CIGNA Could Sell, Spin-off Retirement Biz

Late today CIGNA confirmed in a press release that the firm was “exploring strategic alternatives to further maximize the value of its retirement and investment services business.”  Those options, according to the release, include “placing the retirement and investment services business in a separate operating company with its own financial ratings or a possible divestiture.”

Bloomberg News reported news of the contemplated moves earlier in the day, noting that the nation’s  third-biggest US health insurer had hired Goldman Sachs Group Inc. to arrange the sale for around $2 billion, citing unnamed sources.  The report’s sources said that potentialbidders include Principal Financial Group Inc., Lincoln National Corp., Manulife Financial Corp., Putnam Investments and Fidelity Investments.

Late in the day Wednesday, CIGNA released a prepared statement saying that a potential sale was only one option it was considering. Chairman and CEO H. Edward Hanway said the company was also pondering putting  the retirement and investment services business in a separate operating company with its own financial ratings.

“We have a sound business strategy for our retirement business and it continues to generate positive results, both absolutely and competitively,” Hanway said in the statement. “We appreciate the importance of financial security to our retirement and investment services customers and we are continuously exploring steps to enhance that security. We will choose the option that allows us to deliver on our commitments to provide competitively superior value for clients and their participants and to maximize shareholder value.”

A Disastrous 2002

CIGNA, based in Philadelphia, has been struggling to recover from a disastrous 2002 in which it underestimated medical costs, set health plan premiums too low and took more than $1 billion in charges from its reinsurance business. But progress turning around CIGNA’s health care business, which provides employee health plans to large companies, has been slow, according to Dow Jones.

Earlier this month, CIGNA announced that it was slashing financial forecasts for the second quarter and the rest of 2003, citing steeper-than-expected medical cost inflation and a bigger-than-anticipated dip in membership. Shortly after, two major ratings services cut CIGNA’s credit rating.  The firm also cited a $100-million restructuring that had not gone as well as planned – and that CIGNA HealthCare president Patrick Welch is leaving the company.  None of those financial woes appear to have any connection with the firm’s retirement business.  In fact, the division’s relative strength may well be a considerable factor in the current deliberations.

Shifting Sands?

That CIGNA’s relative strength in retirement services could make that business vulnerable is ironic, in view of recent consolidation shifts in the industry.   In recent months, Minneapolis-based US Bank opted to hire out its recordkeeping to BISYS , Wachovia picked up some 4,100 plans and 1.3 million participants with its acquisition of PFPC’s recordkeeping and third-party servicing business, Lincolnshire, Illinois-based Hewitt Associates added some 200 clients and one million participant accounts to its growing book of business with the acquisition of Atlanta-based Northern Trust Retirement Consulting (NTRC), and payroll giant ADP agreed to acquire recordkeeping operations from Scudder Investments as part of a new joint unit called the Benefits Services Alliance (see  “Squeezed Box”).  

Ultimately, the sale of the unit reflects the failure of health insurers such as CIGNA to also sell pension plans, said Al Copersino, an analyst for Columbia Management Group, which has 1.1 million CIGNA shares.   “Except for the fact that `health’ and `wealth’ rhyme, I can’t see any synergies there,” Copersino, told Bloomberg. “Your contact person at an employer isn’t even the same for health care and retirement.”