AM Best Affirms Credit Ratings of Anthem, Inc. and Its Subsidiaries

Rhea-AI Summary

AM Best has affirmed the Financial Strength Rating (FSR) of A (Excellent) and Long-Term Issuer Credit Ratings (ICR) of 'a+' for Anthem's core Blue Cross Blue Shield-branded subsidiaries. The outlook for these ratings is stable, reflecting strong balance sheet strength, operating performance, and favorable business profile. Anthem's entities reported underwriting income of approximately $4 billion annually and net income between $3 billion and $4 billion. Additionally, Anthem maintains a robust capital position and a well-developed enterprise risk management program.

Positive

• Affirmed FSR of A (Excellent) and Long-Term ICR of 'a+' with a stable outlook.
• Strong balance sheet strength and operating performance with annual underwriting income of approximately $4 billion.
• Net income between $3 billion and $4 billion annually, reflecting solid profitability.
• Significant capital growth despite dividends exceeding $3 billion in previous years.
• Robust enterprise risk management program and high liquidity levels.

Negative

• High goodwill plus intangibles to equity over 92%, indicating potential risk in asset valuation.
• AMERIGROUP's balance sheet strength categorized as weak despite strong operating performance.

OLDWICK, N.J.--(BUSINESS WIRE)--AM Best has affirmed the Financial Strength Rating (FSR) of A (Excellent) and the Long-Term Issuer Credit Ratings (Long-Term ICR) of “a+” of the core Blue Cross Blue Shield-branded insurance subsidiaries of Anthem, Inc. (Anthem) (Indianapolis, IN) [NYSE:ANTM]. Concurrently, AM Best has affirmed the Long-Term ICR of “bbb+”, the Long- and Short-Term Issue Credit Ratings (Long-Term IR; Short-Term IR) of Anthem and the Long-Term IR on the existing surplus notes of Anthem Insurance Companies, Inc. (Indianapolis, IN).

Furthermore, AM Best has affirmed the FSR of A- (Excellent) and the Long-Term ICRs of “a-” of the UNICARE Life & Health Group (UNICARE) and AMERIGROUP Health Companies (AMERIGROUP).

The outlook of these Credit Ratings (ratings) is stable. See below for detailed listing of the companies and Long-Term IRs.

The Blue Cross Blue Shield-branded entities, also referred to as Anthem Health Group (Anthem Health), are part of the core subsidiaries of Anthem. The ratings of Anthem Health reflect its balance sheet strength, which AM Best categorizes as very strong, as well as its strong operating performance, favorable business profile and appropriate enterprise risk management (ERM).

Anthem Health’s risk-adjusted capitalization is viewed as strongest, as measured by Best’s Capital Adequacy Ratio (BCAR). The Anthem Health entities comprise the main source of earnings and dividends for the parent organization, Anthem, with dividends from subsidiaries exceeding $3 billion in each of the past two years, and projected to be in line with these levels in 2020. The Anthem Health entities generally have been able to grow capital despite these dividend payments. Anthem Health’s reported underwriting results and net income in aggregate have been favorable with some fluctuations at the product and entity level. The Anthem Health entities have reported underwriting income of approximately $4 billion per year and net income of approximately $3 billion to $4 billion annually, with return on revenue in the 5-6% range and return on equity of approximately 30% in the past few years. The group has good product and geographic diversity, as Anthem operates Blue Cross Blue Shield plans in 14 states with excellent brand recognition and leading market share in the majority of its states. While there is geographic limitation to its business, based on the Blue Cross/Blue Shield licenses, the companies have a solid presence across its various product offerings, including small-mid-large and national accounts and the fully insured and self-insured segments, as well as through BlueCard.

Anthem Health’s ERM is managed by Anthem­ in conjunction with local oversight and involvement. Anthem has a well-established, developed ERM program that has a formalized governance structure and is considered appropriate for its risk profile. Risk identification and reporting are completed on a regular basis throughout the year and incorporated into the organization’s strategic planning process.

