A.M. Best Co. has affirmed the financial strength rating (FSR) and issuer credit ratings (ICR) of the insurance subsidiaries of WellPoint, Inc. (WellPoint) (Indianapolis, IN) [NYSE: WLP].
Concurrently, A.M. Best has affirmed the ICR and debt ratings of “bbb+” of WellPoint and the debt rating of “a-” on the surplus notes of Anthem Insurance Companies, Inc. (Indianapolis, IN).
Additionally, A.M. Best has assigned an FSR of A- (Excellent) and ICRs of “a-” to CareMore Health Plan (Cerritos, CA), CareMore Health Plan of Arizona, Inc. (Phoenix, AZ) and CareMore Health Plan of Nevada (Las Vegas, NV). These ratings reflect the positive operating results on a consolidated basis for the companies and the strategic role each one has within the WellPoint organization. The outlook for all the above ratings is stable.
A.M. Best also has assigned debt ratings of “bbb+” on $850 million 3.125% senior unsecured notes, due 2022 and $900 million 4.625% senior unsecured notes, due 2042 of WellPoint. The outlook assigned to both ratings is stable. (See link below for a detailed list of all companies and ratings.)
The affirmation of the ratings for the insurance subsidiaries of WellPoint reflect the organization’s leading market share in its core markets, positive operating results and strong cash flows. WellPoint serves over 33 million members and is a market leader in its 14 Blue Cross and/or Blue Shield (Blue) markets. WellPoint’s core Blue plans continue to report favorable operating results and generate strong cash flows from operations, which contribute positively to the financial flexibility of the organization. Overall, membership growth has moderated due to strategic pricing and product actions in certain states and market segments. Additionally, margins are showing some compression due to the return to a more normalized medical cost trend, state sponsored business funding and competitive and economic pressures on pricing.
WellPoint has made some strategic acquisitions and investments to prepare for a more consumer focus marketplace under The Patient Protection and Affordable Care Act. WellPoint also is one of the primary investors in Bloom Health, which is working to develop a nationwide private exchange for employers to utilize in order to manage their health benefit offerings for their employees. Additionally, due to its market position as the Blue plan in 14 states, WellPoint is well positioned to participate in the individual exchanges in these states. WellPoint’s acquisition of the CareMore Health Group, Inc.(CareMore) with its integrated care management system enables the organization to have more one on one member contact. WellPoint continues to open more CareMore facilities in CareMore’s core markets as well as in selected WellPoint markets. WellPoint also recently acquired 1-800-Contacts, a web-based retailer of contact lens and eyeglasses.
WellPoint maintains a good level of financial flexibility through a strong parent company cash balance, consistent level of subsidiary dividends, its $2.5 billion commercial paper program and its untapped $2 billion credit facility.
WellPoint has a relatively high amount of goodwill and other intangible assets on its balance sheet in comparison to its peers. As of March 31, 2012, these assets comprised approximately 41% of the company’s total asset base and 92% of total consolidated shareholders’ equity. A.M. Best does note that WellPoint’s Blue trademarks are 76% of its total intangible assets of $7.9 billion. Debt-to-capital was 28.7% as of March 31, 2012. Continued acquisition activity could increase these metrics further. Interest coverage was good at almost 10 times at December 31, 2011, but fixed charge coverage decline in 2011 to approximately five times from 11 times for 2010. This was due to the establishment of quarter dividends to shareholders.
WellPoint and its core insurance subsidiaries are well positioned for their current ratings. Negative rating actions could occur if operating earnings from the organization’s health operations weaken considerably, subsidiary capitalization declines significantly or if leverage metrics increase drastically.
For a complete listing of WellPoint, Inc. and its key life/health subsidiaries’ FSRs, ICRs and debt ratings, please visit http://www.ambest.com/press/062607wellpoint.pdf.
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.
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