AM Best Affirms Credit Ratings of CVS Health Corporation’s Aetna Subsidiaries

Rhea-AI Summary

AM Best has affirmed the Financial Strength Rating (FSR) of A (Excellent) for Aetna Life Insurance Company and its subsidiaries under CVS Health (CVS). The Long-Term Issuer Credit Ratings are also rated at 'a'. Aetna Health & Life Group's ratings reflect very strong balance sheet strength and robust operating performance. However, dividend payments exceeding $2 billion annually could impact capital. Notably, Aetna's Medicare Advantage membership growth has been strong, with 23.3 million individuals covered, while maintaining an industry-leading market share in Medicare Part D.

Positive

• Affirmed FSR of A (Excellent) and Long-Term ICR of 'a' for Aetna and subsidiaries.
• Strong operating performance with return on equity exceeding 25%.
• Medicare Advantage membership increased to 23.3 million, outpacing industry growth.
• SilverScript remains the leading Medicare Part D plan based on market share.

Negative

• Dividend payments have exceeded $2 billion yearly, which may constrain capital.
• Decline in risk-based capital reported at under 200% company action level.
• Membership decline in commercial business observed.

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 Aetna Life Insurance Company (ALIC) (Hartford, CT) and the other operating entities of Aetna Inc. (Aetna) that are now wholly owned subsidiaries of CVS Health Corporation (CVS Health) [NYSE: CVS]. These entities include the members of Aetna Health & Life Group. Concurrently, AM Best has affirmed the FSR of A- (Excellent) and the Long-Term ICR of “a-” Aetna Insurance Company Limited (AICL) (United Kingdom). The outlook of these Credit Ratings (ratings) is stable. Please see below for a detailed listing of the companies.

AM Best also has affirmed the FSR of A (Excellent) and the Long-Term ICRs of “a” of Texas Health + Aetna Health Insurance Company (Arlington, TX), as well as Texas Health + Aetna Health Plan, Inc., (Arlington, TX) (collectively referred to as Texas Health Aetna), and Allina Health and Aetna Insurance Company (St. Louis Park, MN), all of which are joint ventures with subsidiaries of Aetna Inc. The outlook of these ratings is stable.

Lastly, AM Best has assigned an FSR of A (Excellent) and a Long-Term ICR of “a” to Accendo Insurance Company (Accendo) (West Valley City, UT). Accendo is a newly added member to the Aetna Health & Life Group. The outlook assigned to these ratings is stable. Accendo, licensed in 50 states, has assumed Medicare Part D premium from an affiliate under CVS Health; however, the company recently started writing direct Medicare Supplement business in multiple states. The business written by Accendo targets the senior demographic, and the company expects additional complementary life insurance products to be offered along with traditional Medicare Supplement insurance products.

The majority of Aetna’s operating entities are part of Aetna Health & Life Group. The ratings of Aetna Health & Life Group 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).

The ratings also reflect Aetna Health & Life Group’s very strong level of risk-adjusted capitalization, which is driven by strong operating performance. However, this is offset by dividend payments, which have exceeded $2 billion in each of the past three years as the entities have distributed a larger percentage of earnings as dividends compared with prior periods. These higher dividends followed the sale of life and disability business in 2017, as well as lower commercial premium due to exit from individual exchange market. The lead company, ALIC, has reported a decline in risk-based capital to under 200% company action level; however, the company has a planned strategy to increase this above 200% by 2020 and maintain this level.

AM Best considers the group’s operating performance to be strong, with return on equity measures annually at or exceeding 25% with underwriting income that has been greater than $2 billion annually since the acquisition by parent company CVS Health was finalized in 2018. Aetna Health & Life Group reported strong growth in net premiums in 2019, partially attributed to consistent double-digit growth in the Medicare Advantage line of business. Furthermore, SilverScript Insurance Company, a member of the Aetna Health & Life Group, remains the leading stand-alone Medicare Part D plan in the United States, based on market share. Through nine months ended Sept. 30, 2020 and similar to industry trends, CVS’ Health Care Benefits segment has reported lower medical benefit ratios attributed to the decline in utilization during the first half of 2020 as elective procedures were delayed and the health care providers focused on the COVID-19 pandemic. This decline contributed to very strong earnings through the end of the third quarter; however, the company reported an uptick in utilization in the third quarter to more normal levels due to increase in elective procedures and emergency care outside of COVID-19 hot spots.

Aetna is one of the top three U.S. health insurers in terms of medical membership, which has increased to 23.3 million individuals for commercial, Medicare and Medicaid products. Aetna’s Medicare Advantage membership growth has outpaced the industry over the past five years, moving Aetna to the number three insurer from the fifth position in the Medicare Advantage market. As of Sept. 30, 2020, Aetna’s Medicare Advantage members are in plans with a Star rating of 4.0 or higher, exceeding peers and the industry average. The company also has recently reported strong membership growth in Medicaid managed care business, which is due in part to the COVID-19 pandemic and the rise in the unemployment rate as businesses have laid off or furloughed their workforces. The rate has stayed persistently high since the outbreak of the coronavirus. Similar to industry trends, Aetna has seen consistent membership decline in its commercial business.

