Fitch Affirms UnitedHealth Group’s Ratings; Outlook Stable [Manufacturing Close – Up]

Fitch Ratings has affirmed UnitedHealth Group Inc's ratings, including the rating on the company's senior unsecured securities at 'A-' and insurance company subsidiaries' Insurer Financial Strength (IFS) ratings at 'AA-'.

In a release on August 13, Fitch noted that the Rating Outlook is Stable.

Key Rating Drivers

The ratings affirmation reflects Fitch's recognition that UnitedHealth has continued to report strong operating margins and solid key credit metrics, despite the headwinds presented by the implementation of various elements of the Patient Protection and Affordable Care Act (PPACA).

UnitedHealth reported net earnings of $2.7 billion for the six months ended June 30, which translates into an EBITDA margin of 8.6 percent, versus 9.5 percent for the prior year period. Despite the year over year decline, UnitedHealth's operating margins remain supportive of the company's current rating category.

UnitedHealth's financial leverage increased moderately, while interest coverage has declined slightly, largely due to incremental debt issued to fund its acquisition of Amil Participacoes S.A., which was completed during the first half of 2013.

The company's financial leverage as measured by debt/annualized EBITDA was 1.6 times (x) at June 30, versus 1.2x for the prior year period. UnitedHealth reported EBITDA-to-interest coverage of 14.7x, a moderate decline from very strong levels of 17.2x in the first half of 2012.

Fitch considers UnitedHealth's debt-to-EBITDA ratio to be adequate relative to the current rating category, while EBITDA-to- interest coverage remains strong relative to UnitedHealth's current ratings.

UnitedHealth's financial leverage as measured by its ratio of debt-to-total capital also remains at a level that is adequate to support the current ratings. As of June 30, the company's debt-to- total capital ratio stood at 35 percent, which is moderately higher than levels reported for the two years prior to the Amil acquisition.

Fitch views UnitedHealth's overall market position within the health insurance and managed care sector as largely unique, in that it enjoys strength across a broad spectrum of products, services, and geographies. Fitch also notes the increasing scale and diversity of UnitedHealth's businesses, particularly its sources of unregulated earnings and cash flows, which have grown steadily over the past several years.

In Fitch's view, UnitedHealth's diversified business platform and scale advantages provide increased confidence that the company will continue to generate results that support the company's current high rating category, despite the uncertainty created by the evolving regulatory environment facing the health insurance industry.

Rating Sensitivities

An upgrade to UnitedHealth's IFS ratings is unlikely over the next 12 - 24 months. Upward rating pressure is constrained due to UnitedHealth's current ratings approaching the high end of Fitch's ratings range for health insurers. Fitch remains concerned about potential continued unfavorable regulatory developments and their potential effect on UnitedHealth's profits, primarily in government- sponsored businesses.

If the company were to report debt/EBITDA ratios approximating 1.0x and debt-to-capital below 30 percent on a sustained basis, while maintaining EBITDA/interest coverage ratios in the midteens or better, Fitch could compress the notching between UnitedHealth's operating company IFS ratings and holding company Issuer Default Ratings (IDRs). This would result in a one-notch upgrade to UnitedHealth's debt ratings,

Key rating triggers that could result in a downgrade to all of UnitedHealth's ratings include developments related to healthcare reform that significantly impair UnitedHealth's ability to appropriately price its products, or otherwise severely restrict the company's cash flow. In addition, expectations for sustained ratios of debt/EBITDA above 1.9x, debt-to-capital above 35 percent and EBITDA/interest below 8x could lead to negative rating actions.

Fitch has affirmed the following ratings with a Stable Rating Outlook:

UnitedHealth Group, Inc.

--Long-term IDR at 'A';

--Short-term IDR at 'F1';

--Commercial paper rating at 'F1';

--4.75 percent senior unsecured notes due 2014 at 'A-';

--5 percent senior unsecured notes due 2014 at 'A-';

--Floating rate senior unsecured notes due 2014 at 'A-';

--4.875 percent senior unsecured notes due 2015 at 'A-';

--0.850 percent senior unsecured notes due 2015 at 'A-';

--5.375 percent senior unsecured notes due 2016 at 'A-';

--1.875 percent senior unsecured notes due 2016 at 'A-';

--6.000 percent senior unsecured notes due 2017 at 'A-';

--1.400 percent senior unsecured notes due 2017 at 'A-';

--6.000 percent senior unsecured notes due 2017 at 'A-';

--6.000 percent senior unsecured notes due 2018 at 'A-';

--1.625 percent senior unsecured notes due 2019 at 'A-';

--3.875 percent senior unsecured notes due 2020 at 'A-';

--4.700 percent senior unsecured notes due 2021 at 'A-';

--3.375 percent senior unsecured notes due 2021 at 'A-';

--2.875 percent senior unsecured notes due 2022 at 'A-';

--0 percent senior unsecured notes due 2022 at 'A-';

--2.750 percent senior unsecured notes due 2023 at 'A-';

--2.875 percent senior unsecured notes due 2023 at 'A-';

--5.8 percent senior unsecured notes due 2036 at 'A-';

--6.5 percent senior unsecured notes due 2037 at 'A-';

--6.625 percent senior unsecured notes due 2037 at 'A-';

--6.875 percent senior unsecured notes due 2038 at 'A-';

--5.7 percent senior unsecured notes due 2040 at 'A-';

--5.95 percent senior unsecured notes due 2041 at 'A-';

--4.625 percent senior unsecured notes due 2041 at 'A-';

--4.375 percent senior unsecured notes due 2042 at 'A-'.

--3.95 percent senior unsecured notes due 2042 at 'A-'.

--4.25 percent senior unsecured notes due 2043 at 'A-'.

UnitedHealthcare Insurance Company

UnitedHealthcare Insurance Company of Illinois

UnitedHealthcare Insurance Company of New York

Sierra Health & Life Insurance Company, Inc.

Health Plan of Nevada, Inc.

UnitedHealthcare of Florida, Inc.

UnitedHealthcare of Arizona, Inc.

Oxford Health Insurance, Inc.

Oxford Health Plans of New York, Inc.

UnitedHealthcare of Wisconsin, Inc

UnitedHealthcare Benefits of Texas, Inc.

UHC of California

PacifiCare Life & Health Insurance Company

UnitedHealthcare Plan of the River Valley

--IFS at 'AA-'.

Additional information is available at fitchratings.com.

Applicable Criteria and Related Research:

--'Insurance Rating Methodology' (January 11);

--'Health Insurance and Managed Care (U.S.) Sector Credit Factors Special Report' (January 29).

Applicable Criteria and Related Research:

Insurance Rating Methodology -- Amended

http://fitchratings.com/creditdesk/reports/ report_frame.cfm?rpt_id=698731

Health Insurance and Managed Care (U.S.)

http://fitchratings.com/creditdesk/reports/ report_frame.cfm?rpt_id=699758

Additional Disclosure

Solicitation Status

http://fitchratings.com/gws/en/disclosure/ solicitation?pr_id=799315

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