AM Best Affirms Credit Ratings of Most of CVS Health Corporation’s Aetna Inc. Subsidiaries; Withdraws Credit Ratings of Members of Texas Health Aetna
- AM Best affirms Aetna Life Insurance Company's Financial Strength Rating of A (Excellent) and positive outlook on Long-Term Issuer Credit Ratings.
- The ratings reflect strong balance sheet strength, operating performance, and risk-adjusted capitalization.
- Aetna Health & Life Group has reported underwriting and net income exceeding $2 billion in each of the past five years.
- The group's return on revenues exceeds 5% and return on equity exceeds 20%.
- Aetna's Medicare Advantage and Medicaid managed care markets have experienced significant membership growth.
- Aetna remains competitive and continues to gain enrollment in other segments.
- AM Best recognizes the inherent execution risk within the acquisitions of Signify Health Inc. and Oak Street Health Inc.
- There may be pressure from additional business expansion related to acquisitions in the near term.
- The financial leverage at CVS Health has increased modestly at year-end 2023.
- Goodwill-to-shareholders equity exceeded 110% at year-end 2023.
- There is negative impact from CVS Health's elevated financial leverage and goodwill on Aetna Health & Life Group.
- The resumption of redeterminations following the end of the public health emergency may lead to declines in Medicaid membership in 2023 and the first half of 2024.
Insights
The affirmation of the Financial Strength Rating (FSR) and Long-Term Issuer Credit Ratings (Long-Term ICRs) for Aetna Life Insurance Company (ALIC) and its related entities by AM Best indicates a stable and positive outlook for these companies within the insurance market. The stable outlook suggests that the companies are expected to maintain their financial strength and creditworthiness in the medium term, while the positive outlook on the Long-Term ICRs points to a potential upgrade if the companies continue to demonstrate financial resilience and strong performance.
The balance sheet strength, characterized by a 'very strong' assessment, is underpinned by steady capital growth and a conservative investment approach, with a reduction in holdings in riskier asset classes. This prudent financial management is particularly relevant to stakeholders, as it suggests a lower risk of volatility in the companies' financial standing. The strong operating performance, with underwriting and net income exceeding $2 billion in the past five years, reflects efficient business operations and effective cost management, which are essential for long-term profitability and competitiveness.
The moderate reinsurance leverage and the unique reinsurance arrangements differentiate Aetna from its peers and may provide a strategic advantage in managing underwriting risk. The lack of debt held by Aetna Life & Health Group is a positive indicator of financial stability and reduces financial risk for the company.
The growth in membership across commercial, Medicare Advantage and Medicaid managed care product lines has been a key driver of premium growth for Aetna Health & Life Group. The expected continuation of growth in commercial and Medicare Advantage segments aligns with the broader trend in the healthcare industry towards managed care and value-based arrangements, which have been gaining traction due to their potential to improve care quality and cost-efficiency.
However, the projected decline in Medicaid membership due to the resumption of redeterminations post-public health emergency could impact premium revenues. This anticipated change underscores the importance of market adaptability and the need for healthcare insurers to navigate regulatory environments effectively. Furthermore, the acquisitions of Signify Health Inc. and Oak Street Health Inc. by CVS Health, Aetna's parent company, reflect a strategic expansion into home health care and value-based primary care, which are growing segments in the healthcare market. These acquisitions, while offering potential growth opportunities, also carry execution risks that must be managed to ensure they contribute positively to the company's overall performance.
The elevated financial leverage and goodwill of CVS Health, Aetna's ultimate parent, present potential risks that could impact the financial stability of the group. While the financial leverage has decreased since the acquisition of Aetna, the recent modest increase due to further acquisitions is a point of attention for stakeholders. The high goodwill-to-shareholders equity ratio, exceeding 110% at year-end 2023, indicates a significant amount of intangible assets, which can be a concern if not managed properly. Goodwill impairment could lead to volatility in earnings and affect investor confidence.
