May 12, 2017 / 9:18 PM / 8 months ago

Fitch Affirms Cigna's Ratings and Removes Rating Watch

(The following statement was released by the rating agency) CHICAGO, May 12 (Fitch) Fitch Ratings has affirmed the 'A+' (Strong) Insurer Financial Strength (IFS) ratings of certain Cigna Corporation (Cigna) subsidiaries as well as Cigna's senior unsecured notes at 'BBB+'. The ratings were removed from Negative Watch and assigned a Stable Outlook. Today's action follows the announced termination of Anthem, Inc.'s (Anthem) merger agreement with Cigna. Cigna's ratings had been on Negative Watch since July 24, 2015 following the announcement of a definitive agreement to be acquired by Anthem. Litigation between Anthem and Cigna will continue around the payment of a $1.85 billion termination fee as well as damages from the failed merger. KEY RATING DRIVERS Cigna's ratings reflect its strong business profile, strong capitalization that is better than peers, and strong debt service capabilities and financial flexibility. Fitch expects Cigna to increase share repurchase activity in the near term since it is no longer bound by the merger agreement. Cigna's business profile is currently considered 'Strong', which is consistent with the company's current ratings. Cigna has a top-tier competitive position in the market for self-insured midsize and large employer groups in the U.S., and in international markets, including U.S. expatriates. Cigna's current capitalization is considered consistent with the current rating category and is favorable relative to peers. Financial leverage is currently at the low end of Cigna management's target range and as a result, Fitch believes a moderate increase in financial leverage is likely over the near to medium term. Cigna reported a debt-to-EBITDA ratio of 1.2x and a financial leverage ratio of 26% at March 31, 2017. Cigna's debt service capabilities are currently performing better than the current rating category measured by interest coverage of 14.6x in 2016. This level of interest coverage is above Cigna's five-year average of 13.7x. RATING SENSITIVITIES Key rating factors for Cigna that could lead to a downgrade include: --Elevated financial leverage measured by debt-to-total capital exceeding 30% or debt-EBITDA above 1.8x could lead to a downgrade. --Deterioration in Cigna's interest coverage ratio below 10x could lead to a downgrade. --A deterioration in capitalization, measured by an NAIC RBC ratio below 270% of the company action level could lead to a downgrade. --Deterioration in Cigna's earnings profile as evidenced by EBITDA/revenue below 8% and net return on average capital ratios below 10% could lead to a downgrade. Key rating factors for Cigna that could lead to an upgrade include: --Lower financial leverage ratios on a sustained basis, specifically debt-EBITDA better than 1.2x and debt-to-capital near 25% could lead to an upgrade. --Stronger risk-based capitalization measured by a NAIC RBC ratio near 350% of the company action level could lead to an upgrade. --Enhanced market position and size/scale comparable to peers rated in the 'AA' category could lead to an upgrade. Fitch has affirmed the following ratings with a Stable Outlook: Cigna Corp. --Issuer Default Rating (IDR) at 'A-'; --Short-Term IDR at 'F2'; --$1.2 billion commercial paper program at 'F2'; --$131 million 6.35% senior notes due March 15, 2018 at 'BBB+'; --$300 million 5.125% senior notes due June 15, 2020 at 'BBB+'; --$250 million 4.375% senior notes due Dec. 15, 2020 at 'BBB+'; --$300 million 4.500% senior notes due March 15, 2021 at 'BBB+'; --$750 million 4.000% senior notes due Feb. 15, 2022 at 'BBB+'; --$17 million 8.300% senior notes due Jan. 15, 2023 at 'BBB+'; --$100 million 7.650% senior notes due March 1, 2023 at 'BBB+'; --$900 million 3.250% senior notes due April 15, 2025 at 'BBB+'; --$300 million 7.875% debentures due May 15, 2027 at 'BBB+'; --$83 million 8.300% senior notes due Jan. 15, 2033 at 'BBB+'; --$500 million 6.150% senior notes due Nov. 15, 2036 at 'BBB+'; --$300 million 5.875% senior notes due March 15, 2041 at 'BBB+'; --$750 million 5.375% senior notes due Feb. 15, 2042 at 'BBB+'. Cigna Corp. Subsidiaries: Connecticut General Life Insurance Company Life Insurance Company of North America Cigna Life Insurance Company of New York Cigna Worldwide Insurance Company --Insurer Financial Strength (IFS) ratings at 'A+'. Contact: Primary Analyst Doug Pawlowski, CFA Senior Director +1-312-368-2054 Fitch Ratings, Inc. 70 West Madison Street Chicago, IL 60602 Secondary Analyst Mark Rouck, CPA, CFA Senior Director +1-312-368-2085 Committee Chairperson James B. Auden, CFA Managing Director +1-312-368-3146 Media Relations: Hannah James, New York, Tel: + 1 646 582 4947, Email: Additional information is available on Applicable Criteria Insurance Rating Methodology (pub. 26 Apr 2017) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here#solicitation Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. 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