A.M. Best Affirms Ratings of UnitedHealth Group Incorporated and Its Insurance Subsidiaries
June 30 2016 - 11:25AM
Business Wire
A.M. Best has affirmed the financial strength rating of A
(Excellent) and the issuer credit ratings (ICR) of “a” of the
majority of the insurance subsidiaries of UnitedHealth Group
Incorporated (UnitedHealth) (Minnetonka, MN) [NYSE:UNH].
Concurrently, A.M. Best has affirmed the ICR of “bbb+” and issue
ratings of UnitedHealth. The outlook for each rating is stable.
The rating affirmations reflect UnitedHealth’s strong
diversified operations supported through continuous profitable
growth of insurance and non-insurance businesses. UnitedHealth has
maintained its leadership positions in the health insurance market
through consistent growth in multiple commercial and government
products, and services over 47 million individuals. In line with an
industry trend, over the past several years, Medicare and Medicaid
lines of business have been the main source of enrollment growth
for UnitedHealth. The company successfully absorbed the revenue
resulted from the Medicaid expansion attributable to the Patient
Protection and Affordable Care Act (ACA). In addition, following
the acquisition of Catamaran, the revenue at UnitedHealth’s health
care services operation, Optum, experienced significant growth, and
as of first-quarter 2016 accounted for 37% of earnings and 35% of
revenue prior to eliminations. Moreover, the earnings generated
from Optum operations are non-regulated and do not require
approvals for dividend payment. Furthermore, Optum businesses
provide technological and product support to insurance operations,
bringing innovations and enhancing capabilities for better quality
of care and management of members’ health. UnitedHealth’s earnings
remain strong, with the lead insurance entity, UnitedHealthcare
Insurance Company (UHIC), generating $14.7 billion of
underwriting gains and $11.9 billion of net earnings over the past
five years.
Partially offsetting these strengths are declining operating
margins at insurance and non-insurance operations. Lower
profitability at UnitedHealthcare entities is in line with an
industry trend and resulted from risk to self-funded conversion in
the commercial segment, lower Medicare Advantage reimbursement, ACA
fees and a growing share of lower margin government products. In
addition, during 2015, UnitedHealth, similar to other carriers,
incurred substantial losses in ACA exchanges following
higher-than-expected utilization, especially for members who signed
up outside of the annual open enrollment period. The losses in 2015
include premium deficiency reserves to offset potential weak
performance in 2016. UnitedHealth announced the exit from the
majority of exchange markets for 2017. A.M. Best is concerned that
the lack of presence on the exchange markets may result in future
deterioration of market share in the individual market, as more
members are expected to enroll through exchanges in the medium
term. Furthermore, the level of risk-adjusted capitalization at
UHIC and other insurance affiliates remain lower compared with
peers. A.M. Best acknowledges that UHIC has historically generated
strong operating results; and although the trend is expected to
continue, earnings margins have moderated. UnitedHealth has the
resources and willingness to provide support to UHIC if needed.
However, following the acquisition of Catamaran in 2015,
UnitedHealth’s financial leverage increased to above 45%, and
goodwill plus intangibles to equity ratio now exceeds 150%. While
UnitedHealth’s earnings before interest and taxes (EBIT) interest
coverage remains above 10 times, and the company plans to reduce
financial leverage to below 40% by year-end 2017 through reduced
share repurchase and earnings accretion, A.M. Best is concerned
that declined balance sheet quality may put pressure on regulated
entities in the near to medium term.
For a complete listing of UnitedHealth Group Incorporated and
its subsidiaries’ FSRs, ICRs and issue ratings, please visit
UnitedHealth Group.
This press release relates to rating(s) 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.
A.M. Best is the world’s oldest and most authoritative
insurance rating and information source. For more information,
visit www.ambest.com.
Copyright © 2016 by A.M. Best Rating
Services, Inc. ALL RIGHTS RESERVED.
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version on businesswire.com: http://www.businesswire.com/news/home/20160630005913/en/
A.M. BestDoniella Pliss, +1 908 439 2200, ext.
5104Managing Senior Financial
Analystdoniella.pliss@ambest.comorSally Rosen, +1 908
439 2200, ext. 5280Vice
Presidentsally.rosen@ambest.comorChristopher Sharkey,
+1 908 439 2200, ext. 5159Manager, Public
Relationschristopher.sharkey@ambest.comorJim Peavy,
+1 908 439 2200, ext. 5644Assistant Vice President, Public
Relationsjames.peavy@ambest.com
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