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FOR IMMEDIATE RELEASE
OLDWICK - JUNE 22, 2016 02:09 PM (EDT)
A.M. Best has removed from under review with negative implications and downgraded the issuer credit rating (ICR) to “bbb” from “bbb+” of Aetna Inc. (Aetna) (Hartford, CT) [NYSE: AET]. In addition, A.M. Best has downgraded the ICR to “a” from “a+” and affirmed the financial strength ratings (FSR) of A (Excellent) of Aetna Life Insurance Company and other lead operating entities of Aetna.
Concurrently, A.M. Best has removed from under review with negative implications and downgraded the issue ratings to “bbb” from “bbb+” on the existing debt of Aetna and former Coventry Health Care Inc.’s senior unsecured notes. A.M. Best also has assigned the issue ratings of “bbb” to the recently marketed senior unsecured notes of Aetna.
Additionally, A.M. Best has removed from under review with negative implications and affirmed the FSRs and the ICRs on all other Aetna entities, except for Aetna Insurance Company of Connecticut. The FSR for Aetna Insurance Company of Connecticut has been downgraded to B++ (Good) from A (Excellent) and the ICR has been downgraded to “bbb” from “a”. The outlook assigned to each rating is stable.
Please see link below for a detailed listing of the companies and ratings.
The rating actions reflect Aetna’s recent issuance of $13 billion of debt to pre-fund the proposed acquisition of Humana Inc., which is expected to close in the second half of 2016. As a result, Aetna’s financial leverage escalated to more than 50%; however, is expected to slightly decline upon close of the transaction. The increased leverage will result in reduced interest coverage and limited borrowing capacity. Furthermore, goodwill and intangibles is expected to rise to more than 100% of total equity, as well as increased integration risk, particularly given the size of the two organizations.
A.M. Best recognizes that Aetna has stable operating margins driven by low medical cost trends and improved operational efficiencies. In addition, the organization has strong cash flows and a diversified stream of revenue from its health insurance and group insurance operations.
The ratings of Aetna’s health and life operations, including Aetna Life Insurance Company, the lead operating entity, reflect the pressure on earnings and dividends from the operating companies to service the higher level of debt at the parent organization. Furthermore, A.M. Best expects that risk-adjusted capitalization may decline as a result of increased dividend payments to the parent organization.
The downgrade of the ratings of Aetna Insurance Company of Connecticut reflects the lack of operations at this entity. At year-end 2015, this entity no longer had any in-force business, nor is it writing any new business.
For a complete listing of Aetna Inc.’s FSRs, ICRs and issue ratings, please visit Aetna Inc.
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 see A.M. Best’s Recent Rating Activity web page.
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