As a part of its annual rating review process, rating agency A.M. Best undertook its rating action on CIGNA Corp. (CI). The action resulted in affirmation of the company’s issuer credit rating (ICR) of “bbb” and financial strength rating of “A”, with a stable outlook.
The rating agency acknowledged Cigna’s solid operating performance due to lower medical utilization, favorable prior year reserve release and strong specialty earnings.
The rating agency is also positive on Cigna’s differentiated product segment – 11% commercial fully insured (11%), experience rated members (8%) and administrative services only (ASO) (81%). Cigna’s vast exposure to the ASO business increases its prominence amongst its peers, as this line of business is growing tremendously.
Additionally, the company is expected to see continued increase in demand for ASO products as the growth in medical premium taxes would influence more employers to consider self funding. Also, the ASO business falls outside the scope of Health care Reform’s minimum loss ratio (MLR) mandate, thereby protecting the company from the regulations.
Cigna’s significant international business also provides A.M. Best a reason for its favorable rating assessment. The rating agency views Cigna’s expansion in the key Asian (China, Korea, India) and European regions as a future growth driver. International business has historically delivered double-digit revenue and earnings growth besides very attractive margins and capital efficiency.
Moreover, a strong balance sheet along with capital strength has enabled the company to make strategic growth initiatives, both internally as well as externally.
However, some of the negatives pointed out by A.M. Best include, high concentration of commercial mortgages in the company’s investment portfolio, higher than average debt led by the $2.5 billion loan taken to fund the purchase of HealthSpring and volatility associated with the company’s run-off reinsurance segment.
Nevertheless, we expect to see similar positive affirmation from the rating agency in its next review, given Cigna’s strong operating fundamentals.
Amongst Aetna’s peers, both Humana Inc. (HUM) and WellPoint Inc. (WLP) recently received a rating affirmation from A.M. Best, with a stable outlook.
CIGNA CORP (CI): Free Stock Analysis Report
HUMANA INC NEW (HUM): Free Stock Analysis Report
WELLPOINT INC (WLP): Free Stock Analysis Report
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