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Best’s News & Research Service - March 31, 2015 04:43 PM (EDT)

A.M. Best Revises Issuer Credit Rating Outlooks to Stable for UnitedHealth Group Incorporated and Most of Its Subsidiaries

  • March 31, 2015 04:43 PM (EDT)
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Oldwick //BestWire// - A.M. Best has affirmed the financial strength rating (FSR) of A (Excellent) and the issuer credit ratings (ICR) of "a" for 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 debt ratings of UnitedHealth. The outlook for the majority of the ICRs has been revised to stable from positive. The outlook for the FSR remains stable for most of the insurance entities.

The revision of the rating outlook to stable on the majority of the ICRs and all debt ratings reflects UnitedHealth's recent announcement of its plan to acquire the outstanding equity of Catamaran Corporation (Catamaran) [NASDAQ: CTRX] and combine it with OptumRx, UnitedHealth's free-standing pharmacy care services business. The purchase price is approximately $12.8 billion, the majority of which the group plans to finance with new debt. As a result of the additional debt, UnitedHealth's financial leverage is expected to increase significantly. This is somewhat mitigated by UnitedHealth's strong interest coverage, which, although is expected to decline slightly, should remain greater than 10 times. Additionally, UnitedHealth's ratio of goodwill plus intangibles to shareholders' equity exceeded 100% at year-end 2014 and is expected to increase to a range of 128%-130% as a result of the Catamaran transaction.

UnitedHealth has diversified operations and a significant market presence in its insurance and non-insurance businesses. UnitedHealth's insurance operations, UnitedHealthcare, include a broad customer segment with significant market presence covering more than 40 million individuals. In addition, UnitedHealth's health care services operations, Optum, are expanding and currently represent approximately 32% of its operating earnings and more than 37% of its revenue prior to eliminations. Furthermore, Catamaran's earnings are expected to be immediately accretive to OptumRx's already strong earnings.

Partially offsetting these strengths are the significant increase in UnitedHealth's financial leverage and reduced financial flexibility due to the Catamaran transaction. While growth in earnings and cash flows is anticipated and should be ample to service the additional debt, A.M. Best is concerned that the increased debt and interest payments may place additional pressure on the insurance entities for additional dividends. Furthermore, UnitedHealthcare has been experiencing declining operating margins, which is an industry trend. The lower margins are driven by several factors, which include the non-deductible insurance fees imposed by the Patient Protection and Affordable Care Act (ACA), reduced Medicare Advantage reimbursement and a changing business mix with a growing share of lower margin, government-funded products. The ACA prompted a significant number of employer groups to migrate from risk to self-funded arrangements leading to lower risk and narrower margins, thus reducing earnings potential for UnitedHealth's insurance operations.

Key rating drivers that may lead to positive rating actions for UnitedHealth and its subsidiaries include significant reduction in UnitedHealth's financial leverage to at least the 2014 year-end levels; revenue and earnings growth at UnitedHealthcare's insurance entities; successful absorption of new membership in government programs; and improvement in risk-adjusted capital at regulated entities. Key rating drivers that may lead to negative rating actions include a sizeable decline in risk-adjusted capital at UnitedHealth's lead operating entity, UnitedHealthcare Insurance Company; significant weakening of operating performance across the enterprise; deterioration of market share; an increase in financial leverage or material deterioration in interest coverage; or problems with the integration of Catamaran.

For a complete listing of UnitedHealth Group Incorporated and its subsidiaries' FSRs, ICRs and debt ratings, please visit UnitedHealth Group.

The methodology used in determining these ratings is Best's Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best's rating process and contains the different rating criteria employed in the rating process. Best's Credit Rating Methodology can be found at www.ambest.com/ratings/methodology .

Key insurance criteria reports utilized:


  • Rating Members of Insurance Groups

  • Risk Management and the Rating Process for Insurance Companies

  • Understanding BCAR for U.S. and Canadian Life/Health Insurers

  • Insurance Holding Company and Debt Ratings

  • Analyzing Insurance Holding Company Liquidity

  • Evaluating Country Risk

  • Equity Credit for Hybrid Securities

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 visit A.M. Best's Ratings & Criteria Center .

A.M. Best Company is the world's oldest and most authoritative insurance rating and information source.



Health Insurance Health Insurers Minnesota Press Release Insurance Best's Credit Rating Action


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