The ratings of Aetna Health & Life Group reflect high financial leverage and goodwill at the ultimate parent, CVS Health. Financial leverage at the end of third-quarter 2020 was approximately 49%. While AM Best considers that to be high, it remains lower than year-end 2019 as the CVS Health organization is focused on deleveraging. The execution risk related to the Aetna-CVS Health merger has declined over the past year, as many aspects of the management of Aetna’s legacy business is on track and following the transformation plans outlined by management. However, while CVS Health stated its intention to maintain the capitalization level at the insurance entities in aggregate at the NAIC’s company action level of 275%, actual risk-based capital at year-end 2019 was lower than target and the company’s capital plan now includes increasing its risk-based capital ratio in 2020. CVS Health is doing this while keeping to its accelerated deleveraging plan through robust operating earnings at the insurance entities, strong cash flows from operations and suspension of its share repurchase program. CVS Health is expected to play a major part in the distribution of the COVID-19 vaccines in long-term care facilities, as an official COVID-19 Vaccination Program Provider.

The ratings of AICL reflect its balance sheet strength, which AM Best categorizes as very strong, as well as its marginal operating performance, limited business profile and appropriate ERM. Furthermore, the ratings of AICL factor in rating enhancement from the Aetna organization. AICL has benefited from capital injections and the transfer of international business from the wider group.

The ratings of Allina Health and Aetna Insurance Company reflect its balance sheet strength, which AM Best categorizes as strong, as well as its marginal operating performance, limited business profile and appropriate ERM. The ratings include the enhancement from the Aetna organization.

The ratings of Texas Health Aetna reflect its balance sheet strength, which AM Best categorizes as very strong, as well as its adequate operating performance, limited business profile and appropriate ERM. The ratings include the enhancement from the Aetna organization.

The FSR of A (Excellent) and the Long-Term ICRs of “a” have been affirmed with a stable outlook for the following members of Aetna Health & Life Group:

• Aetna Life Insurance Company
• Aetna Health and Life Insurance Company
• Aetna Life & Casualty (Bermuda) Ltd.
• Aetna Health Inc. (a Connecticut corporation)
• Aetna Health Inc. (a Florida corporation)
• Aetna Health Inc. (a Georgia corporation)
• Aetna Health Inc. (a Louisiana corporation)
• Aetna Health Inc. (a New Jersey corporation)
• Aetna Health Inc. (a New York corporation)
• Aetna Health Inc. (a Maine Corporation)
• Aetna Health Inc. (a Pennsylvania corporation)
• Aetna Health Inc. (a Texas corporation)
• Aetna Health Insurance Company
• Aetna Health Insurance Company of New York
• Aetna Health of California Inc.
• Aetna Health of Iowa, Inc.
• Aetna Health of Utah, Inc.
• Aetna Dental of California Inc.
• Aetna Dental Inc. (a New Jersey corporation)
• Aetna Dental Inc. (a Texas corporation)
• American Continental Insurance Company
• Continental Life Insurance Company of Brentwood, Tennessee
• Coventry Health and Life Insurance Company
• Aetna Better Health of Michigan, Inc.
• Aetna Better Health of Missouri, LLC
• Coventry Health Care of Illinois, Inc.
• Coventry Health Care of Kansas, Inc.
• Coventry Health Care of Florida, Inc.
• Coventry Health Care of Missouri, Inc.
• Coventry Health Care of Nebraska, Inc.
• Coventry Health Care of Virginia, Inc.
• Coventry Health Care of West Virginia, Inc.
• First Health Life & Health Insurance Company
• HealthAssurance Pennsylvania, Inc.
• SilverScript Insurance Company

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 © 2020 by A.M. Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.

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FAQ

What was the Financial Strength Rating affirmed for CVS Health's Aetna subsidiaries?

AM Best affirmed the Financial Strength Rating of A (Excellent) for Aetna Life Insurance Company and its subsidiaries.

How many individuals are covered under Aetna's Medicare Advantage plans?

Aetna covers 23.3 million individuals under its commercial, Medicare, and Medicaid products.

What impact do dividend payments have on CVS Health?

Dividend payments exceeding $2 billion annually may impact CVS Health's capital position.

What is the outlook for Aetna Health & Life Group's ratings?

The outlook for Aetna Health & Life Group's ratings is stable.

What is the current market position of SilverScript Insurance Company?

SilverScript Insurance Company holds the leading market share in stand-alone Medicare Part D plans.