A.M. Best Affirms Ratings of CIGNA Corporation and Its Subsidiaries

A.M. Best Co. has affirmed the issuer credit rating (ICR) of “bbb” and debt ratings of CIGNA Corporation (CIGNA) (Philadelphia, PA) [NYSE: CI]. Concurrently, A.M. Best has affirmed the financial strength rating (FSR) of A (Excellent) and ICRs of “a” for the following subsidiaries of CIGNA: Connecticut General Life Insurance Company (CGLIC) (Bloomfield, CT), Life Insurance Company of North America (Philadelphia, PA), CIGNA Life Insurance Company of New York (New York NY), CIGNA Health and Life Insurance Company (Bloomfield, CT), CIGNA Worldwide Insurance Company (CIGNA Worldwide) (Claymont, DE), as well as the medical health maintenance organizations (HMO) and dental HMO subsidiaries of CIGNA. The outlook for these ratings is stable.

A.M. Best has assigned an FSR of A (Excellent) and ICR of “a” to CIGNA Arbor Life Insurance Company (CIGNA Arbor) (Bloomfield, CT). The outlook for these ratings is stable. In January 2011, CGLIC reinsured all of it run-off Guaranteed Minimum Death Benefit and Guaranteed Minimum Income Benefit business to CIGNA Arbor and contributed $150 million of capital to Arbor in support of these liabilities. Although CIGNA Arbor is currently adequately capitalized for its risks, A.M. Best expects CGLIC and CIGNA to continue to provide capital support to CIGNA Arbor if necessary.

Furthermore, A.M. Best has assigned a debt rating of “bbb” to $600 million 2.75% senior unsecured notes due November 15, 2016; $750 million 4.00% senior unsecured notes due February 15, 2022; and $750 million 5.375% senior unsecured notes due February 15, 2042. The outlook for these ratings is stable.

Additionally, A.M. Best has withdrawn the FSRs of A (Excellent) and ICRs of “a” of CIGNA HealthCare of New Hampshire, Inc. (Hooksett, NH), CIGNA HealthCare of Mid-Atlantic, Inc. (Columbia, MD), CIGNA HealthCare of Maine, Inc. (Falmouth, ME) and CIGNA HealthCare of Ohio, Inc. (Columbus, OH). CIGNA HealthCare of New Hampshire, Inc., CIGNA HealthCare of Mid-Atlantic, Inc. and CIGNA HealthCare of Maine, Inc. are all in run off. CIGNA HealthCare of Ohio, Inc. was merged into CIGNA HealthCare of St Louis, Inc. (St. Louis, MO). (See link below for a detailed listing of the companies and ratings.)

The affirmations of CIGNA and its subsidiaries reflect the consolidated organization's earnings, as CGLIC improved significantly over the last two years with a return on revenue exceeding 8% in 2009 and 2010, compared to slightly over 2% in 2008. The consolidated earnings are primarily attributable to the HealthCare operations segment driven by increased margins resulting from lower utilization levels, favorable prior-period development and strong specialty earnings. Furthermore, HealthCare earnings are spread across several funding types, with the majority being administrative service only (ASO) type contracts, which mitigate exposure to shifts in medical cost trends and minimum loss ratio requirements. The broad and diversified domestic product offerings complement international products offered through CIGNA Corporation's Asian- and European-domiciled subsidiaries. Strong earnings led to the consolidated level of capital growth at CIGNA, with CGLIC's risk-based capital improving from 560% at year-end 2007 to a 703% authorized control level (ACL) at year-end 2010. However, CGLIC's capital level declined during the first nine months of 2011 as expected following the transfer of run-off reinsurance business to CIGNA Arbor.

Partially offsetting these strengths are CIGNA's commercial mortgage portfolio at its life insurance entities. Although CIGNA's insurance companies' consolidated exposure to commercial mortgage loans declined over the last five years from 24% to under 20% of invested assets, A.M. Best views the current loan-to-value of 72% in the commercial mortgage portfolio as a concern when compared to historical levels, which was as low as 64% prior to 2009. However, A.M. Best recognizes that 72% is lower than the loan-to-value in 2009 and 2010. Furthermore, A.M. Best is concerned that the recently increased financial leverage at CIGNA may put pressure on CGLIC and other subsidiaries through higher dividend demands. Additionally, the run-off reinsurance segment earnings remain volatile, although management has taken steps to mitigate risks.

Key rating drivers that may lead to positive rating actions for CIGNA include a substantial improvement of earnings metrics and risk-adjusted capital, increased share of non-regulated revenues and earnings, and reduced volatility in its run-off reinsurance variable annuity business. Key rating drivers that may lead to negative rating actions include a further increase in financial leverage beyond A.M. Best's expectations, deterioration in interest coverage, decline in risk-adjusted capital at CIGNA Corp.'s lead operating entity, Connecticut General Life Insurance Company, significant weakening of operating performance, or material impairments within the investment portfolio.

For a complete list of CIGNA Corporation and its subsidiaries' FSRs, ICRs and debt ratings, please see www.ambest.com/press/120204cigna.pdf.

The principal methodology used in determining these ratings is Best's Credit Rating Methodology -- Global Life and Non-Life Insurance Edition, which provides a comprehensive explanation of A.M. Best's rating process and highlights the different rating criteria employed. Additional key criteria utilized include: “Rating Health Insurance Companies”; “Understanding BCAR for Life/Health Insurers”; “A.M. Best Ratings & the Treatment of Debt”; “Rating Members of Insurance Groups”; “Risk Management and the Rating Process for Insurance Companies”; “Rating Commercial Paper”; and “Assessing Country Risk.” Methodologies can be found at www.ambest.com/ratings/methodology.

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