Anthem has strong and well-diversified revenue and earnings through its Blue Cross Blue Shield-branded entities in 14 states, as well as its non-Blue-branded entities under AMERIGROUP and UNICAREs, and has developed its integrated medical and pharmacy benefit management organization, Ingenio RX, which provides additional nonregulated income. Financial leverage at Anthem declined to approximately 38.5% as of the end of third-quarter 2020 and AM Best expects financial leverage to moderate slightly through a combination of eliminating existing debt and increases in shareholders’ equity. Earnings before interest and taxes interest coverage was adequate at 8.9 times for 2019, improving in each of the past two years. The holding company maintains ample liquidity with access to a $2.5 billion revolving-credit facility, a $1 billion, 364-day senior revolving credit facility, a $3.5 billion commercial paper program and access to the Federal Home Loan Bank through several of its insurance subsidiaries. However, AM Best considers Anthem’s goodwill plus intangibles to equity as high, at over 92%, through September 2020. Furthermore, AM Best acknowledges that a portion of the intangibles is the Blue Cross Blue Shield trademarks, which are required to operate as a Blue Cross Blue Shield-branded entity.

The ratings of Anthem Life Insurance Group (Anthem Life) reflect its balance sheet strength, which AM Best categorizes as strongest, as well as its strong operating performance, neutral business profile and appropriate ERM. Anthem Life has ample capital with all members adequately capitalized, and AM Best has assessed its risk-adjusted capital at the strongest BCAR level. While Anthem has taken dividends, none were taken in 2019, and capital expansion overall has not been hindered significantly. Anthem Life has produced favorable operating results, with some fluctuations, but the organization has typically reported double-digit returns on equity in the midteen range. The business written by this group is not a main focus for the overall organization and its product offerings complement those offered by Anthem Health, specifically in the employer group market.

The ratings of AMERIGROUP reflect its balance sheet strength, which AM Best categorizes as weak, as well as its strong operating performance, favorable business profile, appropriate ERM and its strategic importance to Anthem. On a consolidated basis, capitalization for the AMERIGROUP operating entities has increased to nearly $2 billion. Risk-adjusted capital, as measured by BCAR, improved in 2019, but remained weak. Capital measures improved incrementally in 2019, mainly due to retained earnings exceeding large dividends to the parent; however, these companies still have a weak level of risk-adjusted capital in support of their current business and investment risk. AM Best notes that Anthem is in a good capital position for the size of its operations and its financial flexibility, and has supported AMERIGROUP as needed. Additionally, the group produces very favorable operating results and is a material contributor to revenue, earnings and cash flow for its parent. AMERIGROUP has built excellent brand awareness and has solid enrollment in its core markets, and allows Anthem access to Medicaid markets outside of its core Blue Cross Blue Shield states.

The ratings of UNICARE reflect its balance sheet strength, which AM Best categorizes as adequate, as well as its adequate operating performance, limited business profile, appropriate ERM and support from as well as strategic importance to Anthem. On a consolidated basis, capital for the UNICARE operating entities increased significantly in 2019 due to a sizeable contribution from its parent combined with positive operating results. As a result, the companies’ risk-adjusted capital has improved dramatically in support of their current growing business and investment risk. Investments are conservative and provide sufficient liquidity to the group. UNICARE has produced good operating results in aggregate, although premiums and earnings have fluctuated widely. Earnings increased again through year-end 2019, as did business growth, mainly from assumed business. UNICARE is one of Anthem’s brands in the Medicaid market and has a limited scope of business, writing primarily Medicaid and dual Medicare-Medicaid business. Through UNICARE, Anthem has licenses in all 50 states, Washington DC and Puerto Rico; nevertheless, premiums are generated predominantly from 10 states.

The FSR of A (Excellent) and the Long-Term ICRs of “a+” of the following subsidiaries of Anthem, Inc. have been affirmed with a stable outlook:

