Press Release - DECEMBER 06, 2017

A.M. Best Places Credit Ratings of Aetna Inc. and Its Insurance Subsidiaries Under Review With Negative Implications


CONTACTS:
 Doniella Pliss
Associate Director
+1 908 439 2200, ext. 5104
doniella.pliss@ambest.com

Filippo Novella
Associate Financial Analyst
+44 20 7397 0304
filippo.novella@ambest.com
Christopher Sharkey
Manager, Public Relations
+1 908 439 2200, ext. 5159
christopher.sharkey@ambest.com

Jim Peavy
Director, Public Relations
+1 908 439 2200, ext. 5644
james.peavy@ambest.com

FOR IMMEDIATE RELEASE

OLDWICK - DECEMBER 06, 2017
A.M. Best has placed under review with negative implications the Long-Term Issuer Credit Rating (Long-Term ICR) of “bbb” of Aetna, Inc. (Aetna) (headquartered in Hartford, CT) [NYSE: AET]. Concurrently, A.M. Best has placed under review with negative implications the Financial Strength Rating (FSR) of A (Excellent) and the Long-Term ICRs of “a” of the lead operating entity, Aetna Life Insurance Company (ALIC) (Hartford, CT). A.M. Best also has placed under review with negative implications the FSRs and the Long-Term ICRs of all other Aetna entities. In addition, A.M. Best has placed under review with negative implications the Long- and Short-Term Issue Credit Ratings (Long-Term IR; Short-Term IR) of Aetna. Please see link below for a detailed listing of the companies and ratings.

The rating actions follow the recent announcement that CVS Health Corporation (CVS Health) has signed a definitive agreement to acquire Aetna, Inc. for $69 billion in combination of cash and stock. The transaction, subject to approval by federal and state regulators, is expected to close in the second half of 2018.

Following the issuance of $44.8 billion of new debt to finance the transaction, CVS Health’s financial leverage is expected to be approximately 60%, and its goodwill plus intangibles to equity ratio likely will exceed 200%. The negative implications reflect A.M. Best’s concern that CVS Health’s increased debt and very limited financial flexibility may place pressure on the capitalization of Aetna’s insurance entities, as the new parent may increase dividends from the insurance subsidiaries to service the debt. In addition, the combined organization will face significant integration risks and general uncertainty regarding any potential synergies going forward. Furthermore, while Aetna’s core businesses remain profitable, premium revenue recently has declined due to multiple factors, including the exit from the individual exchange business, the loss of several Medicaid contracts and lack of growth in the commercial group segment. A.M. Best believes that the acquisition by CVS Health is unlikely to boost revenue expansion in the near term. However, A.M. Best does acknowledge that the CVS Health partnership is in line with Aetna’s strategy to build a local community presence in order to facilitate more efficient and appropriate care delivery, as well as to influence members’ behavior and lifestyle choices.

The ratings will remain under review pending the completion of the transaction and A.M. Best conducts discussions with the new parent regarding the plans for Aetna’s insurance subsidiaries. A.M. Best will continue to conduct discussions with Aetna’s management and monitor the company’s operating performance, risk-adjusted capital at the operating companies and its capital structure.

For a complete listing of Aetna Inc. and its insurance subsidiaries’ FSRs, Long-Term ICRs and Long- and Short-Term IRs, please visit Aetna Inc.

This press release relates to Credit Ratings 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. For additional information regarding the use and limitations of Credit Rating opinions, please view Understanding Best’s Credit Ratings. For information on the proper media use of Best’s Credit Ratings and A.M. Best press releases, please view Guide for Media - Proper Use of Best’s Credit Ratings and A.M. Best Rating Action Press Releases.

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