AM Best has assigned a Long-Term Issue Credit Rating of “bbb” (Good) to the $700 million, 5.685% senior unsecured notes due March 15, 2026, and the $800 million, 5.4% senior unsecured notes due March 15, 2033, recently issued by The Cigna Group (Cigna) (headquartered in Bloomfield, CT) [NYSE:CI]. The outlook assigned to these Credit Ratings (ratings) is positive. The existing ratings of Cigna and its subsidiaries are unchanged.
The proceeds from the issuance will be used to pay down upcoming debt maturities and for general corporate purposes. Cigna has close to $3 billion of senior unsecured notes coming due throughout 2023. Cigna’s financial leverage was 40.9% at year-end 2022, which is in line with its peers. Financial leverage has moderated substantially over the past several years following the $67 billion acquisition of Express Scripts in late 2018. Financial leverage is expected to increase slightly after the new debt issuance but will return to the 40% range as maturities are paid. Cigna’s earnings before interest and taxes interest coverage improved in 2022 to over 8.2 times compared with 6.5 times in 2021 due to stronger earnings. Cigna’s earnings from health care operations grew 13% in 2022 compared with 2021 as medical cost ratio posted a 230 basis points improvement mainly driven by lower COVID-19 claims and pricing initiatives. Non-regulated earnings at the Evernorth segment improved by 5% supported by revenue growth. The Evernorth segment comprised about 75% of revenues, and 53% of earnings from operations for the enterprise-reducing pressure for dividends form the insurance subsidiaries. The dividends from Cigna insurance entities declined to $1.9 billon in 2022 from $2.8 billion and $2.3 billion in 2021 and 2020, respectively.
In addition to operating earnings, Cigna’s financial position was enhanced through $5.5 billion of proceeds from divestiture of its Asia-Pacific insurance operations completed in mid-2022. The proceeds from the sale were used primarily for share repurchase. Cigna repurchased $7.6 billion worth of shares in 2022, slightly lower compared with 2021. Furthermore, Cigna paid a cash dividend of $1.4 billion in 2022 and announced a 10% increase in dividend for 2023.
Cigna maintains good liquidity and financial flexibility through parent company cash, a commercial paper program and several credit facilities, as well as the ability to borrow up to $3 billion from the insurance subsidiaries without additional authorizations. There was no commercial paper outstanding or any borrowing against credit facilities at year-end 2022.
Goodwill and intangibles assets remain high at approximately 100% of shareholders equity. However, the ratio declined from over 150% in 2018 when the purchase of Express Scripts was completed. In addition, high goodwill/intangibles is tied primarily to non-insurance operations, which continue to produce stable earnings and provide a substantial degree of diversification.
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