AM Best Comments on Credit Ratings of Anthem, Inc. and Its Subsidiaries Following MMM Holdings, LLC Acquisition Announcement

Rhea-AI Summary

AM Best has affirmed the credit ratings of Anthem, Inc. (ANTH) and its insurance subsidiaries amidst a proposed acquisition of MMM Holdings, LLC, which includes Puerto Rico-based MMM Healthcare and MMM Multi Health. This acquisition aims to bolster Anthem's presence in the Medicare Advantage (MA) segment, a rapidly growing market. MMM Healthcare holds a leading position with 267,000 MA members and recorded $2.7 billion in revenue in 2019. The outlook remains stable, and Anthem's financial leverage is expected to stay within acceptable limits.

Positive

• Acquisition expands Anthem's footprint in Puerto Rico, enhancing geographic diversification.
• Strengthens Anthem's position in the growing Medicare Advantage segment.
• MMM Healthcare is a market leader with significant membership and revenue.

Negative

• Acquisition may increase Anthem's level of goodwill, which was high at 94% in 2020.
• Integration of new subsidiaries may pose challenges.

AM Best has commented that the Credit Ratings (ratings) of Anthem, Inc. (Anthem) (Indianapolis, IN) [NYSE: ANTH] and its insurance subsidiaries remain unchanged following the announcement that the group will acquire MMM Holdings, LLC, including its Puerto Rico-based insurance subsidiaries: MMM Healthcare, LLC (MMM Healthcare), a Medicare Advantage (MA) plan; and MMM Multi Health, LLC (MMM Multi Health), a Medicaid plan. The outlook of these ratings is stable.

The acquisition, if consummated, will further enhance Anthem’s business profile by expanding its footprint and geographic diversification, as the group currently does not have any presence in the Puerto Rico market. Furthermore, it would strengthen Anthem’s position in the MA segment, which has been one of the fastest growing and generally profitable for the health insurance industry over the last several years. Anthem historically was more focused on the commercial segment and somewhat lagged its peers in building a strong presence in government programs, including MA. MMM Healthcare is a market leader in the Puerto Rico MA segment with approximately 267,000 MA members and revenue of $2.7 billion in 2019.

MMM Healthcare recorded about 80% premium growth over the past five years, while maintaining a good level of underwriting profitability. MMM Healthcare is the only MA plan in Puerto Rico with 4.5 star rating from Center for Medicare and Medicaid Service (CMS), a factor that enhances profitability. MMM Multi Health generated smaller revenue of about $613 million in 2019; however, the premium has more than tripled since 2015. Profitability of the Medicaid business has been more volatile compared with MA, and the company posted underwriting losses in three of the last five years. Anthem has a good track record of integrating the newly acquired subsidiaries into the group’s operations, achieving the benefits of greater scale.

The financial terms of transaction were not disclosed; however, AM Best expects the financial leverage of Anthem, which was close to 39% at year-end 2020, to remain within the tolerance level for its current rating. Similar to other recent acquisitions, this transaction is likely to increase the level of goodwill at Anthem, which was about 94% at year-end 2020 and is considered high.

This press release relates to Credit Ratings that have been published on AM 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 AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best’s Credit Ratings. For information on the proper media use of Best’s Credit Ratings and AM Best press releases, please view Guide for Media - Proper Use of Best’s Credit Ratings and AM Best Rating Action Press Releases.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in New York, London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

Copyright © 2021 by A.M. Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.

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FAQ

What is the significance of Anthem's acquisition of MMM Holdings?

Anthem's acquisition of MMM Holdings aims to expand its presence in the Medicare Advantage segment, enhancing its business profile and geographic diversification.

How many members does MMM Healthcare have?

MMM Healthcare has approximately 267,000 Medicare Advantage members.

What financial impact is expected from the acquisition of MMM Holdings?

The financial terms are undisclosed, but Anthem's financial leverage is expected to remain within acceptable levels despite potential increases in goodwill.

What is the rating outlook for Anthem following the acquisition?

AM Best maintains a stable outlook for Anthem's credit ratings following the acquisition announcement.