A.M. Best Affirms Credit Ratings of UnitedHealth Group Incorporated and Most Subsidiaries
August 03 2017 - 5:20PM
Business Wire
A.M. Best has affirmed the Financial Strength Rating
(FSR) of A (Excellent) and the Long Term Issuer Credit Ratings
(Long-Term ICR) of “a” for the majority of the insurance
subsidiaries of UnitedHealth Group Incorporated
(UnitedHealth Group) (Minnetonka, MN) [NYSE: UNH]. Concurrently,
A.M. Best has affirmed the Long-Term ICR of “bbb+” and the
Long-Term and Short-Term Issue Credit Ratings of UnitedHealth
Group. The outlook of these Credit Ratings (ratings) is stable.
Additionally, A.M. Best has upgraded the FSR to A (Excellent)
from A- (Excellent) and Long-Term ICR to “a” from “a-” for
Neighborhood Health Partnership, Inc. (Miami, FL). The
outlook of these ratings is stable.
A.M. Best has also affirmed the FSR of A- (Excellent) and
Long-Term ICR of “a-” for Harken Health Insurance Company
(Harken Health) (Onalaska, WI). The outlook of these ratings is
stable. Concurrently, A.M. Best has withdrawn the rating of Harken
Health at the request of its parent, UnitedHealth Group. (See link
below for a detailed listing of the companies and ratings.)
The affirmations of the ratings reflect UnitedHealthcare’s solid
market presence, consistent top line growth, diversified premium
revenue and strong earnings. UnitedHealthcare’s insurance entities
collectively maintain a solid market presence across the United
States. The membership base is very strong with continued growth
being reported. The organization has reported material growth in
both Medicare Advantage and Managed Medicaid membership.
UnitedHealthcare’s relationship with AARP contributes to
UnitedHealthcare’s growth momentum in Senior products, as well as
to the increasing number of Medicare Advantage plans with 4 stars.
UnitedHealthcare also continues to expand its Medicaid enrollment
through new contract awards from states for Managed Medicaid
business, as well as for expanded services for additional segments
of the Medicaid eligible population. However, commercial membership
was negatively impacted by the company’s decision to exit the
majority of its individual exchange markets, which more than offset
the growth in commercial group enrollment.
UnitedHealth Group has diversified operations through both its
insurance and non-insurance operations. Optum provides
technological and product support to the market, bringing
innovations and enhancing capabilities for better quality of care
and management of consumers’ health. Optum services the insurance
operations of UnitedHealthcare and external customers and is among
the market leaders in high value ambulatory care delivery and
pharmacy care services. UnitedHealth Group generates strong
earnings driven by both its insurance and non-insurance operations.
Optum provides the organization with a growing stream of earnings
and cash flows that are non-regulated and do not require approval
for dividend payments. Over 50% of the cash flow to the holding
company is non-regulated. Furthermore, the insurance entities, led
by UnitedHealthcare Insurance Company, generate strong
underwriting and operating results for the organization, which also
drives their high dividend capacity.
Partially offsetting rating factors include pressure on
meaningful margin expansion as net margins for the majority of
UnitedHealthcare’s insurance entities have declined over the last
several years. The decreased profitability is in line with the
industry trend and is a result of competitive pricing, growing
fee-based business, pressure on Medicare Advantage reimbursement
rates, Patient Protection and Affordable Care Act fees and a
changing business mix. In addition, UnitedHealthcare earnings from
its insurance operations in 2015 and 2016 were suppressed due to
losses in its individual exchange business. However, A.M. Best
acknowledges that UnitedHealthcare has exited from the majority of
exchange markets for 2017. Meaningful margin expansion will be
difficult in the future due to the growing share of government
business as a percent of total business, as these products
typically produce lower margins. Furthermore, the level of
risk-adjusted capital at UnitedHealthcare’s insurance subsidiaries
remains lower when compared with health plan peers. Although
risk-adjusted capital is low, UnitedHealthcare’s insurance
subsidiaries have historically generated strong operating results
and UnitedHealth Group has the resources and willingness to provide
support if needed. In addition, there continues to be a high level
of dividends to the holding company from the insurance entities,
which suppresses capital and surplus growth.
Following Optum’s acquisition of Catamaran Corp. in 2015,
financial leverage for the organization increased significantly.
The company is executing a plan to reduce financial leverage to
below 40% by the end of 2017 mainly through reduced share
repurchases and earnings accretion, but pressure remains on the
regulated entities for debt service and to fund capital
expenditures for the organization. Moreover, UnitedHealth Group has
a high level of goodwill plus intangibles to equity at
approximately 140%. Furthermore, while A.M. Best acknowledges
UnitedHealth Group’s strong earnings before interest and taxes
(EBIT) interest coverage at more than 10 times, the EBIT interest
coverage has been declining steadily. UnitedHealth Group’s debt has
been serviced by the substantial dividend capacity at the regulated
subsidiaries, as well as growing cash flow from the non-regulated
operating subsidiaries.
For a complete listing of UnitedHealth Group Incorporated and
its subsidiaries’ FSRs, Long-Term ICRs and Long-Term and Short-Term
Issue Credit Ratings, please visit UnitedHealth Group.
This press release relates to Credit Ratings 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 see A.M.
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 A.M. Best press releases, please view
Guide for Media - Proper Use of Best’s Credit Ratings and A.M.
Best Rating Action Press Releases.
A.M. Best is the world’s oldest and most authoritative
insurance rating and information source. For more information,
visit www.ambest.com.
Copyright © 2017 by A.M. Best Rating
Services, Inc. and/or its subsidiaries. ALL RIGHTS
RESERVED.
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version on businesswire.com: http://www.businesswire.com/news/home/20170803006524/en/
A.M. BestBridget Maehr, +1 908-439-2200, ext.
5321Senior Financial
Analystbridget.maehr@ambest.comorChristopher Sharkey, +1
908-439-2200, ext. 5159Manager, Public
Relationschristopher.sharkey@ambest.comorSally Rosen, +1
908-439-2200, ext. 5280Senior
Directorsally.rosen@ambest.comorJim Peavy, +1 908-439-2200,
ext. 5644Director, Public
Relationsjames.peavy@ambest.com
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