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A.M. Best has affirmed the Financial Strength Rating (FSR)
of A (Excellent) and the Long-Term Issuer Credit Ratings (Long-Term
ICRs) of “a” of Aetna Life Insurance Company (ALIC) (Hartford, CT) and
other operating entities of Aetna Inc. (Aetna) (headquartered in
Hartford, CT) [NYSE: AET] following the announcement on Nov. 28, 2018,
that CVS Health Corporation (CVS Health) has completed its acquisition
of Aetna and its insurance subsidiaries. Concurrently, A.M. Best has
affirmed the FSR of A (Excellent) and the Long-Term ICR of “a” of
SilverScript Insurance Company (SilverScript) (Nashville, TN), a
subsidiary of CVS Health. Additionally, A.M. Best has affirmed the FSR
of A- (Excellent) and the Long-Term ICRs of “a-” of Coventry Health Plan
of Florida, Inc. (Coventry HP of FL) (Sunrise, FL) and Aetna Insurance
Company Limited (AICL) (United Kingdom). Lastly, A.M. Best has
affirmed the Long-Term ICR of “bbb” and the Long-Term Issue Credit
Ratings (Long-Term IR) of Aetna. The outlook of these Credit Ratings
(ratings) is stable. Also, A.M. Best has withdrawn the Short-Term IR
commercial paper rating of AMB-2 of Aetna, as the program has been
terminated due to the merger with CVS Health.
Please see link below for a detailed listing of the companies and
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 A.M.
Best categorizes as very strong, as well as its strong operating
performance, favorable business profile and appropriate enterprise risk
management (ERM). The ratings of SilverScript reflect its balance sheet
strength, which A.M. Best categorizes as very strong, as well as its
strong operating performance, neutral business profile and appropriate
The ratings of Aetna Health & Life Group and SilverScript reflect high
financial leverage of approximately 60% and high level of goodwill at
the ultimate parent, CVS Health. 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 and accelerate
de-leveraging through robust cash flow and reduced share repurchases.
Following the announcement of the transaction, Aetna and CVS Health
stopped share repurchases. In 2017, Aetna’s and CVS Health’s share
repurchases totaled $3.85 billion and $4.4 billion, respectively.
Aetna Health & Life Group’s strong risk-adjusted capitalization is
supported through a steady stream of positive earnings. However,
year-end 2017 risk-adjusted capitalization at ALIC was at its lowest
level in five years driven by a higher dividend to the parent and
reduced value of deferred tax asset. The operating performance of
Aetna’s insurance subsidiaries remains strong, with earnings supported
by positive results in all lines of business and margins exceeding
targets in 2017 and through the nine months of 2018. However, the exit
from the individual business, combined with a loss of Medicaid contracts
in several states, resulted in a material premium decline. Aetna is
focused on maintaining stability of commercial group earnings while
profitably expanding in government programs: Medicare Advantage and
Medicaid managed care.
Aetna maintains a strong market presence throughout the United States in
commercial and government segments. As a condition of the merger in
order to satisfy the anti-trust concerns, Aetna agreed to sell all of
its stand-alone Medicare Part D business to WellCare Health Plans Inc.
It is not expected to impact Aetna’s operations significantly, as other
Medicare products will not be affected. Aetna’s strategy of building
effective partnerships with providers to deliver high quality and
cost-effective care is supported by the build-out of an information
technology platform to facilitate data-driven impacts on members’
behavior and lifestyle in order to control chronic health conditions.
While Aetna’s insurance operation will remain a separate unit, the
merger with CVS Health will provide further opportunities for vertical
integration and outreach to members through increased local presence.
SilverScript has maintained very strong risk-adjusted capital levels
over the past several years, supported by 100% retention of net income
and an absence of dividend payments. Capital and surplus has shown
consistent growth, with a five-year compound annual growth rate of 28%.
These positive balance sheet attributes are offset partially by
potential liquidity concerns resulting from a high dependency on large
program receivable balances, due to the Centers for Medicare & Medicaid
Services (CMS) reconciliation process and timing of payments.
SilverScript has demonstrated a long-term trend of strong favorable
earnings, with a five-year return on equity exceeding 20%. SilverScript
is the market leader in stand-alone prescription drug plan enrollment;
however, more than 50% of membership is composed of low-income
subsidized members auto-assigned by CMS. Such concentration creates lack
of product diversification and subjects SilverScript to a high degree of
The ratings of AICL reflect its balance sheet strength, which A.M. 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.
listing of Aetna Inc.’s FSRs, Long-Term ICRs and Long- and
Short-Term IRs also is available.
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 a global rating agency and information provider with a
unique focus on the insurance industry. Visit www.ambest.com
for more information.
Copyright © 2018 by A.M. Best Rating Services, Inc. and/or its
affiliates. ALL RIGHTS RESERVED.
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