NU Online News Service, Sept. 4, 6:05 p.m. – CIGNA Corp., Philadelphia, is facing skeptical reviews of its efforts to stabilize its exposure to $22 billion in minimum death benefit guarantees with a $720 million hedging program.

CIGNA reinsured the death benefit guarantees for life insurers that sold the guarantees along with variable annuities between 1994 and 1998.

CIGNA shut down the reinsurance operation in 2000.

CIGNA is describing the charge it is taking to pay for the hedging strategy as a logical response to the stock market slump.

“Recent declines and volatility in the equity markets significantly increased the company’s exposure to future death claims,” says CIGNA Chairman H. Edward Hanway. “The actions we are taking substantially reduce the impact of future equity market declines arising from these contracts and maintain the financial strength that our customers expect.”

Standard & Poor’s, New York, agreed that the hedging program will protect the reinsurance arrangements, but it put out a statement raising questions about the effects of the program on CIGNA’s balance sheet.

CIGNA will cover some of the cost by spending less cash on share repurchases, but “CIGNA will also reduce cash reserves and could need to raise additional debt this year,” S&P says.

Moody’s Investors Service, New York, is also giving the hedging move lukewarm reviews.

The hedging strategy is expensive, and managing it will be tricky, Moody’s warns.

Moody’s also notes that CIGNA has been reporting mediocre results.

Income has been flat for more than two years, health care enrollment has been shrinking slightly, and the company’s ratio of debt to capital has been growing, the rating agency says.

CIGNA has increased its debt-to-capital ratio to 23.9% June 30, from 19.5% Dec. 31, 2000, and new debt sales already discussed could increase the ratio to 29.2% by the end of the year, Moody’s says.