The positive outlook on Aetna's Long-Term ICRs, however, suggests that AM Best anticipates the group's risk-adjusted capitalization will remain at the strongest level, which may mitigate some of the concerns related to financial leverage and goodwill. Stakeholders should monitor the integration of the new acquisitions and the management's ability to realize synergies and maintain strong capitalization levels.
Concurrently, AM Best has affirmed the FSR of A (Excellent) and the Long-Term ICR of “a” (Excellent) of Allina Health and Aetna Insurance Company (Allina Health) (
In addition, AM Best has affirmed the FSR of A (Excellent) and the Long-Term ICRs of “a” (Excellent) of Texas Health + Aetna Health Insurance Company, as well as Texas Health + Aetna Health Plan Inc. Both companies are domiciled in
The ratings of Aetna Health & Life Group reflect its balance sheet strength, which AM Best assesses as very strong, as well as its strong operating performance, favorable business profile and appropriate enterprise risk management (ERM).
The positive outlook on the Long-Term ICR for Aetna Health & Life Group reflects the group’s risk-adjusted capitalization, which remains at the strongest level, as measured by its Best Capital Adequacy Ratio (BCAR). Capital and surplus has grown steadily despite large annual dividend payments in each of the past five years. The growth in absolute capital is reflected in the group's five-year compound annual growth rate of
Additionally, the balance sheet strength is supported by adequate liquidity measures, which are strengthened by access to the Federal Home Loan Bank of
Over the past few years, favorable development in net premium has been driven by membership growth in the commercial, Medicare Advantage and Medicaid managed care product lines. While premium growth is expected to continue for commercial and Medicare Advantage over the near term, it will be offset partially by declines in Medicaid membership in 2023 and the first half of 2024 due to the resumption of redeterminations following the end of the public health emergency. Premium growth has impacted operating earnings trends positively over the past few years. Aetna Health & Life Group has reported underwriting and net income exceeding
Aetna is one of the leading players in the managed care markets offering products throughout
The ratings of Aetna Health & Life Group reflect the negative impact from its ultimate parent, CVS Health, which has elevated financial leverage and goodwill that is not expected to change materially in the near to medium term. While the financial leverage at CVS Health has declined substantially since the acquisition of Aetna, financial leverage increased modestly at year-end 2023, driven by the acquisitions of Signify Health Inc. and Oak Street Health Inc. Signify Health adds in-home health care to the CVS Health organization, while Oak Street Health is a leading multi-payer, value-based primary care company. Goodwill-to-shareholders equity increased over the prior year and exceeded
The ratings of Allina Health reflect its balance sheet strength, which AM Best assesses as adequate, as well as its marginal operating performance, limited business profile and appropriate ERM. In 2022, Allina Health marked its first year of underwriting gains since inception. However, the company continues to report net losses as underwriting gains were not sufficient to offset the amortization of intangible assets. In recent years, premium growth has trended favorably in Medicare Advantage products, while commercial products have increased modestly.
The ratings of Texas Health Aetna reflect its balance sheet strength, which AM Best assesses as strong, as well as its adequate operating performance, limited business profile and appropriate ERM. Texas Health Aetna was supported by the strongest level of risk-adjusted capitalization, as measured by BCAR. Underwriting results have been favorable in four of the past five years and net income turned positive in 2022 as the amortization of intangibles concluded.
The FSR of A (Excellent) and the Long-Term ICRs of “a” (Excellent) have been affirmed, with a stable outlook for the FSR and a positive outlook for the Long-Term ICRs, 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 Better Health of
Florida , Inc. - 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
- Accendo 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
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
- 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 use of Best’s Credit Ratings, Best’s Performance Assessments, Best’s Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best’s Ratings & Assessments.
AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in
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Jon Housel
Financial Analyst
+1 908 882 1898
jon.housel@ambest.com
Christopher Sharkey
Associate Director, Public Relations
+1 908 882 2310
christopher.sharkey@ambest.com
Sally Rosen
Senior Director
+1 908 882 2284
sally.rosen@ambest.com
Al Slavin
Senior Public Relations Specialist
+1 908 882 2318
al.slavin@ambest.com
Source: AM Best
FAQ
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