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Rating Action:

Moody's affirms CIGNA's ratings (Baa2 sr debt); stable outlook

29 Apr 2010

Approximately $2.5 billion of rated debt affected

New York, April 29, 2010 -- Moody's Investors Service has affirmed CIGNA Corporation's (CIGNA; NYSE:CI) Baa2 senior unsecured debt rating and the A2 insurance financial strength (IFS) ratings of Connecticut General Life Insurance Company and Life Insurance Company of North America after reviewing the company's earnings and capital results from 2009. The outlook on these ratings has been changed to stable from negative.

Steve Zaharuk, Moody's Senior Vice President, stated: "The change in CIGNA's rating outlook to stable reflects the company's considerably improved financial profile during 2009 in terms of stronger regulatory capital, reduced financial leverage, and greater liquidity at the holding company. In addition, CIGNA's business profile should help protect it from some of the concerns facing the healthcare sector as a result of healthcare reform." Moody's added that, in particular, CIGNA has small to modest positions in the segments that are anticipated to feel the most significant negative impact from reform (i.e., Medicare Advantage, individual and small group).

The rating agency noted three specific areas CIGNA has addressed to bolster its financial profile. First, CIGNA conserved capital by limiting dividends from its operating subsidiaries and by not repurchasing any shares during the year. This, combined with very strong net income of $1.3 billion, helped restore the company's NAIC RBC ratio to over 300% of company action level (CAL). Second, the company froze its pension plan, limiting the growth in its unfunded liability. In addition, a $400 million contribution to the pension plan resulted in a reduction of the company's adjusted financial leverage (debt to capital where debt includes unfunded pension liability and operating leases) to about 47% at year end 2009. Third, the company restored liquidity at the parent, ending the year with a very strong cash balance of $475 million.

However, Moody's added, CIGNA remains vulnerable to earnings volatility and potential losses from its run-off reinsurance segment despite having an equity hedge program which has reduced, but not eliminated, the adverse financial impact to the company. While the annual reinsurance results over the last several years have been, for the most part, within an acceptable range for CIGNA's rating, a severe market downturn similar to what occurred at the end of 2008, has the potential to lower the company's year-end consolidated NAIC risk-based capital (RBC) below its target 300% level. One other area of concern in the current economic environment is CIGNA's large block of commercial mortgages. While this portfolio remains well diversified and has experienced only minimal defaults to date, given CIGNA's large exposure, adverse results could have a significant impact on the company's financial results.

Moody's said that if adjusted financial leverage is reduced to 40%, EBIT interest coverage approaches 8 times, and after-tax earnings margins remain above 5% with a consolidated NAIC RBC ratio of at least 300% CAL, the ratings could be upgraded. However, the ratings could be downgraded if: adjusted financial leverage increases above its current level, EBIT coverage falls below 5 times, the consolidated NAIC RBC ratio falls below 250% of CAL, or if 2010 reinsurance losses exceed 10% of equity.

The following ratings were affirmed with a stable outlook:

CIGNA Corporation -- senior unsecured debt rating at Baa2; prospective senior unsecured debt shelf rating at (P)Baa2; prospective subordinated debt shelf rating at (P)Baa3; prospective preferred stock shelf rating at (P)Ba1; short-term debt rating for commercial paper at Prime-2;

Connecticut General Life Insurance Company -- insurance financial strength rating at A2;

The Life Insurance Company of North America -- insurance financial strength rating at A2.

The last rating action for CIGNA (other than the rating of new debt) occurred on February 25, 2009 when Moody's affirmed CIGNA's ratings with a negative outlook.

CIGNA Corporation, headquartered in Philadelphia, PA, provides employee benefits, including health care products and services, and group disability, life and accident insurance throughout the United States. It also provides life, accident, health and expatriate employee benefits insurance coverage in selected international markets, primarily in Asia and Europe. For the full year 2009, the company reported consolidated GAAP revenues of approximately $18.4 billion, shareholders' equity of approximately $5.4 billion, and total enrollment of 11 million medical members (excluding Part D membership).

The principal methodology used in rating CIGNA was Moody's Rating Methodology for U.S. Health Insurers, which can be found at www.moodys.com in the Rating Methodologies sub-directory under the Research & Ratings tab. Other methodologies and factors that may have been considered in the process of rating CIGNA can also be found in the Rating Methodologies sub-directory on Moody's website.

Moody's insurance financial strength ratings (IFSR) are opinions about the ability of insurance companies to punctually pay senior policyholder claims and obligations.

For more information, please visit our website at www.moodys.com/insurance.

New York
Stephen Zaharuk
Senior Vice President
Financial Institutions Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Robert Riegel
Managing Director
Financial Institutions Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's affirms CIGNA's ratings (Baa2 sr debt); stable outlook
No Related Data.
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