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Cigna's stock steady despite Fitch downgrade; Canadian life insurers fall

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Cigna's stock steady despite Fitch downgrade; Canadian life insurers fall

Cigna Corp. shares were mostly flat this week despite the company sustaining a two-notch downgrade from Fitch Ratings amid concerns about new debt it is taking on to finance a part of its planned purchase of Express Scripts Holding Co.

Insurance companies modestly outperformed the broader markets for the week ending Sept. 7. The S&P 500 fell 1.03% to 2,871.68, while the SNL U.S. Insurance Index rose 0.62% to 1,073.89.

S&P Global Ratings insurance analyst Deep Banerjee said the main concern for Cigna is leverage, which is expected to rise to 49%. Although he expects the company to de-lever to some degree after the deal closes, its leverage is expected to remain elevated for some time. Banerjee also noted investor concerns about the execution of the transaction, but said integration risk will be lower because Express Scripts is a pharmacy benefit manager that can work on its own.

Cigna's stock finished up 0.13% for the week.

Canadian life insurers saw their stocks fall as one major executive acknowledged a "disconnect" between the financial performance of the companies and the performance of their stocks.

"We certainly have been impacted by the industry forces, but we've also been impacted by, in my mind, an inappropriate read-through from announcements that have been made by some of our peers as it relates to long-term care," Manulife Financial Corp. President and CEO Roy Gori said during a Sept. 6 Scotiabank conference presentation.

Gori noted that Canadian life companies are subject to more stringent regulation and reserving requirements than those seen in the U.S. He also stressed that not all long-term businesses are of the same quality, adding that he has confidence in Manulife's book.

Manulife declined 3.21% for the week, while peer Great-West Lifeco Inc., which is reportedly looking to off-load $2 billion in contracts, was lower by 2.62%.

Reinsurance stocks ticked lower as rating agencies this week predicted increased competition and weaker pricing for the industry.

"This has been a very long time coming," Buckingham Research analyst Amit Kumar said, noting that the industry has seen an influx of third-party capital. Reinsurers are not experiencing larger losses because of large gaps in major disasters. Prior to hurricanes Harvey, Irma and Maria in 2017, the last major natural disaster to strike the U.S. was Hurricane Sandy in 2012, he said.

Everest Re Group Ltd. was down 3.37% while Reinsurance Group of America Inc. was down 1.09%.

Elsewhere in reinsurance, Maiden Holdings Ltd. plunged 31.58% a week after agreeing to sell the renewal rights to its U.S. treaty reinsurance underwriting business and inking a deal to sell Maiden Reinsurance North America Inc. to an Enstar Group Ltd. subsidiary.

Maiden Holdings has seen a shake-up in the C-suite of late with President and CEO Art Raschbaum leaving and CFO Karen Schmitt announcing her retirement. Schmitt will stay with the company as executive vice president until March 2019.

Several large managed care companies ticked up this week, with Molina Healthcare Inc. rising 1.93%, WellCare Health Plans Inc. climbing 2.62%, Anthem Inc. increasing 2.71% and Aetna Inc. seeing a 1.46% gain.

Also, Berkshire Hathaway Inc.'s stock rose by 1.83% in the same week that it hired Jack Stoddard as COO of its joint healthcare venture with Amazon.com Inc. and JPMorgan Chase & Co.