A.M. Best Co. has affirmed the financial strength rating (FSR) of A (Excellent) and issuer credit ratings (ICR) of 'a+' of the insurance and health maintenance organization (HMO) subsidiaries of Aetna Inc. (Aetna) (NYSE: AET). Concurrently, A.M. Best has affirmed the FSR of A (Excellent) and ICR of 'a' of Aetna Insurance Company of Connecticut. A.M. Best also has affirmed the ICR of 'bbb+' and debt ratings of Aetna. Additionally, A.M. Best has assigned a debt rating of 'bbb+' to the $500 million 4.125% senior unsecured notes, due 2021 of Aetna. The outlook for all ratings is stable. All the above companies are headquartered in Hartford, CT. (See below for a detailed listing of the companies and ratings.)
The rating affirmations of the lead operating entity, Aetna Life Insurance Company (ALIC), and the insurance and HMO subsidiaries of Aetna reflect their excellent operating and net income, good liquidity and solid risk-based capitalization levels. Aetna continues to generate good operating and net income results, which mainly are due to strong underwriting gains in the health care segment. Health care earnings were driven by favorable medical utilization rates in 2010. Aetna maintains a good level of liquidity through parent company cash, subsidiary dividends, an untapped $1.5 billion credit facility and its commercial paper program. The consolidated Aetna insurance operations' favorable net income has contributed to the group's solid capital level through retained earnings. The consolidated organization, driven by ALIC, has a strong risk-based capital ratio, and its capital and surplus level is more than adequate for the ratings (see also Health Insurance).
Partially offsetting these positive rating factors is the decline in Aetna's consolidated membership over the near term as commercial employer groups continue to be negatively affected by the state of the economy. This negative affect has pressured enrollment and premium growth in this business segment due to in-group disenrollment resulting from layoffs, decreased sales of complementary products and pricing pressures as employers look to contain benefit costs. Furthermore, growth in Aetna's Medicare lines had been hindered by the Centers for Medicare and Medicaid Services' imposed freeze on the plan, prohibiting it to actively market Medicare Advantage products in April 2010. While this did not affect the existing enrollees, the effect has obviously prevented growth in Aetna's membership for the January 2011 selling season. The sanctions against Aetna have since been lifted, and the plan will begin to actively enroll beneficiaries beginning in July 2011. Additionally, the company announced agreements to acquire Prodigy Health Group on April 28, 2011, and on June 13, 2011, the Medicare Supplement business of Genworth Financial, Inc., which includes Continental Life Insurance Company of Brentwood, Tennessee and its subsidiary, American Continental Insurance Company. The acquisitions may result in an increase in its debt-to-capital, should Aetna issue debt or utilize its commercial paper program to fund these acquisitions. A.M. Best expects Aetna's debt-to-capital to be in the range of or near 30% over the medium term.
The FSR of A (Excellent) and the ICR of 'a+' have been affirmed for the following subsidiaries of Aetna Inc.: Aetna Life Insurance Company Aetna Life & Casualty (Bermuda) Ltd. Aetna Health Inc. (a Connecticut corporation) Aetna Health Inc. (a Florida corporation) Aetna Health Inc. (a Georgia corporation) Aetna Health Inc. (a Maine corporation) Aetna Health Inc. (a New Jersey corporation) Aetna Health Inc. (a New York corporation) Aetna Health Inc. (a Pennsylvania corporation) Aetna Health Inc. (a Texas corporation) Aetna Health Insurance Company of New York Aetna Health Insurance Company Aetna Health of California Inc. Aetna Dental Inc. (a New Jersey corporation) Aetna Dental Inc. (a Texas corporation) Aetna Dental of California The following debt ratings have been affirmed: Aetna Inc.-
-- 'bbb+' $750 million 6.0% of senior unsecured notes, due 2016
-- 'bbb+' $500 million 6.5% of senior unsecured notes, due 2018
-- 'bbb+' $800 million 6.625% of senior unsecured notes, due 2036
-- 'bbb+' $700 million 6.75% of senior unsecured notes, due 2037
-- 'bbb+' $750 million 3.95% of senior unsecured notes, due 2020
-- AMB-2 on commercial paper
The following indicative ratings on universal shelf securities have been affirmed: Aetna Inc.-
-- 'bbb+' on senior unsecured debt
-- 'bbb' on subordinated unsecured debt
-- 'bbb-' on preferred stock
The principal methodology used in determining these ratings is Best's Credit Rating Methodology -- Global Life and Non-Life Insurance Edition, which provides a comprehensive explanation of A.M. Best's rating process and highlights the different rating criteria employed. Additional key criteria utilized include: 'Rating Health Insurance Companies'; 'Understanding BCAR for Life and Health Insurers'; 'Understand Universal BCAR'; 'Risk Management and the Rating Process for Insurance Companies'; 'Rating Members of Insurance Groups'; 'Rating Commercial Paper'; 'Assessing Country Risk'; and 'A.M. Best's Ratings & the Treatment of Debt.' Methodologies can be found at www.ambest.com/ratings/methodology. Founded in 1899, A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com. Copyright [c] 2011 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.
Keywords: Investing, Investment, Legal Issues, Stock Market, Health Policy.
This article was prepared by Managed Care Weekly Digest editors from staff and other reports. Copyright 2011, Managed Care Weekly Digest via NewsRx.com.
