to be more than $26
billion, medical membership of 12.5 million, pretax GAAP operating
income in the range of $2.3-$2.5 billion and cash flow in the range
of $3.0-$3.2 billion.
Cigna also needs to maintain risk-based capital of approximately
300%, a debt ratio below 45%, an EBITDA coverage of 9x to 12x, and
retain holding-company cash and marketable securities of at least
$500 million for another favorable rating action.
The rating agency also made it clear that the rating outlook may
be revised downward to stable or even negative if the operating
margins fall below expectations, making it hard for the company to
meet other requirements.
We are confident that the health insurer major will see a
favorable rating outcome going forward, given the pace at which it
is evolving itself. Looking ahead, Cigna is well positioned with
its diverse and balanced portfolio of businesses offering
attractive growth prospects.
This includes its U.S. commercial business, which is expected to
deliver strong organic growth; its International business, with a
strong top line and earnings growth potential in excess of 20%, and
its Seniors and Medicare business, where the acquisition of
HealthSpring is expected to drive growth in 2012 and be highly
accretive on a cash basis.
Recently,S&P has raised its outlook on other health insurers
) from stable to positive.
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