Press Release - NOVEMBER 29, 2018

A.M. Best Affirms Credit Ratings of Aetna, Inc. and Its Subsidiaries; Affirms Credit Ratings of SilverScript Insurance Company


CONTACTS:
 Doniella Pliss
Associate Director
+1 908 439 2200, ext. 5104
doniella.pliss@ambest.com

Valeria Ermakova
Senior Financial Analyst
+ 44 20 7397 0269
valeria.ermakova@ambest.com
Christopher Sharkey
Manager, Public Relations
(908) 439 2200, ext. 5159
christopher.sharkey@ambest.com

Jim Peavy
Director, Public Relations
(908) 439 2200, ext. 5644
james.peavy@ambest.com

FOR IMMEDIATE RELEASE

OLDWICK - NOVEMBER 29, 2018
A.M. Best has affirmed the Financial Strength Rating (FSR) of A (Excellent) and the Long-Term Issuer Credit Ratings (Long-Term ICRs) of “a” of Aetna Life Insurance Company (ALIC) (Hartford, CT) and other operating entities of Aetna Inc. (Aetna) (headquartered in Hartford, CT) [NYSE: AET] following the announcement on Nov. 28, 2018, that CVS Health Corporation (CVS Health) has completed its acquisition of Aetna and its insurance subsidiaries. Concurrently, A.M. Best has affirmed the FSR of A (Excellent) and the Long-Term ICR of “a” of SilverScript Insurance Company (SilverScript) (Nashville, TN), a subsidiary of CVS Health. Additionally, A.M. Best has affirmed the FSR of A- (Excellent) and the Long-Term ICRs of “a-” of Coventry Health Plan of Florida, Inc. (Coventry HP of FL) (Sunrise, FL) and Aetna Insurance Company Limited (AICL) (United Kingdom). Lastly, A.M. Best has affirmed the Long-Term ICR of “bbb” and the Long-Term Issue Credit Ratings (Long-Term IR) of Aetna. The outlook of these Credit Ratings (ratings) is stable. Also, A.M. Best has withdrawn the Short-Term IR commercial paper rating of AMB-2 of Aetna, as the program has been terminated due to the merger with CVS Health.

Please see link below for a detailed listing of the companies and ratings.

The majority of Aetna’s operating entities are part of the core subsidiaries of Aetna Inc. (Aetna Health & Life Group). The ratings of Aetna Health & Life Group reflect its balance sheet strength, which A.M. Best categorizes as very strong, as well as its strong operating performance, favorable business profile and appropriate enterprise risk management (ERM). The ratings of SilverScript reflect its balance sheet strength, which A.M. Best categorizes as very strong, as well as its strong operating performance, neutral business profile and appropriate ERM.

The ratings of Aetna Health & Life Group and SilverScript reflect high financial leverage of approximately 60% and high level of goodwill at the ultimate parent, CVS Health. In addition, there is a significant execution risk related to the Aetna-CVS Health merger given the vertical nature of the transaction and potential complexity to achieve meaningful synergies. However, CVS Health stated its intention to maintain the current capitalization level at the insurance entities and accelerate de-leveraging through robust cash flow and reduced share repurchases. Following the announcement of the transaction, Aetna and CVS Health stopped share repurchases. In 2017, Aetna’s and CVS Health’s share repurchases totaled $3.85 billion and $4.4 billion, respectively.

Aetna Health & Life Group’s strong risk-adjusted capitalization is supported through a steady stream of positive earnings. However, year-end 2017 risk-adjusted capitalization at ALIC was at its lowest level in five years driven by a higher dividend to the parent and reduced value of deferred tax asset. The operating performance of Aetna’s insurance subsidiaries remains strong, with earnings supported by positive results in all lines of business and margins exceeding targets in 2017 and through the nine months of 2018. However, the exit from the individual business, combined with a loss of Medicaid contracts in several states, resulted in a material premium decline. Aetna is focused on maintaining stability of commercial group earnings while profitably expanding in government programs: Medicare Advantage and Medicaid managed care.

Aetna maintains a strong market presence throughout the United States in commercial and government segments. As a condition of the merger in order to satisfy the anti-trust concerns, Aetna agreed to sell all of its stand-alone Medicare Part D business to WellCare Health Plans Inc. It is not expected to impact Aetna’s operations significantly, as other Medicare products will not be affected. Aetna’s strategy of building effective partnerships with providers to deliver high quality and cost-effective care is supported by the build-out of an information technology platform to facilitate data-driven impacts on members’ behavior and lifestyle in order to control chronic health conditions. While Aetna’s insurance operation will remain a separate unit, the merger with CVS Health will provide further opportunities for vertical integration and outreach to members through increased local presence.

SilverScript has maintained very strong risk-adjusted capital levels over the past several years, supported by 100% retention of net income and an absence of dividend payments. Capital and surplus has shown consistent growth, with a five-year compound annual growth rate of 28%. These positive balance sheet attributes are offset partially by potential liquidity concerns resulting from a high dependency on large program receivable balances, due to the Centers for Medicare & Medicaid Services (CMS) reconciliation process and timing of payments. SilverScript has demonstrated a long-term trend of strong favorable earnings, with a five-year return on equity exceeding 20%. SilverScript is the market leader in stand-alone prescription drug plan enrollment; however, more than 50% of membership is composed of low-income subsidized members auto-assigned by CMS. Such concentration creates lack of product diversification and subjects SilverScript to a high degree of regulatory risks.

The ratings of AICL reflect its balance sheet strength, which A.M. Best categorizes as very strong, as well as its marginal operating performance, limited business profile and appropriate ERM. Furthermore, the ratings of AICL factor in rating enhancement from the Aetna organization. AICL has benefited from capital injections and the transfer of international business from the wider group.

A complete listing of Aetna Inc.’s FSRs, Long-Term ICRs and Long- and Short-Term IRs also is available.

This press release relates to Credit Ratings that have been published on A.M. Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see A.M. Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Understanding Best’s Credit Ratings. For information on the proper media use of Best’s Credit Ratings and A.M. Best press releases, please view Guide for Media - Proper Use of Best’s Credit Ratings and A.M. Best Rating Action Press Releases.

A.M. Best is a global rating agency and information provider with a unique focus on the insurance industry.


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