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Moody's places Cigna on review for downgrade following Express Scripts deal

Moody's has placed Cigna Corp.'s debt ratings on review for downgrade, writing that its proposed acquisition of Express Scripts Holding Co. will result in substantial increase in financial leverage and reduce the company's overall financial flexibility.

The rating agency also placed the A1 insurance financial strength ratings of Cigna subsidiaries Connecticut General Life Insurance Co., Life Insurance Co. of North America and Cigna Health & Life Insurance Co. on review for downgrade.

The outlooks were changed to under review from stable.

Moody's said that although the transaction should modestly improve Cigna's strong risk-based capital level, it could also adversely impact the quality of capital.

The rating agency believes that the addition of Express Scripts will add meaningful diversity to Cigna's earnings, will add significant unregulated cash flows and will offer the potential for cost synergies.

However, Moody's is of the view that the insurer already has access to many of the capabilities offered by Express Scripts. Moody's also pointed out that Express Scripts is losing its largest customer, Anthem Inc., which accounted for about 18% of its revenue in the first quarter of 2017. Express Scripts is not just losing Anthem as a customer, but also facing a $15 billion lawsuit from the insurer, the rating agency noted.