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FOR IMMEDIATE RELEASE
OLDWICK - JUNE 11, 2015 04:17 PM (EDT)
A.M. Best has affirmed the financial strength ratings (FSR) and issuer credit ratings (ICR) of the core insurance subsidiaries of Anthem, Inc. (Anthem) (Indianapolis, IN) [NYSE: ANTM]. The outlook for all ratings is stable. (See link below for a detailed listing of the companies and ratings.)
Concurrently, A.M. Best has affirmed the ICR and debt ratings of "bbb+" of Anthem, and the debt rating of "a-" on the existing surplus notes of Anthem Insurance Companies, Inc. (Indianapolis, IN).
Additionally, A.M. Best has assigned an FSR of A- (Excellent) and the ICRs of "a-" to AMERIGROUP Kansas Inc. (Overland Park, KS), AMERIGROUP Washington Inc. (Seattle, WA), AMERIGROUP Louisiana Inc. (Metairie, LA) and AMERIGROUP Insurance Company (Houston, TX). All the above companies are subsidiaries of Anthem. The outlook assigned to the above ratings is stable.
The affirmation of the ratings for the insurance subsidiaries of Anthem reflect the organization's high level of premium growth , brand strength, leading market share in its core markets, continued strong operating earnings and robust operating cash flows. Anthem has reported premium revenue growth in all lines of its business driven by material membership gains. Membership gains have been especially robust in the company's Medicaid, Local Group and National business. Anthem offers health insurance and specialty products and services in all market segments, including individual, local employer group, national account and Medicare and Medicaid. Anthem operates as the local Blue Cross Blue Shield or Blue Cross (Blue) plan in 14 geographically diverse markets and serves enrollees in other local and regional markets through the AMERIGROUP, CareMore and UNICARE companies.
Anthem's core Blue markets continue to produce strong operating earnings and cash flows for the organization with stable overall operating margins for the last two years. Anthem has approximately 1.9 million individual members on and off exchanges in its core Blue markets. This market segment has performed within the company expectations without the unfavorable financial impact reported by some regional plans due to the uncertainty around the funding of the risk corridors. Additionally, the AMERIGROUP companies have shown strong premium and enrollment growth as the organization retains and is awarded new state managed Medicaid contracts, along with increased enrollment in expansion states. Although the AMERIGROUP companies contribute meaningfully to Anthem's operating earnings, margins for Medicaid business are considerably more narrow than the organization's commercial business, which is predominately served through the Blue plans. Moreover, Anthem's Medicare Advantage enrollment has stabilized and the segment continues to report solid operating earnings despite margin contraction due to the decline in reimbursement levels.
Offsetting factors include the shift in Anthem's business mix and the lack of meaningful capital growth at regulated entities. As a result of strong growth in Medicaid and stable Medicare Advantage enrollment, Anthem's business continues to shift more toward government-funded programs, which typically generate lower margins. Although operating earnings remain strong for Anthem's core Blue plans, capital growth has been hindered due to the high level of dividends to the parent company.
A.M. Best acknowledges Anthem's strong financial flexibility due to $740 million of cash held at the parent as of Dec. 31, 2014, availability of subsidiary dividends, its $2.5 billion commercial paper program and its available $2 billion credit facility. Nevertheless, Anthem's debt-to-capital ratio was approximately 40% at March 31, 2015, which in A.M. Best's opinion is high. The elevated leverage is not anticipated to moderate in the near term due to a recent debt issue and the lack of meaningful equity growth as a result of a high level of capital deployment for share repurchases and Anthem's quarterly dividend program. Anthem returned to shareholders $3.5 billion in 2014, and another $950 million in the first quarter of 2015 through its share repurchase program and common stock dividends. Although Anthem's leverage is relatively high, its interest coverage remains strong at approximately eight times with fixed charge coverage of approximately four times, driven by the company's strong operating income. Additionally, Anthem has a substantial amount of goodwill and other intangible assets on its balance sheet compared with its peers. As of March 31, 2015, these assets composed approximately 39% of the company's total asset base and 106% of total consolidated shareholders' equity. A.M. Best notes that Anthem's Blue trademarks represent more than three-fourths of total intangible assets.
Anthem and its core insurance subsidiaries could have positive rating movement if they retain a higher level of risk-adjusted capital at regulated entities, show meaningful margin expansion on a sustained basis and if the organization's financial flexibility increases as a result of a material decline in financial leverage. Conversely, a negative rating action could occur if the operating trends for the organization's core health insurance operations weaken considerably, the subsidiaries' risk-adjusted capitalization declines or if leverage metrics increase materially.
For a complete listing of Anthem, Inc. and its key life/health subsidiaries' FSRs, ICRs and debt ratings, please visit Anthem Inc.
The methodology used in determining these ratings is Best's Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best's rating process and contains the different rating criteria employed in the rating process. Best's Credit Rating Methodology can be found at www.ambest.com/ratings/methodology .
Key insurance criteria reports utilized:
This press release relates to rating(s) 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 visit A.M. Best's Ratings & Criteria Center.
A.M. Best Company is the world's oldest and most authoritative insurance rating and information source.