A.M. Best affirmed the Issuer Credit Ratings (ICR) and debt
ratings of "bbb+" of
). It also upgraded the Financial Strength Ratings (FSR) to A
Some of the former subsidiaries of Coventry Health Care, Inc.
also witnessed a rating upgrade wherein their ICRs were upped to
"a" from "a-," and FSR to A- from B++. Those units carrying ICR
of bbb+ were upped to "a-."
A.M. Best also pulled up FSR to A- from B++ and the ICRs to
"a-" from "bbb" and the FSR to A- from B+ and the ICRs to "a-"
from "bbb-" of the remaining former subsidiaries of Coventry.
Further, A.M. Best upgraded the ICR to "bbb" from "bbb-" and
removed it from under review with positive implications for this
rating of Coventry.
A.M. Best also upgraded some of its debt ratings to "bbb" from
"bbb-" and removed from under review with positive
All the above ratings which had been placed under review with
negative implication following the Aetna announcement to acquire
Coventry, has been removed from the status of 'under review'. The
upgradation of rating outlook comes on the back of rating
agency's increased confidence in the company affairs and clarity
about the company operations from management.
A.M. Best acknowledges Aetna's strong operational and
financial performance over recent years. The earnings have
benefited from lower-than-average utilization by members and
strong margins in the health care segment.
The company's diversified operations consisting of Health,
Life and Disability lines of business provide enough shield to
its earnings. Within its Health insurance line of business, Aetna
provides commercial, Medicare Advantage, Medicare Supplement and
Medicaid managed care insurance. With the acquisition of Coventry
the company has been able to increase its Medicare Advantage and
Medicaid managed care business.
A.M. Best views Aetna's strong financial position favorably.
Along with Aetna's strong financial flexibility steady flow of
dividend from subsidiaries, and solid operating cash flows the
company has gained extra capital support from Coventry's free
cash flows as well as its available credit facility.
Though Aetna's leverage ratio of 40% which increased due to
acquisition of Coventry is quite high, A.M. Best is confident
that the ratio will moderate over time. The rating agency
is of the view that Aetna remains comfortably positioned with
respect to its debt servicing capability and expects the interest
coverage ratio to stand at 10x.
The positive rating action on Coventry's subsidiaries emanated
from the rating agency's increased confidence about their
operating results. Though it notes that the company's businesses
remains challenged in some areas, overall it lies in a strong
position. The company also maintains a solid capital position.
Moreover the benefit of being a part of Aetna provides additional
relief to A.M. Best.
Though somewhat unlikely, the possibility of a negative rating
action cannot be ruled out if Aetna's operating profitability of
its health business is reduced or if risk-based capital ratio
declines significantly. A high leverage ratio can also increase
the chances of a rating downgrade.
For Coventry positive rating action can come on the back of an
improvement in risk-adjusted capitalization, growth in earnings
or further integration into the Aetna organization. However,
negative rating action can follow from a decline in operating
profitability and decline in capital strength.
Financial strength and credit ratings, which intend to measure
a company's ability to meet policyholder obligations, are
important factors affecting public confidence and
creditworthiness of a company, and hence provide a company's
competitiveness. Securing an investment grade debt rating with a
stable outlook reflects optimism about Aetna's future
Other players in the same industry,
UnitedHealth Group Inc.
) all carries an investment grade rating from A.M. Best.
Aetna currently retains a Zacks Rank # 2 (Buy).
AETNA INC-NEW (AET): Free Stock Analysis
CIGNA CORP (CI): Free Stock Analysis Report
UNITEDHEALTH GP (UNH): Free Stock Analysis
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