A.M. Best Co. said it has placed under review with negative implications the financial strength rating (FSR) and issuer credit ratings (ICR) of Aetna, Inc.'s (Aetna) (headquartered in Hartford, CT) insurance subsidiaries.

In a release, the insurance ratings company said it also has placed under review with negative implications the ICR and debt ratings of Aetna.

The rating actions follow the announcement that Aetna has entered into a definitive agreement to acquire Coventry Health Care, Inc. (Coventry) in a transaction valued at $7.3 billion. As part of the agreement, Aetna will assume Coventry's $1.6 billion of senior debt outstanding. The transaction is expected to be financed through a combination of parent company cash, commercial paper and new debt issuance. The acquisition is expected to close mid-2013, subject to state and federal regulatory approvals and other customary closing conditions.

The under review status reflects A.M. Best's concerns regarding Aetna's reduced financial flexibility due to the elevated financial leverage ratio, which is projected to increase to slightly above 40 percent at the close of the transaction, and decline to 35 percent by mid-2015. Furthermore, although Aetna has a history of maintaining solid capitalization levels at its operating subsidiaries, the new combined organization is expected to be managed to a lower level as the Coventry entities' have typically maintained lower risk-adjusted capital ratios relative to industry norms.

A.M. Best believes that Aetna will continue to maintain sound liquidity and earnings are projected to remain strong in the near to medium term, A.M. Best said. The acquisition provides Aetna with both geographic and product expansion and revenue diversification of both regulated and non-regulated business lines by adding nearly 4 million medical members and 1.5 million Medicare Part D members. The transaction will complement Aetna's existing business with individual Medicare Advantage, Medicare Part D, Medicaid managed care as well as commercial business, which includes middle markets, small group and individual. Moreover, it is expected that the new combined Aetna organization's share of revenues to government business will increase to more than 30 percent.

The ratings will remain under review pending the completion of the transaction, which is expected mid-2013, subject to state and federal regulatory approvals and other customary closing conditions and A.M. Best's continuing discussions with management.

The FSR of A (Excellent) and ICRs of "a+" have been placed under review with negative implications for the following insurance and HMO subsidiaries of Aetna, Inc.:

-Aetna Life Insurance Company

-Aetna Life & Casualty (Bermuda)

-Aetna Health Inc. (a Connecticut corporation)

-Aetna Health Inc. (a Florida corporation)

-Aetna Health Inc. (a Georgia corporation)

-Aetna Health Inc. (a Maine corporation)

-Aetna Health Inc. (a New Jersey corporation)

-Aetna Health Inc. (a New York corporation)

-Aetna Health Inc. (a Pennsylvania corporation)

-Aetna Health Inc. (a Texas corporation)

-Aetna Health Insurance Company of New York

-Aetna Health Insurance Company

-Aetna Health of California Inc.

-Aetna Dental Inc. (a New Jersey corporation)

-Aetna Dental Inc. (a Texas corporation)

-Aetna Dental of California

The FSR of A (Excellent) and ICRs of "a" have been placed under review with negative implications for the following insurance subsidiaries of Aetna, Inc.:

-Continental Life Insurance Company of Brentwood, Tennessee

-American Continental Insurance Company

-Aetna Insurance Company of Connecticut

The ICR of "bbb+" has been placed under review with negative implications for Aetna, Inc.

The following debt ratings have been placed under review with negative implications:

Aetna, Inc.--- "bbb+" $750 million 6.0 percent of senior unsecured notes, due 2016

-- "bbb+" $500 million 6.5 percent of senior unsecured notes, due 2018

-- "bbb+" $800 million 6.625 percent of senior unsecured notes, due 2036

-- "bbb+" $700 million 6.75 percent of senior unsecured notes, due 2037

-- "bbb+" $750 million 3.95 percent of senior unsecured notes, due 2020

-- "bbb+" $500 million 4.5 percent of senior unsecured notes, due 2042

-- "bbb+" $500 million 4.125 percent of senior unsecured notes, due 2021

-- "bbb+" $250 million 1.75 percent of senior unsecured notes, due 2017

The following indicative ratings on universal shelf securities have been placed under review with negative implications:

Aetna Inc.--- "bbb+" on senior unsecured debt

-- "bbb" on subordinated debt

-- "bbb-" on preferred stock

The following debt rating has been affirmed:

Aetna, Inc.--- AMB-2 on commercial paper program

More information:

www.ambest.com

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