NU Online News Service, July 15, 2003, 3:56 p.m. EDT – Customers of CIGNA Corp., Philadelphia, might be better off if the company separated its health care and retirement businesses, according to analysts at Moody’s Investors Service, New York.
The rating agency lowered the credit rating on the company’s senior unsecured debt to Baa2, from Baa1, and the insurance financial strength rating of the Connecticut General Life Insurance Company subsidiary to A2, from A1.
Moody’s analysts are blaming the downgrades on CIGNA’s recent announcement that 2003 earnings will be lower than originally expected because of problems with health insurance claims costs and the effects of the investment market slump on a block of old variable annuity reinsurance contracts.
The volatility of earnings at the health insurance operation “raises the issue of whether CIGNA can balance the interests of policyholders in both the healthcare and retirement segments over the near term or whether a sale or spin-off of either the healthcare or retirement businesses is a more likely strategic response to the aforementioned credit challenges,” Moody’s says in a discussion of the ratings changes.
But Moody’s notes that it believes that CIGNA executives should be able to make the operational and tactical changes needed to improve the company’s earnings.
CIGNA itself has the same view of its corporate structure that it’s always had, CIGNA spokesman Wendell Potter says.
“Our practice is to evaluate what’s in the best interest of our shareholders with respect to each of our businesses,” Potter says.
CIGNA is constantly looking at alternatives whether profits are up or profits are down, Potter says.