Recently, A.M. Best Co. affirmed the issuer credit ratings
Health Net Inc.
) as well as the debt rating on the company's $400 million senior
unsecured notes, due 2017, at 'bb.'
Additionally, the rating agency affirmed the financial strength
rating ("FSR") and ICR of the company's subsidiaries - Health Net
of California Inc., Health Net Life Insurance Company, Health Net
Health Plan of Oregon Inc. and Health Net of Arizona Inc. - at
'B++' and 'bbb', respectively. A. M. Best also holds a stable
outlook for all the ratings.
The rating affirmation came on the back of Health Net's strong
brand name and varied businesses. Moreover, the company's
non-regulated subsidiaries generate strong earnings, thereby
providing financial flexibility.
However, A.M. Best expects the conversion of the TRICARE T-3
contract into an administrative services only ("ASO") product to
result in margin contraction in the business, which contributes a
major part of the earnings from non-regulated subsidiaries.
Health Net's premium growth has become flat and the company is
also facing substantial concentration risk. Also, membership in the
Commercial business has been dented by the weak economy in
California, while the increased regulations imposed by the Centers
for Medicare and Medicaid Services (CMS) in 2010 are still hurting
Though Health Net's government businesses are growing,
reimbursement rates are expected to decline owing to budget
pressures, while payment delays are also anticipated. Moreover, A.
M. Best expects earnings of the operating subsidiaries for 2012 to
be negatively affected by the net loss incurred during the first
quarter resulting from reserve creation.
Nevertheless, the ratings are not expected to change in the
short term. However, substantial decline in the risk-adjusted
capital of Health Net or repeated losses from unforeseen items in
the subsidiaries could lead to a downward revision of the
The company competes with
UnitedHealth Group Inc.
Currently, Health Net carries a Zacks #5 Rank (short-term Strong
Sell rating), implying a strong downward pressure on the shares in
the near term.
HEALTH NET INC (HNT): Free Stock Analysis
UNITEDHEALTH GP (UNH): Free Stock Analysis
WELLPOINT INC (WLP): Free Stock Analysis Report
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