Business Wire·Mar 9, 2011, 10:08 AM ET

A.M. Best Revises Outlook to Stable for Coventry Health Care, Inc. and Its Subsidiaries

OLDWICK, N.J.--(BUSINESS WIRE)--A.M. Best Co. has revised the outlook to stable from negative and affirmed the financial strength ratings (FSR) and issuer credit ratings (ICR) of the majority of health care subsidiaries of Coventry Health Care, Inc. (Coventry) (Delaware) (NYSE: CVH). At the same time, A.M. Best has revised the outlook to stable from negative and affirmed the ICR of “bbb-” and all debt ratings of Coventry.

Additionally, A.M. Best has upgraded the FSR to B++ (Good) from B+ (Good) and ICRs to “bbb” from “bbb-” of HealthCare USA of Missouri, LLC (St. Louis, MO) due to its improved operating performance and capitalization. The outlook for these ratings also has been revised to stable from negative. (See below for a detailed listing of the companies and ratings.)

Coventry’s operating results improved substantially, as net income increased 81% in 2010 following two consecutive years of net earnings decline. The underwriting and operating gains grew at the majority of the subsidiaries in 2010, following their exit from the Medicare Advantage Private Fee For Service (PFFS) line of business, along with improved commercial pricing, some benefit changes for Medicare Advantage and reductions in administrative expenses. In addition, stronger earnings and premium reductions due to the exit from the PFFS business led to risk-based capitalization improvement. Furthermore, Coventry substantially improved its financial leverage during 2010, as the debt/capital ratio was 27.6% at year-end 2010, compared to 30.1% in the fourth quarter of 2009 and 35.7% in the fourth quarter of 2008. Coventry has a strong liquidity position, with $850 million cash on hand and $390 million of revolving credit available as of December 31, 2010.

Though Coventry’s regulated earnings have improved, both the current and historical medical loss ratio at a number of Coventry subsidiaries is below the minimum loss ratio requirement for 2011. A.M. Best is concerned that Coventry’s future regulated earnings may decline driven by mandatory rebates and eventually a higher medical loss ratio. In addition, earnings may be pressured by a growing share of lower margins in the Medicare and Medicaid businesses, as Coventry’s commercial membership, though improved in 2010 compared to 2009, declined as a share of total enrollment over time.

The FSR of A- (Excellent) and ICRs of “a-” have been affirmed for the following subsidiaries of Coventry Health Care, Inc.:

Coventry Health and Life Insurance Company
Carelink Health Plans, Inc.
Group Health Plan, Inc.
HealthAmerica Pennsylvania, Inc.
HealthAssurance Pennsylvania, Inc.
Coventry Health Care of Georgia, Inc.

The FSR of B++ (Good) and ICRs of “bbb+” have been affirmed for the following subsidiaries of Coventry Health Care, Inc.:

PersonalCare Insurance of Illinois, Inc.
Southern Health Services, Inc.
Altius Health Plans
Coventry Health Care of Iowa, Inc.
WellPath Select, Inc.

The FSR of B++ (Good) and ICRs of “bbb” have been affirmed for the following subsidiaries of Coventry Health Care, Inc.:

Coventry Health Care of Kansas, Inc.
First Health Life & Health Insurance Company
Cambridge Life Insurance Company

The FSR of B+ (Good) and ICRs of “bbb-” have been affirmed for the following subsidiaries of Coventry Health Care, Inc.:

Coventry Health Care of Louisiana, Inc.
Coventry Health Care of Delaware, Inc.
OmniCare Health Plan, Inc.
Coventry Health Care of Nebraska, Inc.
Mercy Health Plans of Missouri, Inc.
Mercy Health Plans

The FSR of B (Fair) and ICRs of “bb+” have been affirmed for the following subsidiaries of Coventry Health Care, Inc.:

Coventry Health Care of Florida, Inc.
Coventry Health Plan of Florida, Inc.
Coventry Summit Health Plan, Inc.

The following debt ratings have been affirmed:

Coventry Health Care, Inc.—

-- “bbb-” on $400 million 6.3% senior unsecured notes, due 2014

-- “bbb-” on $250 million 5.875% senior unsecured notes, due 2012

-- “bbb-” on $250 million 6.125% senior unsecured notes, due 2015

-- “bbb-” on $400 million 5.950% senior unsecured notes, due 2017

The principal methodology used in determining these ratings is Best’s Credit Rating Methodology -- Global Life and Non-Life Insurance Edition, which provides a comprehensive explanation of A.M. Best’s rating process and highlights the different rating criteria employed. Additional key criteria utilized include: “Rating Health Insurance Companies”; “Risk Management and the Rating Process for Insurance Companies”; “Understanding BCAR for Life and Health Insurers”; “Rating Members of Insurance Groups”; and “A.M. Best’s Ratings & the Treatment of Debt.” Methodologies can be found at www.ambest.com/ratings/methodology.

Founded in 1899, A.M. Best Company is the world’s oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.