A.M. Best Downgrades CIGNA Corp.'s Debt and Many Financial Strength Ratings; All Ratings Released from under Review

Business Wire, Nov 18, 2003

Business Editors/Health/Medical Writers

OLDWICK, N.J.--(BUSINESS WIRE)--Nov. 18, 2003

A.M. Best Co. has downgraded the debt ratings and insurance company and selected HMO financial strength ratings of CIGNA Corporation (Philadelphia, PA) (NYSE: CI), while affirming several HMO financial strength ratings. All debt and financial strength ratings have been assigned a stable outlook, resolving the under review with negative implications status. This action affects approximately $1.5 billion of senior debt, the indicative ratings for securities issuable under the shelf registration and 30 rated operating subsidiaries. (See link below.)

CIGNA's definitive agreement to sell its retirement business to Prudential Financial Inc. could further challenge CIGNA's earnings and debt service coverage during the medium term, driving the ratings downgrades. Historically, CIGNA's stable and profitable retirement business, which contributes approximately 25% of consolidated earnings, has lifted the corporation's ratings. CIGNA's largest remaining businesses--health care insurance and HMO--are more volatile and subject to execution risk, owing to their financial and strategic turnaround effort. A.M. Best's concerns about the health related businesses are somewhat mitigated by the excellent margins generated by CIGNA's specialty health services and, to a lesser extent, international businesses.

Additional near-term pressures in CIGNA's health care insurance, HMO and run-off reinsurance businesses, as well as any material non-recurring charges, could lead to further debt and financial strength ratings downgrades. CIGNA has instituted multiple initiatives to improve its health insurance and HMO operations. A.M. Best is concerned, though, about recently announced delays in the turnaround effort's success and the previously cited issues' negative effect on the enterprise's financial strength, franchise value and competitive posture. However, CIGNA's hedging program to mitigate guaranteed minimum death benefit reinsurance exposure has performed effectively to date.

On a positive note, the sale of the retirement business mitigates the enterprise's liquidity and financial flexibility issues. The proceeds from the proposed retirement business divestiture would replenish the holding company's marginal cash balance to approximately $500 million, lending needed support to CIGNA's insurance company and HMO capitalization strategy.

Key financial metrics should remain commensurate with an excellent financial strength rating, despite the significant impact the transaction will have on CIGNA Corp.'s balance sheet. Financial leverage should approximate the conservative end of the 25% to 30% range, owing to the use of transaction proceeds to extinguish some debt. Intangible assets would still comprise a manageable portion of the balance sheet, lending further strength to the quality of CIGNA's capital structure.

For a complete list of debt and financial strength ratings for CIGNA Corporation, please visit www.ambest.com/press/111805cigna.pdf.> For a list of A.M. Best's debt ratings, please visit http://www.ambest.com/ratings/debtrating/companies.html.> A.M. Best Co., established in 1899, is the world's oldest and most authoritative insurance rating and information source. For more information, visit A.M. Best's Web site at www.ambest.com.