Fitch Maintains Cigna on Rating Watch Negative

Fitch Ratings has maintained the Rating Watch Negative for Cigna Corporation's (Cigna) 'A-' Issuer Default Rating (IDR), 'BBB+' senior unsecured notes, and the 'A+' Insurer Financial Strength (IFS) ratings of certain subsidiaries.

Today's action follows the completion of a periodic review of Cigna's ratings. Fitch had placed Cigna's ratings on Negative Watch on July 24, 2015 following the announcement of a definitive agreement to be acquired by Anthem, Inc. (Anthem). Excluding the ratings-negative aspects of that planned acquisition, Fitch believes that today's review would have resulted in the affirmation of Cigna's ratings with Stable Outlooks.

Cigna's Negative Watch status reflects Fitch's expectation that Anthem's post-acquisition financial leverage metrics will be meaningfully higher and its interest-coverage ratios will be meaningfully lower than Cigna's have been in recent years. The Negative Watch status also reflects potential earnings disruptions that could arise in the short term subsequent to the acquisition's close as Anthem integrates Cigna from an operational and management perspective.

KEY RATING DRIVERS

The primary drivers of Cigna's ratings going forward will be financial leverage and debt service. Anthem is expected to issue an estimated $22 billion of debt to partially fund its acquisition of Cigna, significantly weakening financial leverage ratios. Cigna reported a debt-to-EBITDA ratio of 1.3x and a financial leverage ratio of 30% at March 31, 2016. Fitch estimates that following the close of the merger, Anthem's consolidated debt-to-EBITDA and financial leverage ratios will equal 4.0x and 48%, respectively.

Cigna's debt service capabilities and financial flexibility continue to be strong measured by interest coverage of 16.3x for the full-year 2015 and 17x through the first three months of 2016. Fitch estimates interest coverage for the combined Anthem-Cigna to deteriorate to approximately 6x following the merger. Fitch also expects near-term financial flexibility of Anthem-Cigna to be somewhat constrained after funding the merger.

Favorably, the combined Anthem-Cigna would be the largest health insurance company ranked by membership with greater than 50 million medical members. The combined organization would be expected to benefit from enhanced size and scale as profit margins are pressured under the Affordable Care Act.

Potential disruption from merger activities has not shown up in Cigna's operating results, which continue at a level above the company's current ratings. Specifically, EBITDA margins were strong at 11% for the full- year 2015 and 10.5% in the first quarter of 2016 (1Q16). Similarly, return on capital was solid at 12.9% for the full year 2015 and 12.1% in 1Q16.

RATING SENSITIVITIES

Fitch plans to resolve the Negative Rating Watch upon the close of the merger. If the merger proceeds along the terms announced in the agreement, Fitch expects to affirm the IFS ratings with a Negative Outlook and downgrade the IDR and senior debt ratings by one notch to match Anthem's expanded notching.

Subsequent to the planned acquisition's close, Cigna's ratings and Rating Outlook will be most sensitive to Anthem's mid-to-long-term financial leverage metrics, ability to generate consistent earnings in light of its rapid membership growth and efforts to integrate Cigna, and benefits from the combined Cigna-Anthem organization's larger market position and size/scale characteristics.

Fitch would likely remove Cigna's ratings from Negative Rating Watch and affirm its ratings if the Cigna-Anthem merger failed to close.

Fitch has maintained the Negative Rating Watch on the following ratings:

Cigna Corp.

--Issuer Default Rating (IDR) 'A-';

--Short-term IDR 'F2';

--$1.2 billion commercial paper program 'F2';

--$250 million 5.375% senior notes due March 15, 2017 'BBB+';

--$131 million 6.35% senior notes due March 15, 2018 'BBB+';

--$300 million 5.125% senior notes due June 15, 2020 'BBB+';

--$250 million 4.375% senior notes due Dec. 15, 2020 'BBB+';

--$300 million 4.500% senior notes due March 15, 2021 'BBB+';

--$750 million 4.000% senior notes due Feb. 15, 2022 'BBB+';

--$17 million 8.300% senior notes due Jan. 15, 2023 'BBB+';

--$100 million 7.650% senior notes due March 1, 2023 'BBB+';

--$900 million 3.250% senior notes due April 15, 2025 'BBB+';

--$300 million 7.875% debentures due May 15, 2027 'BBB+';

--$83 million 8.300% senior notes due Jan. 15, 2033 'BBB+';

--$500 million 6.150% senior notes due Nov. 15, 2036 'BBB+';

--$300 million 5.875% senior notes due March 15, 2041 'BBB+';

--$750 million 5.375% senior notes due Feb. 15, 2042 '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 'A+'.

Additional information is available on www.fitchratings.com.

Applicable Criteria

Insurance Rating Methodology (pub. 17 May 2016)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=881564

Additional Disclosures

Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1005279

Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

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