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FOR IMMEDIATE RELEASE
OLDWICK, N.J. - JANUARY 29, 2008 12:00 AM (EST)
A.M. Best Co. has downgraded the issuer credit ratings (ICR) to "a" from "a+" and affirmed the financial strength rating (FSR) of A (Excellent) for the following subsidiaries of UnitedHealth Group Inc (UnitedHealth) (Minnetonka, MN) [NYSE: UNH]: United Healthcare Insurance Company, United Healthcare Insurance Company of Illinois, United Healthcare Insurance Company of New York, United Healthcare Insurance Company of Ohio, MAMSI Life & Health Insurance Company, MD-Individual Practice Associates and Optimum Choice Inc. Additionally, A.M. Best has downgraded the debt and ICRs of UnitedHealth. A.M. Best also has affirmed all the remaining FSRs and ICRs of UnitedHealth's other subsidiaries. The outlook for all ratings is stable. (See link below for a detailed list of the companies and ratings.)
These rating actions reflect UnitedHealth's increased debt-to-capital ratio and the potential for this ratio to grow further. At year-end 2007, UnitedHealth's debt-to-capital ratio was 35.4%. As UnitedHealth previously disclosed in its October 31, 2007 press release, the company considered based on its strong cash flow generation that it may increase the debt component of its capital structure to the 40% range. While the higher debt position reflects the partial funding of the Sierra Health Services and FiServ acquisitions, the debt-to-capital ratio is expected to continue to increase to either pay for the pending transactions or for share repurchase. However, A.M. Best expects the debt-to-capital ratio to remain near 40% and/or earnings before interest and taxes (EBIT) interest coverage to remain strong at 10 times or more.
While the company is capable of supporting the higher debt component of its capital structure due to its strong cash flows and large stream of non-regulated earnings, the increased level of debt service can place additional pressures on earnings, dividend capacity and the level of risk-based capital at the regulated subsidiaries as well as earnings at the non-regulated entities. Furthermore, A.M. Best stated in its UnitedHealth press release of November 21, 2007 that "If the debt-to-capital ratio were to increase to a level above 35%, A.M. Best may adjust the ratings downward".
On January 29, 2008, UnitedHealth announced that its subsidiary, UnitedHealthcare, is working closely with both the California Department of Managed Care and the California Department of Insurance to resolve any outstanding issues that have resulted from an examination of its Pacificare health plans. A.M. Best will be closely monitoring the situation for a final decision from both regulatory departments and possible fines.
UnitedHealth is one of the nation's largest publicly traded health benefits companies serving more than 70 million Americans. It continues to retain customers while growing profits and increasing market share with its diverse product offerings. To date, all of UnitedHealth's operating segments have reported increasing operating margins. A key strength of the organization derives from its well-diversified operations, which include a significant portion of profitable unregulated businesses. Strong operating cash flows from these activities provide support to UnitedHealth's operations.
For a complete list of UnitedHealth Group Inc's FSRs, ICRs and debt ratings, please visit United Health.
Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers.