AM Best Affirms Credit Ratings of CVS Health Corporation’s Aetna Subsidiaries; Revises Outlooks on Key Subsidiaries

OLDWICK, N.J.--(BUSINESS WIRE)--
AM Best has revised the outlooks to positive from stable for the Long-Term Issuer Credit Ratings (Long-Term ICR) and affirmed the Financial Strength Rating (FSR) of A (Excellent) and the Long-Term ICR of “a” (Excellent) of Aetna Life Insurance Company (ALIC) (Hartford, CT) and the other members of Aetna Health & Life Group, which are operating entities of Aetna Inc. (Aetna) and wholly owned subsidiaries of CVS Health Corporation (CVS Health) [NYSE: CVS]. The outlook of the FSR is stable. Please see below for a detailed listing of the companies. Concurrently, AM Best has revised the outlooks to positive from stable and affirmed the FSR of A- (Excellent) and the Long-Term ICR of “a-” (Excellent) of Aetna Insurance Company Limited (AICL) (United Kingdom).

AM Best also has affirmed the FSR of A (Excellent) and the Long-Term ICRs of “a” (Excellent) of Texas Health + Aetna Health Insurance Company (Arlington, TX), as well as Texas Health + Aetna Health Plan, Inc., (Arlington, TX) (collectively referred to as Texas Health Aetna). In addition, AM Best has affirmed the FSR of A (Excellent) and the Long-Term ICR of “a” (Excellent) of Allina Health and Aetna Insurance Company (St. Louis Park, MN), all of which are joint ventures with subsidiaries of Aetna Inc. The outlook of these ratings is stable.

The positive outlooks reflect the improvement of CVS Health’s financial leverage metrics and diminishing concern over future pressure on Aetna Health & Life Group’s insurance entities’ capitalization due to high level of debt at the parent. Through strong operational gains and annual cash flows from operations, CVS Health has maintained its repayment plan to lower its outstanding senior debt. CVS Health continued to hit milestones in its plan to deleverage its balance sheet, and based on its latest public announcement, has repaid approximately $21.0 billion of its debt since 2018. The company is on its way tobring the ratio of debt to capital down to 43% by year-end 2021 and 39% by 2022, as well as adjusted debt-to-EBITDA ratio to approximately 3.6 times for 2021. AM Best had viewed the initial debt-to-capital measures that exceeded 55% at the end of 2018 as a drag on the insurance subsidiaries’ ratings; however, CVS Health has demonstrated its ability to deleverage through its strong operating performance, while maintaining capitalization targets at Aetna Health & Life Group.

The ratings of Aetna Health & Life Group reflect its balance sheet strength, which AM Best assesses as very strong, as well as its strong operating performance, favorable business profile and appropriate enterprise risk management (ERM). The group’s level of risk-adjusted capital increased in 2020 and was at the strongest level, as measured by Best Capital Adequacy Ratio (BCAR), as strong earnings were well-balanced with dividends paid to the parent. The growth of the absolute level of capital and surplus exceeded the rate of premium expansion in 2020 and over the past five years. In addition, lower share of higher risk investments – commercial mortgage loans and BA assets – contributed to improved risk-adjusted capitalization. Future deployment of capital is expected to be modest to support CVS Health’s long-term vertical strategy to be a point-of-service provider of health care services. Any significant acquisitions may suppress CVS Health’s financial flexibility, and AM Best will monitor the effects on the balance sheet metrics accordingly.

The profitable premium growth over the past few years has been driven by the expansion of Aetna’s government business in Medicare Advantage (MA) and Medicaid. With the emergency declarations still in place throughout the COVID-19 pandemic and the rules around redeterminations of Medicaid beneficiaries, membership growth from the Medicaid business has been strong over the past 18 months. This puts some concentration risk on the government-sponsored business; however, the company also has tempered the trend of membership decline in the commercial block, which continued to decline in 2021, although the decline was offset by a slight increase of membership in the third quarter. The operating earnings trend has been quite favorable over the past two years, where lower claims utilization drove favorable gains over the early stages of the COVID-19 pandemic in 2020. More recently, the company’s medical loss ratio has risen through 2021, driven by higher-than-expected COVID-19-related medical costs as both treatments and testing costs surged throughout the mid-to-late summer months.

Aetna remains one of the leading players in the managed care markets throughout the United States. Aetna has shifted its focus to the government segment and has been able to capture a growing percentage of MA membership and to increase its market share in that very competitive segment. The relationship with CVS Health adds a competitive advantage, as some Aetna insurance products emphasize affiliated MinuteClinics as a low-cost provider of primary care services. In addition, Aetna has successfully developed a value-based care model throughout its products and geographies with approximately 70% of claims channeled through value-based contracts.

The ratings of AICL reflect its balance sheet strength, which AM Best assesses as very strong, as well as its marginal operating performance, limited business profile and appropriate ERM. Furthermore, AICL’s ratings factor in rating enhancement from the Aetna organization. AICL remains well-capitalized, and it mitigates the challenging pricing environment in the international private medical insurance segment by focusing on selective risk-underwriting.

The ratings of Texas Health Aetna reflect its balance sheet strength, which AM Best assesses as strong, as well as its adequate operating performance, limited business profile and appropriate ERM. The joint venture exhibited premium growth in 2020, and management projects operating margins to strengthen gradually over time through appropriate product rate increases.

The ratings of Allina Health and Aetna Insurance Company reflect its balance sheet strength, which AM Best assesses as adequate, as well as its marginal operating performance, limited business profile and appropriate ERM. Medicare Advantage membership had increased in 2020, which drove net premiums higher; however, the results are still behind the original plan. The expectation is for the joint venture to be profitable on an underwriting basis in a couple of more years as the membership grows.

The FSR of A (Excellent) and the Long-Term ICRs of “a” (Excellent) have been affirmed, with the Long-Term ICR outlook revised to positive from stable and the FSR outlook maintained at stable, for the following members of Aetna Health & Life Group:

• Aetna Life Insurance Company
• Aetna Health and Life Insurance Company
• Aetna Life & Casualty (Bermuda) Ltd.
• Aetna Health Inc. (a Connecticut corporation)
• Aetna Health Inc. (a Florida corporation)
• Aetna Health Inc. (a Georgia corporation)
• Aetna Health Inc. (a Louisiana corporation)
• Aetna Health Inc. (a New Jersey corporation)
• Aetna Health Inc. (a New York corporation)
• Aetna Health Inc. (a Maine Corporation)
• Aetna Health Inc. (a Pennsylvania corporation)
• Aetna Health Inc. (a Texas corporation)
• Aetna Health Insurance Company
• Aetna Health Insurance Company of New York
• Aetna Better Health of Florida, Inc.
• Aetna Health of California Inc.
• Aetna Health of Iowa, Inc.
• Aetna Health of Utah, Inc.
• Aetna Dental of California Inc.
• Aetna Dental Inc. (a New Jersey corporation)
• Aetna Dental Inc. (a Texas corporation)
• American Continental Insurance Company
• Accendo Insurance Company
• Continental Life Insurance Company of Brentwood, Tennessee
• Coventry Health and Life Insurance Company
• Aetna Better Health of Michigan, Inc.
• Aetna Better Health of Missouri, LLC
• Coventry Health Care of Illinois, Inc.
• Coventry Health Care of Kansas, Inc.
• Coventry Health Care of Florida, Inc.
• Coventry Health Care of Missouri, Inc.
• Coventry Health Care of Nebraska, Inc.
• Coventry Health Care of Virginia, Inc.
• Coventry Health Care of West Virginia, Inc.
• First Health Life & Health Insurance Company
• HealthAssurance Pennsylvania, Inc.
• SilverScript Insurance Company

This press release relates to Credit Ratings that have been published on AM 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 AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best's Credit Ratings. For information on the proper use of Best’s Credit Ratings, Best’s Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best’s Ratings & Assessments.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

Copyright © 2021 by A.M. Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.

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Wayne Kaminski
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Source: AM Best