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Moody’s: Good if Cigna can unload VA death benefit

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If Cigna is able to divest itself of its variable annuity death benefit business, it would be a credit positive for the insurer, according to a Moody’s analyst.

The comment was prompted by an interview published in Bloomberg in which Cigna CEO David Cordani said the company was nearing a deal to sell the line. “It will run out for another decade and a half, so someone who wants to run it out, it’s an attractive proposition,” Cordani was quoted as saying in an interview at the JPMorgan Chase & Co. health-care conference held recently in San Francisco.

However, Cordani did not give a time frame for any deal, saying only that it could happen as soon as this year. No potential buyer was specified.

Cigna’s variable annuity (VA) death benefit business is part of its reinsurance operations, which it discontinued in 2000 and put in run-off mode, noted Moody’s senior vice president Stephen Zaharuk.

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Selling off the business would enhance Cigna’s overall credit standing due to the removal of a liability that is subject to volatile returns and risk, Zaharuk stated in his analysis. However, the benefits would have to be weighed against the costs and terms of any potential deal. “Owing to the nature of this business, we expect Cigna would have to pay someone to assume this business,” he wrote.

As of Sept. 30, Cigna reported death benefit coverage equal to the amount payable if all of the approximately 445,000 in-force contract-holders submitted death claims of roughly $4.2 billion. At the same time, Cigna held reserves for future policy benefits for those contracts of about $1.1 billion, detailed Zaharuk.

It’s no surprise that a carrier that insures variable annuities has sought ways to lessen the liabilities of those contracts either through hedging strategies or restructuring the policies. In recent months, several variable annuity insurers have proposed voluntary buyouts of either death benefits or guaranteed lifetime income riders in an exchange for a higher account balance. The moves are seen as a way to lessen the risks associated with such long-term benefits in a low interest rate environment. Companies like Hartford and Sun Life have exited the VA business altogether.

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