Ratings agency A.M. Best has placed Cigna Corporation’s key life/health subsidiaries, health maintenance organisations and its New Zealand and European insurance companies’ financial strength rating (FSR) of “A” (Excellent) and long-term issuer credit ratings (long-term ICR) of “a” under review with negative implications.
Additionally, A.M. Best placed the “A-” (Excellent) FSR and the “a-” long-term ICRs of Cigna Supplemental Benefit Companies, as well as the Cigna HealthSpring companies under review with negative implications. Concurrently, A.M. Best placed under review with negative implications the “bbb” long-term ICR and the long- and short-term issue credit ratings (long-term IR; short-term IR) of Cigna.
According to A.M. Best, the rating actions follow the announcement that Cigna has signed a definitive agreement to acquire Express Scripts Holding Company (Express Scripts) for US$67 billion in a combination of cash and stock. The transaction is subject to approval by federal and state regulators and is expected to close by December 31.
“Following the issuance of $22.5 billion of new debt to finance the transaction combined with the existing debt at Cigna and Express Scripts, Cigna’s financial leverage is expected to be approximately 49%, and its goodwill plus intangibles to equity ratio will likely exceed 125%,” it said.
“The negative implications reflect A.M. Best’s concerns regarding the increased debt and limited financial flexibility that the new combined organization will have and the potential for increased dividends from the insurance operations.”
The company’s interest coverage is expected to decline to under 10x; while also expected to remain at levels considered strong. Furthermore, with the transaction being the largest that Cigna has undertaken, it presents significant execution risks, the agency noted.
Additionally, there is concern for potential losses of Express Scripts customers following the transaction, which could negatively impact earnings and revenues. Still, A.M. Best said it recognises Cigna’s expertise in pharmacy, as it has its own Pharmacy Benefit Management operation, including ownership of Cigna Tel Drug.