Late last week, health insurance company CIGNA Corp. (CI) received rating action from A.M. Best Co. wherein it affirmed the company’s issuer credit rating (ICR) of “bbb.”
It also affirmed the strength rating (FSR) of “A” and ICRs of “a” for some subsidiaries of CIGNA including: Connecticut General Life Insurance Company Life Insurance Company of North America, CIGNA Life Insurance Company of New York and CIGNA Health and Life Insurance Company. The outlook on all the ratings has been upgraded to stable from negative.
A.M. Best’s outlook revision reflects CIGNA’s continued efforts to shore up its risk-based capital level since the scare in 2008, enabling it to pursue its capital deployment priorities.
CIGNA also remains comfortably positioned with respect to the U.S. Health Care Reform Act since it generates approximately 40% of its revenues from activities unrelated to the U.S. health care market.
In addition, within the health care business, more than 80% of revenue comes from fee-based or service-based activities, rather than from risk-based plans. The company has a relatively smaller risk exposure to the recently enacted federal health care act.
Moreover, minimum Medical Loss Ratio (MLR) implementation with respect to individual and small group policies will not have much of a negative impact on CIGNA as these segments contribute less than 3% to its operating income.
Negatives to the rating outlook include CIGNA’s variable annuity death benefits and other run-off reinsurance businesses, which are a clear drag on management’s time and clarity of story to the investment community.
However, of late, dampened volatility has removed the strain on reserve strengthening, and the rating agency believes that CIGNA has been able to set-off losses from these units against earnings from its profitable health care segment.
Also, CIGNA’s substantial investment exposure to commercial mortgages (18% of invested assets) might pose a problem due to the persistence of high loan to value ratio loans, which carry higher risk of default.
CIGNA also runs the risk of losing its national account members due to declining persistency, higher competition among companies for large group Administrative Services Only business.
One of CIGNA’s subsidiary, CIGNA Worldwide Insurance Company the medical Health Maintenance Organizations (HMO) and dental HMO subsidiaries of CIGNA witnessed itsFSRs being increased to A from A – and ICRs being raised to “a” from “a-” with its outlook being upped to stable from negative. A.M.Best sees these units as strategic subsidiaries of CIGNA as they offer a broad suite of products across different geographical areas.
Earlier this month, Fitch ratings also affirmed CIGNA’s ratings and revised the ratings outlook to stable from negative. Fitch’s rating outlook revision over the company followed its revised outlook for the U.S. Health Insurance and Managed Care sector to stable from negative.
CIGNA is expected to release fourth quarter and full year 2010 results on February 3, before the opening bell. The Zacks Consensus Estimate is $1.01 per share for the quarter. The Zacks Consensus Estimate of $4.49 for the full year aligns with the higher range of management’s guidance of $4.35–$4.50.
Headquartered in Philadelphia, CIGNA competes with other players such as Aetna Inc. (AET), UnitedHealth Group Inc., (UNH) and WellPoint Inc. (WLP).
AETNA INC-NEW (AET): Free Stock Analysis Report
CIGNA CORP (CI): Free Stock Analysis Report
UNITEDHEALTH GP (UNH): Free Stock Analysis Report
WELLPOINT INC (WLP): Free Stock Analysis Report
Zacks Investment Research