• Anthem Blue Cross Life and Health Insurance Company
• Anthem Health Plans of Kentucky, Inc.
• Anthem Health Plans of Maine, Inc.
• Anthem Health Plans of New Hampshire, Inc.
• Anthem Health Plans of Virginia, Inc.
• Anthem Health Plans, Inc.
• Anthem Insurance Companies, Inc.
• Anthem Kentucky Managed Care Plan, Inc.
• Anthem Life & Disability Insurance Company
• Anthem Life Insurance Company
• BlueCare Health Plan
• Blue Cross Blue Shield Healthcare Plan of Georgia, Inc.
• Blue Cross Blue Shield of Wisconsin
• Blue Cross of California
• Community Insurance Company
• Compcare Health Services Insurance Corporation
• Empire HealthChoice Assurance, Inc.
• Empire HealthChoice HMO, Inc.
• Greater Georgia Life Insurance Company
• HealthKeepers, Inc.
• Healthy Alliance Life Insurance Company
• HMO Colorado, Inc.
• HMO Maine
• HMO Missouri, Inc.
• Matthew Thornton Health Plan, Inc.
• Rocky Mountain Hospital and Medical Service, Inc.

The FSR of A- (Excellent) and the Long-Term ICRs of “a-” of the following subsidiaries of Anthem, Inc. have been affirmed with a stable outlook:

• UNICARE Life & Health Insurance Company
• UNICARE Health Plan of West Virginia, Inc.
• AMERIGROUP Community Care of New Mexico, Inc.
• AMERIGROUP Maryland, Inc.
• AMERIGROUP New Jersey, Inc.
• AMERIGROUP Tennessee, Inc.
• AMERIGROUP Texas, Inc.
• AMGP Georgia Managed Care Company, Inc.
• AMERIGROUP Washington, Inc.
• AMERIGROUP Insurance Company
• AMERIGROUP Kansas Inc.
• Community Care Health Plan of Louisiana, Inc.
• Community Care Health Plan of Nevada, Inc.

The following Long-Term IRs have been affirmed with a stable outlook:

Anthem, Inc.—
-- “bbb+” on $700 million 3.70% senior unsecured notes, due 2021
-- “bbb+” on $850 million 3.125% senior unsecured notes, due 2022
-- “bbb+” on $750 million 2.95% senior unsecured notes, due 2022
-- “bbb+” on $1 billion 3.3% senior unsecured notes, due 2023
-- “bbb+” on $800 million 3.50% senior unsecured notes, due 2024
-- “bbb+” on $850 million 3.35% senior unsecured notes, due 2024
-- “bbb+” on $1.25 billion 2.375% senior unsecured notes, due 2025
-- “bbb+” on $1.6 billion 3.65% senior unsecured notes, due 2027
-- “bbb+” on $1.25 million 4.101% senior unsecured notes, due 2028
-- “bbb+” on $825 million 2.875% senior unsecured notes, due 2029
-- “bbb+” on $1.1 billion 2.25% senior unsecured notes, due 2030
-- “bbb+” on $499 million 5.95% senior unsecured notes, due 2034
-- “bbb+” on $900 million 5.85% senior unsecured notes, due 2036
-- “bbb+” on $800 million 6.375% senior unsecured notes, due 2037
-- “bbb+” on $300 million 5.80% senior unsecured notes, due 2040
-- “bbb+” on $900 million 4.625% senior unsecured notes, due 2042
-- “bbb+” on $1.5 billion 2.75% senior unsecured convertible debentures, due 2042
-- “bbb+” on $1.0 billion 4.65% senior unsecured notes, due 2043
-- “bbb+” on $800 million 4.65% senior unsecured notes, due 2044
-- “bbb+” on $600 million 5.10% senior unsecured notes, due 2044
-- “bbb+” on $1.4 billion 4.375% senior unsecured notes, due 2047
-- “bbb+” on $850 million 4.55% senior unsecured notes, due 2048
-- “bbb+” on $825 million 3.70% senior unsecured notes, due 2049
-- “bbb+” on $1.0 billion 3.125% senior unsecured notes, due 2050
-- “bbb+” on $250 million 4.85% senior unsecured notes, due 2054

Anthem Insurance Companies, Inc.—
-- “a-” on $25.1 million 9.0% surplus notes, due 2027

The following Short-Term IR has been affirmed:

Anthem, Inc.—
-- AMB-2 on commercial paper program

The following indicative Long-Term IRs have been assigned with a stable outlook to its new shelf registration. The ratings on the previous shelf registration have been withdrawn:

Anthem, Inc.—
-- “bbb+” on senior unsecured debt
-- “bbb” on subordinated debt
-- “bbb-” on preferred stock

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.

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