AM Best has affirmed the Long-Term Issuer Credit Rating (Long-Term ICR) of "a-" and the Long-Term Issue Credit Ratings (Long-Term IR) of UnitedHealth Group Incorporated (UnitedHealth Group) (Minnetonka, MN) [NYSE: UNH]. AM Best also has affirmed the Short-Term Issue Credit Rating (Short-Term IR) of UnitedHealth Group. Concurrently, AM Best has affirmed the Financial Strength Rating (FSR) of A (Excellent) and the Long-Term ICRs of "a+" of the majority of the health and dental insurance subsidiaries of UnitedHealth Group, collectively referred to as UnitedHealthcare. The outlook of these Credit Ratings (ratings) is positive.
In addition, AM Best has upgraded the FSR to A (Excellent) from A- (Excellent) and the Long-Term ICRs to "a" from "a-" of Enterprise Life Insurance Company, Freedom Life Insurance Company of America and National Foundation Life Insurance Company. These companies are domiciled in Fort Worth, TX, and collectively are referred to as USHEALTH. Lastly, AM Best has upgraded the FSR to A (Excellent) from A- (Excellent) and the Long-Term ICRs to "a" from "a-" of The Chesapeake Life Insurance Company (Chesapeake Life) (Oklahoma City, OK). The outlook of these ratings is stable. (See link below for a detailed listing of the companies and ratings.)
The ratings of UnitedHealthcare reflect its balance sheet strength, which AM Best categorizes as strong, as well as its strong operating performance, very favorable business profile and very strong enterprise risk management (ERM). The positive outlooks for UnitedHealthcare reflect the continued strengthening of profitability metrics. While it is anticipated that UnitedHealthcare's ability to control and manage medical cost will support longer-term earnings stability, the impacts from the COVID-19 pandemic have altered the operating performance trend. Operating results over the past year have been elevated due to the effects of the deferral of non-essential care, which was most evident during the second quarter of 2020. While utilization has returned to near-normal levels, there still is some depression in actual claims volume. Profitability metrics will most likely decline over the next year and be more in line with historical levels. The premium growth trend remains strong.
AM Best expects balance sheet strength to be maintained as strong based on the favorable operating results and the company's capital management strategy. Risk-adjusted capital has shown strengthening over the past three years based on the high level of earnings and a moderate level of dividends to parent. UnitedHealthcare manages statutory capital closely to ensure capital and liquidity is maintained at appropriate levels. Investments are held mainly in investment grade fixed income securities with minimal exposure to below investment grade or equity investments. Liquidity is supported by consistently strong operating cash flow and supplemented by credit facilities with the parent company.
UnitedHealthcare's business profile is very favorable as its strong earnings are well-diversified by geography and by business segment. The company has a nationwide presence with prominent market share in most markets. While the company has an increased amount of business derived from government programs, this balances well against the dependence on commercial business, which is susceptible to economic pressures. UnitedHealthcare's large membership base affords the company the benefits of economies of scale for medical and administrative expenses. Furthermore, the company's strategic partnerships with AARP and its affiliate, Optum, enhance product offerings and its health care service capabilities as well as for client retention.
UnitedHealth Group has a very mature and high-functioning ERM program. The company performs advanced stress and scenario testing, solvency assessment and economic capital modeling. The program is embedded within the company and is utilized in operational management of its business, strategic planning and in its response to the COVID-19 pandemic.
UnitedHealth Group continues to report strong consolidated revenue growth and operating earnings from its health insurance and nonregulated Optum business. Optum provides UnitedHealth Group with significant nonregulated cash flow and operating earnings, as well as business diversification. UnitedHealth Group has a high level of financial flexibility with material nonregulated cash flow, high dividend capacity from its health insurance subsidiaries and a $12.5 billion credit facility. Financial leverage has remained stable in the 40% range over the past two years and it expected to be managed in this range on a long-term basis. The percentage of goodwill and intangible assets to equity has been declining, mainly due to equity growth, and was at 115% at Sept. 30, 2020. Although this metric is on the high side, the company has no history of material write-downs and the company tests its goodwill annually. UnitedHealth Group's earnings before interest and taxes (EBIT) interest coverage are strong at over 11 times for full-year 2019 based on its strong operating earnings.
The ratings of USHEALTH reflect its balance sheet strength, which AM Best categorizes as strong, as well as its strong operating performance, limited business profile and appropriate enterprise risk management (ERM). The rating upgrades of USHEALTH reflect the strengthening of its risk-adjusted capital through retained earnings.
The ratings of Chesapeake Life 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 rating upgrades of Chesapeake Life are based on improvement of its ERM assessment to appropriate, based on integration with the parent company's ERM program.
The ratings of USHEALTH and Chesapeake Life are enhanced by UnitedHealth Group as they provide sales, product and technologies, which are part of UnitedHealthcare's specialty business growth strategy.
A complete listing of UnitedHealth Group Incorporated and its subsidiaries' FSRs, Long-Term ICRs and Long- and Short-Term IRs also is available.
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SOURCE: AM Best
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