CONTACTS:
FOR IMMEDIATE RELEASE
OLDWICK, N.J. - DECEMBER 22, 2010 12:00 AM (EST)
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 Incorporated (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 assigned debt ratings of "bbb+" to $450 million 3.875% senior unsecured notes and $300 million 5.70% senior unsecured notes both issued on October 20, 2010 by UnitedHealth.
Additionally, A.M. Best has upgraded the FSR to A (Excellent) from A- (Excellent) and ICRs to "a" from "a-" of some entities of UnitedHealth.
A.M. Best also has assigned an FSR of A- (Excellent) and ICR of "a-" to the following UnitedHealth entities: National Pacific Dental, Inc., Nevada Pacific Dental Inc. and PacifiCare Dental of Colorado, Inc.. In addition, A.M. Best has withdrawn the FSR of A- (Excellent) and ICR of "a-" of UnitedHealth's subsidiary, PacifiCare Behavioral Health of California, Inc. following its merger into another UnitedHealth subsidiary, U.S. Behavioral Health Plan, California. 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, strong earnings from diversified health care operations in multiple states as well as from a growing non-regulated business. 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 and Medicare markets, including Medicare Advantage, Medicare Part D and Medicare Supplement plans. In addition, the company offers Medicaid managed care in 24 states. UnitedHealth also earns a steady stream of income from its profitable non-regulated businesses. Although the organization's share of non-regulated earnings has declined over time following several large acquisitions of regulated businesses, it remains much higher compared to its peers. Furthermore, UnitedHealth's non-regulated subsidiaries are well positioned for continuous revenue growth.
Partial offsetting factors include UnitedHealth's financial leverage and potential future earnings decline. UnitedHealth's financial leverage, which peaked at 40% in 2008, declined to 30.1% at September 30, 2010, as the company paid down debt maturities with cash. A.M. Best remains concerned with the high level of goodwill, resulting from the organization's numerous acquisitions. The goodwill to equity ratio remains above 100% as of the third quarter of 2010 and is considered high, although A.M. Best does acknowledge that the level of goodwill is in line with some of UnitedHealth's peers. UnitedHealth's earnings have improved in 2010 compared to 2009; however, both the current and historical medical loss ratios at a number of UnitedHealth subsidiaries are below the minimum loss ratio requirements related to the Patient Protection and Affordable Care Act for 2011. A.M. Best is concerned that UnitedHealth's future regulated earnings may decline driven by mandatory rebates and eventually higher medical loss ratios. In addition, UnitedHealth's lead insurance entity, UnitedHealthcare Insurance Company (UHIC) has been managing to a lower level of capitalization compared to 2007 and prior. A.M. Best does acknowledge that better funds transfer mechanisms within the organization as well as higher dividends from other subsidiaries have enhanced UnitedHealth's ability to support UHIC, if needed.
The rating upgrades recognize the companies' role as strategic subsidiaries of UnitedHealth. These subsidiaries enable UnitedHealth to offer a comprehensive product portfolio across targeted geographic areas.
For a complete listing of UnitedHealth Group Incorporated and its subsidiaries' FSRs, ICRs and debt ratings, please visit UnitedHealthcare Group Incorporated.
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: "Risk Management and the Rating Process for Insurance Companies"; "Understanding BCAR for Life and Health Insurers"; "Rating Members of Insurance Groups"; "A.M. Best's Ratings & the Treatment of Debt"; "Rating Commercial Paper"; and "Assessing Country Risk." 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.