CIGNA Faces Rating Action - Analyst Blog

Late last week, health insurance company CIGNA Corp. (CI) received a rating revision from Standard & Poor's Ratings Services. The rating agency revised CIGNA's financial rating outlook to “stable” from “negative,” taking into account the company's ability to insulate its results from losses in its run-off reinsurance business over the past twenty months. 

CIGNA's Run-off Reinsurance Segment, which accounted for 2% of revenues in the year 2009, has been discontinued. The segment went into the run-off mode following the sale of the U.S. individual life, group life and accidental death reinsurance business in 2000.

Although the run-off reinsurance losses from the year 2009 have been abated by a market rebound over the past few months, market volatility and returns, interest rate fluctuations and annuitant behavior will likely weigh on the company's performance. During the third quarter of 2010, the run-off segment reported a loss of $37 million, compared with a profit of $30 million in the prior-year quarter.  

S&P noted that excluding discontinued business results, CIGNA was able to provide a pretax operating return of 9.5% on revenue for the nine months of 2010.  The rating agency also said that these returns were strong compared to that other players operating within the industry. 

Standard & Poor'salso affirmed the debt rating of “BBB,” which is a notch higher than the lowest investment grade.  The “BBB” debt rating reflects the company's vulnerability to any adverse change in financial and economic condition that could affect its debt commitment.

However, rating agency Fitch holds a negative outlook on CIGNA's ratings. The agency is concerned about CIGNA's high unfunded pension liability and increased leverage due to the acquisition of Great West's healthcare business in 2008. Another risk is the exposure to the commercial real estate market in its investment portfolio.

Head quartered in Philadelphia, CIGNA competes with other players such as Aetna Inc. (AET), UnitedHealth Group Inc., (UNH), WellPoint Inc. (WLP) etc.