AM Best has affirmed the Financial Strength Rating (FSR) of A (Excellent) and the Long-Term Issuer Credit Ratings (Long-Term ICR) of “a” of Aetna Life Insurance Company (ALIC) (Hartford, CT) and the other operating entities of Aetna Inc. that are now wholly-owned subsidiaries of CVS Health Corporation (CVS Health) [NYSE: CVS]. These entities include the members of Aetna Health & Life Group. Concurrently, AM Best has affirmed the FSR of A- (Excellent) and the Long-Term ICR of “a-” Aetna Insurance Company Limited (AICL) (United Kingdom). The outlook of these Credit Ratings (ratings) is stable.
AM Best also has affirmed the FSR of A (Excellent) and the Long-Term ICR of “a” of Texas Health + Aetna Health Insurance Company and Texas Health + Aetna Health Plan, Inc., (collectively Texas Health Aetna), and the Allina Health and Aetna Insurance Company, both of which are joint ventures with subsidiaries of Aetna Inc. The outlook of these ratings is stable.
Additionally, AM Best has withdrawn the FSR of A- (Excellent) and the Long-Term ICR of “a-” of Coventry Health Plan of Florida, Inc. (Coventry HP of FL) (Sunrise, FL) as the company ceased writing business.
Lastly, AM Best also has withdrawn the Long-Term ICR of “bbb”, along with the Long Term Issue Credit Ratings (Long-Term IRs) and indicative Long-Term IRs on the universal shelf registration of Aetna Inc. (headquartered in Hartford, CT). Following Aetna Inc.’s merger with a wholly-owned subsidiary of its ultimate parent, CVS Health, CVS Health assumed Aetna Inc.’s debt. Aetna Inc. no longer issues financial statements. (Please see link below for a detailed listing of the companies and ratings.)
The majority of Aetna’s operating entities are part of the core subsidiaries of Aetna Inc. (Aetna Health & Life Group). The ratings of Aetna Health & Life Group reflect its balance sheet strength, which AM Best categorizes as very strong, as well as its strong operating performance, favorable business profile and appropriate enterprise risk management (ERM).
The ratings reflect Aetna Health & Life Group’s very strong level of risk-adjusted capitalization, which is offset by a trend of high dividend payments that have exceeded $2 billion in each of the past three years, as the entities tend to dividend a large percentage of earnings. AM Best considers the group’s operating performance to be strong with return on equity measures annually exceeding 20% and underwriting income greater than $2 billion per year. Aetna’s parent, CVS Health, is projecting post-merger cost-savings synergies of at least $400 million in 2019 and approximately $800 million in additional savings forthcoming in 2020. Aetna Health & Life Group reported growth in net premiums in 2018 after a decline in 2017 and flat premium in the few years prior. AM Best notes that this group has reported consistent increase in Medicare Advantage premiums with double-digit growth. Some of this favorability is offset by losses in commercial fully insured business. Furthermore, SilverScript Insurance Company, a member of the Aetna Health & Life Group, remains the leading standalone Part D plan in the U.S. based on market share.
Aetna is one of the top health insurers in the U.S. market, and total medical membership has increased to 22.8 million individuals for commercial, Medicare and Medicaid products. Aetna's Medicare Advantage membership growth has outpaced the industry over the past five years, moving Aetna from the fifth to the third position in the Medicare Advantage market. The share of members in plans with a Star rating of 4.5 or higher exceeds peers and the industry average. The company also has recently reported strong membership growth in Medicare Supplement and Medicaid managed care business. In 2019, membership in Aetna’s commercial business has been relatively flat; however, it has reported a decline in its insured membership within that business, which has been partially offset by growth in its administrative services contract business.
The ratings of Aetna Health & Life Group reflect high financial leverage and goodwill at the ultimate parent, CVS Health. Financial leverage at the end of third quarter 2019 was approximately 52%. While that is considered high, it remains lower than year-end 2018 as the CVS Health organization is focused on de-leveraging. In addition, there is a significant execution risk related to the Aetna-CVS Health merger given the vertical nature of the transaction and potential complexity to achieve meaningful synergies. However, CVS Health stated its intention to maintain the current capitalization level at the insurance entities, which it has done. Furthermore, CVS Health has accelerated de-leveraging through robust cash flow and suspended its share repurchase program.
The ratings of AICL reflect its balance sheet strength, which AM Best categorizes as very strong, as well as its marginal operating performance, limited business profile and appropriate ERM. Furthermore, the ratings of AICL factor in rating enhancement from the Aetna organization. AICL has benefited from capital injections and the transfer of international business from the wider group.
The ratings of the Allina Health and Aetna Insurance Company joint venture reflect its balance sheet strength, which AM Best categorizes as very strong, as well as its marginal operating performance, limited business profile and appropriate ERM.
The ratings of Texas Health Aetna reflect its balance sheet strength, which AM Best categorizes as very strong, as well as its adequate operating performance, limited business profile and appropriate ERM.
A complete list of Aetna Inc.’s 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 Understanding Best’s Credit Ratings. For information on the proper media use of Best’s Credit Ratings and AM Best press releases, please view Guide for Media - Proper Use of Best’s Credit Ratings and AM Best Rating Action Press Releases.
AM Best is a global credit rating agency, news publisher and data provider specializing in the insurance industry. The company does business in more than 100 countries. Headquartered in Oldwick, NJ, AM Best has offices in cities around the world, including London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.
Copyright © 2019 by A.M. Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.
Senior Financial Analyst
+1 908 439 2200, ext. 5061