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Ratings agency A.M. Best reiterated its credit and insurance strength ratings on Wellpoint Inc. (WLP) and its operating divisions, on Tuesday, maintaining a stable outlook.

Accordingly, the rating agency affirmed an issuer credit rating (ICR) and debt ratings of “bbb+” on WellPoint and Anthem Holding Corp. Additionally, A.M. Best asserted the “a-” rating on the surplus notes of Anthem Insurance Companies Inc.

However, the rating agency has removed the FSR of “A-” (Excellent) and ICR of “a-” on UniCare Health Plans of the Midwest, since this wing of WellPoint has not been writing any business. Alongside, the division could hardly generate any premiums during the first quarter of 2011. On January 1, 2010, WellPoint had implemented the UniCare membership transition agreement with a competing Blue Plan.

The ratings are based on the leading market share that WellPoint and its operating subsidiaries enjoy in all its areas of operation. With over 34 million members, WellPoint is a dominant player in its entire 14 Blue Cross and Blue Shield state markets, wherein the company primarily has a membership of about 60% in a low risk administrative services business. This year, WellPoint anticipates a 1.7% increase in membership from this business.

Additionally, WellPoint witnessed double-digit earnings growth in 2010, spurred by higher operating cash flows and the implementation of organizational changes in health care. Besides, the jump in medical enrollment also contributed to the increase. The sale of the NextRx subsidiaries to Express Scripts also strengthened the balance sheet and fueled a major stock repurchase.

Although utilization trends appear to be weaker in 2011 than in 2010, controlled operating expenses are expected to augment efficiencies in the intermediate term. However, increased debt-to-capital ratio, from 25.3% in 2009 to 27.3% in 2010, poses ample risk to financial leverage.

Going ahead, if WellPoint raises debt to fund the recent CareMore acquisition, announced earlier this month, it could further weaken the financial leverage although the rating agency does not expect it to increase above 30%.

These factors also pose some competitive risk in the US market where the company primarily competes with Humana Inc. (HUM), Aetna Inc. (AET) and UnitedHealth Group Inc. (UNH), among others.

Nonetheless, WellPoint has been increasing its premiums and controlling costs. Its leading market share positions, diversified product portfolio and consistency, can propel long-term growth.

 
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