A.M. Best Affirms Ratings of Centene Corporation and Its Insurance Subsidiaries

A.M. Best Co. has affirmed the issuer credit rating (ICR) of “bb-” and debt ratings of Centene Corporation (Centene) (headquartered in St. Louis, MO) (NYSE: CNC) and the financial strength ratings (FSR) of B+ (Good) and ICRs of “bbb-”of the majority of its insurance subsidiaries. The outlook for these ratings is stable.

Concurrently, A.M. Best has upgraded the ICR to “bbb+” from “bbb” and affirmed the FSR of B++ (Good) of Centene’s subsidiary, Celtic Insurance Company (Chicago, IL). The outlook for these ratings is stable.

In addition, A.M. Best has assigned a debt rating of “bb-” to $250 million 5.75% senior unsecured notes due 2017 issued by Centene. The outlook assigned to this rating is stable.

A.M. Best also has withdrawn the debt rating of “bb-” on Centene’s $175 million 7.25% senior unsecured notes due 2014. (See below for a detailed listing of the ratings.)

The affirmation of Centene’s ratings is based on its multi-state market presence as it currently manages Medicaid contracts in eight states with start-up operations in three additional states. Centene has consistently recorded premium revenue growth over the last five years, driven by organic growth, acquisitions and new state contracts. Additionally, the revenue from Centene’s specialty services operations has grown to approximately 25% of operating income for the organization.

Centene’s financial flexibility is supported by parent company cash, subsidiary dividends and a $350 million revolving credit agreement. Centene’s financial leverage was 28.4% as of March 31, 2011; it is expected to increase slightly in the near term with improvement through the year. Interest coverage was approximately 10 times at year-end 2010 and is expected to remain at approximately the same level for the full year 2011.

Offsetting factors include Centene’s revenue and net income dependence on state and federally funded Medicaid programs, which are under pressure due to budget constraints and general economic conditions. Although Centene continues to make capital contributions in support of its subsidiaries, the risk-based capitalization of the Medicaid insurance subsidiaries is considered modest. Additionally, Centene’s managed Medicaid results are being negatively affected by operations in Florida, which are incurring significant operating losses due to higher than anticipated medical utilization.

The ICR upgrade of Celtic Insurance Company reflects its favorable operating performance as it has reported profitable earnings for the past five years. In addition, the level of risk-based capital has remained stable after paying a sizeable dividend in 2008 shortly after Celtic Insurance Company was acquired by Centene. Celtic Insurance Company is Centene’s main subsidiary that provides health products targeted at the uninsured and underinsured in the commercial individual and small group market segments on a stand-alone basis and in conjunction with state subsidized programs.

The FSR of B+ (Good) and ICRs of “bbb-” have been affirmed for the following subsidiaries of Centene Corporation:

Peach State Health Plan, Inc.
Superior Health Plan, Inc.
Buckeye Community Health Plan, Inc.
Coordinated Care Corporation Indiana, Inc.
Managed Health Services Insurance Corporation
Absolute Total Care, Inc.
Sunshine State Health Plan Inc.
Bankers Reserve Life Insurance Company of Wisconsin

The principal methodology used in determining these ratings is Best’s Credit Rating Methodology -- Global Life and Non-Life Insurance Edition, which provides a comprehensive explanation of A.M. Best’s rating process and highlights the different rating criteria employed. Additional key criteria utilized include: “Rating Health Insurance Companies”; “Rating Members of Insurance Groups”; “Understanding BCAR for Life and Health Insurers”; “Risk Management and the Rating Process for Insurance Companies”; “Assessing Country Risk”; and “A.M. Best Ratings & the Treatment of Debt.” Methodologies can be found at www.ambest.com/ratings/methodology.

Founded in 1899, A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

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