Fitch Affirms the Ratings of UnitedHealth Group; Outlook Remains Negative

CHICAGO--(BUSINESS WIRE)--Fitch Ratings has affirmed the ratings of UnitedHealth Group Incorporated (UnitedHealth) and has taken a number of rating actions on UnitedHealth's insurance operating subsidiaries, including the assignment of ratings to two insurance operating subsidiaries and the withdrawal of numerous Insurer Financial Strength (IFS) ratings. All of the rating actions are listed below. The Rating Outlook remains Negative.

Today's rating action follows a review of UnitedHealth's operating performance through the first three quarters of 2010, and considers Fitch's expectations for the company's performance for the remainder of 2010 and 2011.

UnitedHealth has continued to produce solid, albeit modestly lower operating margins and cash flow, despite unfavorable economic conditions and considerable capital market turmoil over the past two years. The company recently reported net earnings of $3.6 billion through the first three quarters of 2010, which translates into an EBIT margin of 8.6%, up from 7.3% for the first three quarters of 2009.

UnitedHealth's financial leverage has declined significantly over the past two years. At Sept. 30, 2010, the company reported debt-to-total capital of approximately 30%, down from 39% at Sept. 30, 2008. Over the same time frame, the company's financial leverage as measured by debt/EBITDA has declined from 1.59x to 1.27x on a four-quarter rolling basis.

Fitch's ratings on UnitedHealth reflect the inherent strength and diversity of the company's operations, good balance sheet fundamentals, very strong earnings track record, and excellent cash flow. UnitedHealth has a balanced mix of risk-based and fee-based businesses, which have contributed significantly to the stability of the company's financial performance. In addition, a material amount of unregulated cash flow is generated by businesses outside of its more traditional health insurance lines. The ratings also consider risks associated with the ongoing implementation of health reform legislation, the competitive pressures in several of the company's markets driven by price competition, as well as the unsustainable rate of increase in medical costs.

Fitch has maintained a Negative Rating Outlook on all U.S. health insurers, pending finalization of a number of significant details within the Patient Protection and Affordable Care Act (PPACA), which was signed into law on March 23, 2010. Fitch believes that some of these details could have an incrementally meaningful impact on the structure of the industry and on the operating profile of several companies within the sector.

Key rating drivers for UnitedHealth's ratings that could lead to an upgrade include:

-- A material reduction in leverage, specifically expectations for a sustained debt/EBITDA below 1.0x, debt/total capital below 20% and EBITDA/interest above 15x.

-- The company's current Negative Rating Outlook will likely be revised to Stable if the reform-based Negative Outlook on all sector participants is revised.

Key rating drivers for UnitedHealth's ratings that could lead to a downgrade include:

-- Developments in the final details and implementation of the PPACA that significantly impair UNH's ability to appropriately price products, or otherwise severely restricts cash flow or materially damages the industry.

-- Expectations for a sustained debt/EBITDA above 1.9x, debt/total capital above 35% and EBITDA/Interest below 8x would lead to consideration of a negative rating action.

In addition to its ratings on the parent company, Fitch has decided to maintain rating coverage on several of UnitedHealth's largest licensed health insurance subsidiaries, as well as those that are licensed as life insurers. Therefore, Fitch has assigned IFS ratings to two existing insurance operating subsidiaries. All rated insurance operating subsidiaries are considered core under Fitch's approach to rating insurance groups, and will carry the group rating of 'AA-'. For several insurance operating subsidiaries, application of core status results in an upgrade from 'A+'. In addition, Fitch is withdrawing its IFS ratings on 35 of UnitedHealth's insurance operating subsidiaries. The withdrawal of the ratings listed below does not imply that Fitch believes UnitedHealth is reducing its focus on or exiting the markets covered by the affected operating companies. The rationale for Fitch's decision to withdraw the ratings of these specific insurance operating subsidiaries is that these companies are no longer considered by Fitch to be relevant to the agency's coverage.

Fitch has affirmed the following UnitedHealth Group Incorporated ratings:

--IDR at 'A';

--Short-term IDR at 'F1';

--Commercial paper rating at 'F1';

--5.125% senior unsecured notes due 2010 at 'A-';

--Floating-rate senior unsecured notes due 2011 at 'A-';

--5.25% senior unsecured notes due 2011 at 'A-';

--5.5% senior unsecured notes due 2012 at 'A-';

--4.875% senior unsecured notes due 2013 at 'A-';

--4.875% senior unsecured notes due 2013 at 'A-';

--4.75% senior unsecured notes due 2014 at 'A-';

--5% senior unsecured notes due 2014 at 'A-';

--4.875% senior unsecured notes due 2015 at 'A-';

--5.375% senior unsecured notes due 2016 at 'A-';

--6% senior unsecured notes due 2017 at 'A-';

--6% senior unsecured notes due 2017 at 'A-';

--6% senior unsecured notes due 2018 at 'A-';

--3.875% senior unsecured notes due 2020 at 'A-';

--0% senior unsecured notes due 2022 at 'A-';

--5.8% senior unsecured notes due 2036 at 'A-';

--6.5% senior unsecured notes due 2037 at 'A-';

--6.625% senior unsecured notes due 2037 at 'A-';

--6.875% senior unsecured notes due 2038 at 'A-';

--5.7% senior unsecured notes due 2040 at 'A-'.

Fitch has assigned a rating of 'AA-' to the following UnitedHealth Group Incorporated ratings with a Negative Rating Outlook:

PacifiCare Life & Health Insurance Company

UnitedHealthcare Plan of the River Valley

Fitch has affirmed the following UnitedHealth Group Incorporated ratings with a Negative Rating Outlook:

United HealthCare Insurance Company

United HealthCare Insurance Company of Illinois

United HealthCare Insurance Company of Ohio

United HealthCare Insurance Company of New York

Sierra Health & Life Insurance Company, Inc.

Health Plan of Nevada, Inc.

--Insurer Financial Strength (IFS) at 'AA-'.

Fitch has upgraded the IFS ratings of the following companies to 'AA-' from 'A+':

United HealthCare of Florida, Inc.

PacifiCare of Arizona, