Fitch Ratings has assigned an international scale 'BBB-' insurer financial strength (IFS) rating to Cigna Compania de Seguros de Vida (Chile) S.A. (Cigna Chile). Fitch has also affirmed Cigna Chile's 'A+ (Chl)' national scale IFS rating. The Rating Outlook is Stable for Cigna Chile.
Cigna Chile's ratings reflect its good capitalization levels, enhanced by conservative profit retention and the support of its parent, Cigna Corp. (Issuer Default Rating (IDR) of 'A-'). This conservative approach towards capitalization is reflected in a favorable evolution of leverage ratios, which are well below the Chilean industry (4.7 times (x) vs. 7.4x), even when its liabilities are significantly increased by the burden imposed by the technical reserves related to the annuities business, highly regulated in the country. Cigna Chile's investment policy remains conservative, with 98% of its portfolio in fixed income and cash instruments, yielding low mean credit risk levels.
Cigna Chile's operating performance is adequate for the assigned ratings, reflecting a combination of well managed loss ratios in its principal business lines, atomized portfolio and limited exposure to individual claims through a comprehensive reinsurance program. Since 2002, Cigna Chile has managed the run-off of its annuity portfolio, with adequate reserve coverage and a reinvestment rate readjusted to asset risk within the local market's average (2.6%; December 2006). As of December 2006, Cigna Chile presented adequate, though decreasing, profitability ratios, with 14.6% return on equity (ROE) and 2.4% return on assets (ROA) and a net income of $4.98 million, 35% below the comparable period the previous year. It is important to note that investment income (highly correlated to the annuities business) was an important contributor to the Cigna Chile's 2006 profitability.
Fitch considers that Cigna Chile's administrative structure maintains the necessary flexibility to adequately face its growth expectations. However, its relatively small volume of operations has a negative impact on efficiency ratios, which compares unfavorably to the market average (administration costs over gross premiums written of 33.1% vs. 19.4%).
Cigna Chile's ratings benefit from the technical and financial support provided by its parent: Cigna Corp. Despite its small size, the Chilean operation stands as part of the international strategy of Cigna Corp. It is important to note that Cigna Chile's operation is totally aligned with the strategy of its parent in a global scale, being that most of the technical process and investment policies mirror the process held by other Cigna's subsidiaries all over the world, while close control is conducted through clear reporting lines to its parent.
Cigna Corp is a large U.S.-domiciled international insurance holding company, with total assets of $42.4 billion, stockholders' equity of $4.3 billion and net income of $1.15 billion as of Dec. 31, 2006.
Cigna's various businesses are conducted through insurance, managed care and non-regulated subsidiaries. Cigna has a market leadership position in several other group insurance lines including: group life, which is predominantly term coverage; group short and long-term disability coverage; group accident; and dental insurance. Cigna's international operations represent a smaller part of the overall operations, but remain an important and growing part of the business. Existing operations mainly consist of life, accident and health insurance businesses, as well as expatriate benefits, principally in Europe and Southeast Asia.
Cigna Chile, is considered as a niche entity, focused mainly on the corporate market (82.5% of gross premiums written as of December 2006), specifically on life and casualty insurance. The company also actively participates in the retail market through life, health and casualty coverage. Cigna Chile accepts premiums from 'La Positiva Seguros y Reaseguros', a Peruvian local insurance company, that as of Dec. 31, 2006, accounted for 7.9% of their total net premiums written. Given the run-off process of the annuity business, the company has shown a decreasing trend in its business size, with a market share of 0.59% over gross premium written and accepted premiums ($18.7 million) and 0.79% over assets ($202.4 million), both figures at year-end 2006.
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