Press Release - JUNE 26, 2012
A.M. Best Affirms Ratings of Aetna Inc. and Its Subsidiaries
Senior Financial Analyst
(908) 439-2200, ext. 5061
Managing Senior Financial Analyst
(908) 439-2200, ext. 5280
Senior Manager, Public Relations
(908) 439-2200, ext. 5378
Assistant Vice President, Public Relations
(908) 439-2200, ext. 5644
FOR IMMEDIATE RELEASE
OLDWICK, N.J. - JUNE 26, 2012
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 and the FSR of A (Excellent) and ICRs of a of Continental Life Insurance Company of Brentwood, Tennessee (Continental Life) and its subsidiary, American Continental Insurance Company (American Continental) (both headquartered in Franklin, TN). A.M. Best also has affirmed the ICR of bbb+ and debt ratings of Aetna. The outlook for all ratings is stable. These companies are headquartered in Hartford, CT, except where specified. (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 strong operating and net income trends, which have been heavily favored by lower utilization rates. However, A.M. Best expects the medical loss ratios to rise to more normal levels over the medium term, which could impact the organizations earnings. Furthermore, ALICs financial results through March 31, 2012 indicate a marginal increase in cost trends and membership may be challenged in the near term. Aetna maintains a good level of liquidity through parent company cash, subsidiary dividends, an untapped $1.5 billion credit facility, and it actively uses its commercial paper program. The consolidated Aetna insurance operations favorable net income has contributed to the groups solid capital position through retained earnings.
The consolidated membership of Aetna stabilized in 2011 after a period of decline; however, near-term membership has decreased and is partially pressured by the competitive environment as well as the economic weakness in the marketplace as the recovery has been slow. Additionally, Aetna has placed a strategic focus on growing its government-sponsored businesses, and has acquired companies to support these initiatives. Some of this investment has been realized in its Medicare lines where membership is growing; however, the company has had set backs in securing long-term multi-year contracts in both the federal and state level programs. A.M. Best acknowledges that Aetnas insured government business is not a large percentage of its overall earnings. Any future acquisitions may result in an increase in Aetnas debt to capital should it issue debt or utilize its commercial paper program to fund these acquisitions. A.M. Best expects Aetnas debt to capital to be managed to a range of or near 30% over the medium term.
The company is well positioned at its current rating level. Negative rating actions may occur should Aetna increase its financial leverage above A.M. Bests expectations, its interest coverage deteriorates, risk-adjusted capital declines at its core operating subsidiaries, or its operating earnings significantly weaken.
The FSR of A (Excellent) and ICRs of a+ have been affirmed for the following insurance and HMO 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:
- 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
- bbb+ $500 million 4.5% of senior unsecured notes, due 2042
- bbb+ $500 million 4.125% of senior unsecured notes, due 2021
- bbb+ $250 million 1.75% of senior unsecured notes, due 2017
- AMB-2 on commercial paper
The following indicative ratings on universal shelf securities have been affirmed:
- bbb+ on senior unsecured debt
- bbb on subordinated unsecured debt
- bbb- on preferred stock
The methodology used in determining these ratings is Bests Credit Rating Methodology, which provides a comprehensive explanation of A.M. Bests rating process and contains the different rating criteria employed in the rating process. Key criteria utilized include: Understanding BCAR for Life/Health Insurers; Understanding Universal BCAR; Risk Management and the Rating Process for Insurance Companies; Rating Members of Insurance Groups; Rating Commercial Paper; Evaluating Country Risk; and Insurance Holding Company and Debt Ratings. Bests Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
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