Best’s News & Research Service - December 09, 2022 09:57 AM (EST)
AM Best Affirms Credit Ratings of UnitedHealth Group Incorporated and its Subsidiaries
- December 09, 2022 09:57 AM (EST)
Oldwick //BestWire// - AM Best has affirmed the Long-Term Issuer Credit Ratings (Long-Term ICR) of “a” (Excellent) and the Long- and Short-Term Issue Credit Ratings (Long-Term IR; Short-Term IR) of UnitedHealth Group Incorporated (UnitedHealth Group) (Minnetonka, MN) [NYSE: UNH]. Concurrently, AM Best has affirmed the Financial Strength Rating (FSR) of A+ (Superior) and the Long-Term ICRs of “aa-” (Superior) of the health and dental insurance subsidiaries of UnitedHealth Group, collectively referred to as UnitedHealthcare. The outlook of these Credit Ratings (ratings) is stable. Concurrently, AM Best has affirmed the FSR of A (Excellent) and the Long-Term ICR of “a” (Excellent) of The Chesapeake Life Insurance Company (Chesapeake Life) (Oklahoma City, OK). The outlook of these ratings is stable. (See link below for a detailed listing of the companies and ratings.)
The ratings reflect UnitedHealthcare’s balance sheet strength, which AM Best assesses as strong, as well as its very strong operating performance, very favorable business profile and very strong enterprise risk management (ERM).
Over the past several years, UnitedHealthcare has maintained the very strong level of risk-adjusted capitalization, as measured by the Best’s Capital Adequacy Ratio (BCAR), which has been supported by a trend of increased operating earnings. UnitedHealthcare’s consolidated risk-adjusted capital has strengthened and remained above the organization’s target, even with the level of dividends to its parent surpassing statutory earnings during 2021. While the company’s level of risk-adjusted capital tends to lag its peers, UnitedHealthcare’s capital management strategy is driven by its predictable and stable earnings, high degree of business diversification and ongoing liquidity expectations. Investments are held mainly in investment grade fixed income securities with minimal exposure to below investment grade, equity investments or alternative assets. The company’s liquidity is supported by consistently strong operating cash flow and supplemented by credit facilities with the parent company. AM Best expects the organization to manage the capital closer to its strategic targets, and for the balance sheet strength level to be maintained as strong based on the favorable operating results and the company’s capital management strategy.
UnitedHealthcare’s operating results over the past three years have been elevated, especially during 2020 when the effects of the deferral of non-essential care significantly increased profits. Utilization returned to near-normal levels during 2021, with some depression in actual claims volumes, resulting in profitability being more closely aligned with historical levels. Similar to the industry trends, the company’s earnings in 2021 and 2022 have been positively impacted by Managed Medicaid (Medicaid) line of business and a lack of eligibility checks due to continued Public Health Emergency. In addition, the ability to control and manage medical costs has supported longer-term earnings growth and stability. The growing volume of value-based arrangements and utilization of lower cost higher quality Optum providers further enhances profitability. UnitedHealthcare’s premium development trend remains strong, mostly driven by double digit growth in government programs like Medicare Advantage and more recently Medicaid.
UnitedHealthcare’s business profile is very favorable as its strong earnings are well-diversified by geography and business segment. The company has a nationwide presence with prominent market share in most markets, but over the past few years its presence has become more concentrated in government programs, while the commercial segment has been stagnant mostly due to economic pressures. UnitedHealthcare’s large membership base benefits the company through economies of scale for medical and administrative expenses.
Furthermore, the company’s strategic partnerships with AARP and its affiliate, Optum, enhance product offerings and its healthcare service capabilities, as well as for client retention.
UnitedHealth Group has a very mature and high-functioning ERM program. The company performs advanced stress and scenario testing, solvency assessment and economic capital modeling. The program is embedded within the company and is utilized in operational management of its business and strategic planning.
UnitedHealth Group continues to exhibit strong balance sheet results supported by excellent liquidity through parent company cash, an insurance subsidiary dividend capacity, a non-regulated cash flow, a commercial paper program and a $15 billion revolving credit agreement. UnitedHealth Group remains committed to managing its financial leverage in the 40% range over the long term, with fluctuations experienced following sizeable acquisitions. As of Sept. 30, 2022, the group’s financial leverage was 38%; however, the measure is expected to increase past 40% following the $9 billion debt issuance to repay outstanding commercial paper balances in October. The percentage of goodwill and intangible assets to equity has been declining despite recent acquisitions owned to its equity base growth. This measure was 121% at Sept. 30, 2022. Although this measure is on the high side, the company has no history of material write-downs and the company tests its goodwill annually.
UnitedHealth Group’s earnings before interest and taxes (EBIT) interest coverage were strong at over 14 times for full-year 2021 based on its strong operating earnings. However, interest coverage will decline, although is expected to remain well within AM Best tolerances in 2023, due to a higher cost of recently issued debt. UnitedHealth Group continues to report strong consolidated revenue growth and operating earnings from its health insurance and non-regulated Optum business. AM Best expects the profitable growth to continue over the medium term. Optum accounts for about 50% of operating earnings and even greater share of cash flows, which reduce UnitedHealth Group’s reliance on insurance operations. The organization is focused on organic and non-organic expansion of the Optum businesses and growing synergies between insurance and non-insurance operations.
The ratings of Chesapeake Life reflect balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, limited business profile and appropriate ERM. Chesapeake Life continues to offer a line-up of products to meet the demands of niche markets around the country.
A complete listing of UnitedHealth Group Incorporated and its subsidiaries’ FSRs, Long-Term ICRs and Long-Term IRs also is available.
This press release relates to Credit Ratings that have been published on AM 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 see AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best’s Credit Ratings. For information on the proper use of Best’s Credit Ratings, Best’s Performance Assessments, Best’s Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best’s Ratings & Assessments.
AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City.