SIE Sierra Health Svcs

A.M. Best Co. has affirmed the financial strength rating (FSR) of B++ (Very Good) and issuer credit ratings (ICR) of "bbb+" of Sierra Health Services Inc.'s (Sierra) (NYSE: SIE) core HMO subsidiary, Health Plan of Nevada, Inc. (both of Las Vegas, NV) and its subsidiary, Sierra Health and Life Insurance Company, Inc. (Los Angeles, CA). A.M. Best has also affirmed the debt rating of "bb+" on Sierra's senior unsecured convertible debentures due 2023, with a current outstanding balance of $51.5 million. The outlook for all ratings has been revised to positive from stable. The revised outlook is based on Sierra's improved operating performance. Strong organic membership and revenue growth, combined with a stable medical cost trend and improved administrative expense ratio, have resulted in consistent operating margins. This has allowed Sierra to increase its holding company cash levels. These positive trends are expected to continue in the medium term. Financial leverage for Sierra has improved due to its solid earnings and the conversion of over $63 million of its senior unsecured debentures to common stock in 2005. Interest coverage is very good at over 20 times, driven by Sierra's operating income. Sierra's ratings reflect the organization's strong market presence in the Las Vegas area (with almost 80% of the commercial HMO market) and its competitive price advantage. Sierra's integrated care delivery model gives it a significant cost and competitive advantage. Sierra's insurance subsidiaries deliver cost effective care as seen by their attractive medical loss ratio. Offsetting rating factors include a one state, one market concentration risk, potential increased competition from large national health insurance providers and a non-portable operating model. Sierra's earnings and growth are due in part to the strong economic growth in Las Vegas. Since Sierra's integrated care delivery operating model is not portable, any expansion efforts by the company outside of its core market would most likely experience a high level of competition. A.M. Best recognizes Sierra's improvement in operating performance and financial flexibility. However, Sierra needs to maintain its earnings and to increase the level of stand-alone risk-based capitalization at the insurance subsidiaries in order for A.M. Best to consider a rating upgrade. For Best's Debt Ratings, all other Best's Ratings, an overview of the rating process and rating methodologies, please visit www.ambest.com/ratings. For current Best's Ratings, independent data and analysis on more than 1,100 individual life/health companies and A.M. Best groups, please visit www.ambest.com/lh. A.M. Best Co., established in 1899, is the world's oldest and most authoritative insurance rating and information source. For more information, visit A.M. Best's Web site at www.ambest.com.