Press Release - JUNE 21, 2018

A.M. Best Upgrades Issuer Credit Ratings of UnitedHealth Group Incorporated and Its UnitedHealthcare Subsidiaries


CONTACTS:
 Bridget Maehr
Associate Director
+1 908 439 2200, ext. 5321
bridget.maehr@ambest.com

Sally Rosen
Senior Director
+1 908 439 2200, ext. 5280
sally.rosen@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 - JUNE 21, 2018
A.M. Best has upgraded the Long-Term Issuer Credit Ratings (Long-Term ICR) to “ a+” from “a” and affirmed the Financial Strength Rating (FSR) of A (Excellent) for the majority of the UnitedHealthcare insurance subsidiaries of UnitedHealth Group Incorporated (UnitedHealth Group) (Minnetonka, MN) [NYSE: UNH]. Concurrently, A.M. Best has upgraded the Long-Term ICR to “a-” from “bbb+” of UnitedHealth Group, and upgraded its Long-Term Issue Credit Ratings (Long-Term IR) to “a-” from “bbb+” for the existing senior unsecured notes and its Short-Term Issue Credit Rating (Short-Term IR) to AMB-1 from AMB-2. The outlook for the Credit Ratings (ratings) is stable. A.M. Best also has assigned Long-Term IRs of “a-” for the recently marketed senior unsecured notes of UnitedHealth Group. The outlook assigned to the ratings is stable.

In addition, A.M. Best has upgraded the FSR to A (Excellent) from A- (Excellent) and the Long-Term ICR to “a” from “a-” for Dental Benefit Providers of California, Inc. (San Francisco, CA), Nevada Pacific Dental (Las Vegas, NV) and National Pacific Dental, Inc. (Richardson, TX). The outlook of these ratings is stable. (See link below for a detailed listing of the companies and ratings.)

The ratings reflect UnitedHealthcare’s balance sheet strength, which A.M. Best categorizes as strong, as well as its strong operating performance, very favorable business profile and very strong enterprise risk management (ERM).

The rating upgrades reflect strengthening of risk-adjusted capitalization, a trend of strong premium growth and very favorable earnings with low volatility. UnitedHealthcare’s nationwide market presence, large and growing enrollment base, diversified premium revenue, sound business strategy and a highly developed risk management program support its strong balance sheet and operating trends.

UnitedHealthcare’s strong risk-adjusted capitalization is supported by consistent profitability as well as its conservative high credit quality asset allocation, which is partially offset by dividends to parent. A good level of liquidity at UnitedHealthcare’s insurance operations is driven by favorable and growing operating cash flows that are supplemented by credit facilities with the parent company.

Operating performance has been strong with consistent top-line growth, driven by organic growth and rate increases. UnitedHealthcare’s premium revenue is well-diversified geographically and by business segment. Earnings from operations are strong, based on top-line growth and stable to modestly expanding operating margins. A.M. Best expects operating margins to remain relatively stable with earnings driven by increased premium revenue.

UnitedHealthcare maintains a solid market presence nationwide with leading market share in its Medicare business. The company has reported strong enrollment gains over the last two years in commercial and government business. A.M. Best anticipates membership growth to continue but at a more moderate pace, driven mostly by Medicare and Medicaid. UnitedHealth Group’s long-term partnership with AARP is a key driver of its strong growth in the senior market.

UnitedHealth Group has a comprehensive ERM program with a mature framework that utilizes extensive stress- and scenario-testing as well as economic capital modeling to support ongoing operations and business strategy for the organization. Furthermore, economic capital modeling is utilized for liquidity and capital allocation on a quarterly basis across the enterprise.

UnitedHealth Group has strong diversified revenue and earnings through its UnitedHealthcare insurance operations and its Optum health services, technology and pharmacy benefit management operations. Optum provides services to the insurance operations of UnitedHealthcare and external customers, and continues to grow its revenue and earnings organically and through acquisitions. Optum also generates a material amount of earnings and cash flow to the parent, which are non-regulated and do not require approval for dividend payments. Nevertheless, UnitedHealthcare insurance operations continue to generate strong operating results for the organization with high dividend capacity.

UnitedHealth Group has very good financial flexibility supported by its favorable operating cash flow, liquid investment portfolio, dividends from subsidiaries and a $10 billion credit facility, partially offset by moderate financial leverage and a high level of goodwill and intangibles assets. Cash flow from operations was very strong at $13.6 billion in 2017. Assets are allocated mostly to cash and investment-grade fixed-income securities with relatively low duration. Adjusted financial leverage is moderate, but decreased to approximately 40% at year-end 2017 from approximately 47% at year-end 2016, as measured by A.M. Best. Leverage increased slightly, to approximately 42% as of March 31, 2018, after the acquisition of Banmedica during first-quarter 2018, but is expected to decline and be managed to approximately 40% on an ongoing basis. UnitedHealth Group has a high level of goodwill plus intangibles to equity at 127% at year-end 2017. This measure did improve from 147% in the previous year, but it remains higher than that of its peers; however, the company does not have a history of any large write-downs. UnitedHealth Group’s strong earnings before interest and taxes interest coverage is at more than 12 times, and debt is serviced by the substantial dividend capacity of the UnitedHealthcare insurance companies and growing cash flow from Optum.

For a complete listing of UnitedHealth Group Incorporated and its subsidiaries’ FSRs, Long-Term ICRs and Long-Term and Short-Term Issue Credit Ratings, please visit UnitedHealth Group.

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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