CONTACTS:
FOR IMMEDIATE RELEASE
OLDWICK, N.J. - JUNE 15, 2009 12:00 AM (EDT)
A.M. Best Co. has affirmed the financial strength ratings (FSR) and issuer credit ratings (ICR) of the majority of the insurance subsidiaries of UnitedHealth Group Inc (UnitedHealth) (Minnetonka, MN) [NYSE: UNH]. At the same time, A.M. Best has affirmed the ICR of "bbb+" and all debt ratings of UnitedHealth. Concurrently, A.M. Best has upgraded the FSR to A (Excellent) from A- (Excellent) and ICRs to "a" from "a-" for the following UnitedHealth entities: Oxford Health Plans (NY), Inc., Oxford Health Insurance Incorporated, Oxford Health Plans (NJ), Inc. and Oxford Health Plans (CT), Inc.
Additionally, A.M. Best has assigned an FSR of A- (Excellent) and ICR of "a-" to the following UnitedHealth entities: UnitedHealthcare Insurance Company of the River Valley, Dental Benefit Providers of California, Inc., Unison Family Health Plan of Pennsylvania, Inc., Unison Health Plan of Pennsylvania, Inc., Unison Health Plan of Ohio, Inc. and Unison Health Plan of South Carolina, Inc. The outlook for all ratings is stable. (See link below for a detailed list of the companies and ratings.)
The affirmation of the ratings of UnitedHealth and its insurance subsidiaries reflects the organization's significant market presence and diversified health care operations. UnitedHealth is one of the nation's largest publicly traded health benefits companies serving more than 70 million Americans with its diverse product offerings. The company offers coverage nationwide in commercial, Medicare, including Medicare Advantage, Medicare Part D and Medicare Supplement plans. In addition, the company offers Medicaid managed care in 22 states. The company also earns a steady stream of income from its profitable non-regulated businesses.
Partially offsetting factors include financial leverage and risks associated with mergers and acquisitions. UnitedHealth's financial leverage peaked at 40% in June 2008. However, the leverage did decline in the second half of 2008 and in first quarter 2009 as the company paid down debt maturities with cash. Additionally, A.M. Best is concerned with the increased level of goodwill, resulting from numerous acquisitions. The goodwill to equity ratio was greater than 100% at year-end 2008 and is considered high, although A.M. Best does acknowledge that the level is in line with some of UnitedHealth's peers.
UnitedHealth has extraordinary holding company notching of two from its primary operating companies. A.M. Best has concerns with the following developments that have been occurring over the last five years.
- Earnings before interest and taxes (EBIT) interest coverage has been decreasing and was 9.6 times in 2008 when adjusted for one time settlements. EBIT interest coverage for 2009 is expected to remain approximately 10 times, which is still considered strong. However, it no longer exceeds our normal expectations and now is more in line with its peers. It is significantly lower than the high 30 times a few years ago.
- The percentage income from non-regulated companies has been steadily declining over time due to large acquisitions of regulated business, such as, PacifiCare Health Systems, Sierra Health Services and Unison Health Plans.
- Financial leverage has increased over the last few years and is expected to be in a range of 33-36% at year-end 2009.
- In the past, UnitedHealth's debt has been serviced by the substantial dividend capacity at the regulated subsidiaries, as well as, cash flow from the non-regulated operating subsidiaries. The proportion of cash flow from non-regulated operating subsidiaries to the holding company has trended down increasing the reliance on regulated entity dividends. In addition, UnitedHealth maintains only adequate levels of capital at the regulated entities.
If these trends continue, A.M. Best will move towards standard notching from the primary operating companies to the holding company.
The upgrade of the ratings of the Oxford Health subsidiaries recognizes these companies' market presence and brand name recognition, particularly in the New York City metro market, solid risk-based capitalization and strong earnings, especially at Oxford Health Plans (NY), Inc. and Oxford Health Insurance Incorporated.
For a complete list of UnitedHealth Group Inc's FSRs, ICRs and debt ratings, please visit
UnitedHealth Group Inc.
The principal methodologies used in determining these ratings, including any additional methodologies and factors that may have been considered, can be found at Best's Credit Rating Methodology.
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.