A.M. Best Rates Cigna's New Units - Analyst Blog

By Zacks | September 17, 2012 AAA

The financial strength ratings ("FSR") and issuer credit ratings ("ICR") of the subsidiaries of American Financial Group Inc. (AFG) - Loyal American Life Insurance Company, American Retirement Life Insurance Company, Central Reserve Life Insurance Company, Provident American Life and Health Insurance Company - have been removed from under review by the leading rating agency A.M. Best. This action follows the acquisition of these subsidiaries by health insurer CIGNA Corp. (CI) on August 31, 2012.  The action has been taken with positive implications.

A.M. Best has raised the FSR to A- (Excellent) from B++ (Good) and ICRs to "a-" from "bbb" of Central Reserve Life and Provident American Life, respectively.  The rating agency also affirmed the FSR of A- (Excellent) and ICR of "a-" of Loyal American and the FSR of B++ and ICR of "bbb" of American Retirement Life. All the ratings are of investment grade status and carry a stable outlook.

A.M. Best acknowledges the acquisition of these subsidiaries by Cigna. It believes that Central Reserve Life, Provident American Life and Loyal American will benefit from getting placed under Cigna. The company is quickly expanding into Government programs, which will boost sales of Medicare Supplement products of these units, thus causing top-line growth.

These units will also benefit from strong financial position since Cigna maintains enough capital at the subsidiaries' level. The company also has capital support from its parent firm.

The ratings of American Retirement Life recognize its limited business profile as well as its restricted absolute capital and premium.

These units can get a positive rating revision if they keep on growing revenues, integrate successfully with Cigna and add more to its overall earnings. While on the other hand, negative rating action may follow in case the operating performances of these units decline and these fail to get adequate support from the goodwill of the parent.

CIGNA competes with UnitedHealth Group Inc. (UNH), Aetna Inc. (AET), WellPoint Inc. (WLP) and Humana Inc. (HUM). Cigna currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. We, also maintain our long-term Neutral recommendation on its shares.

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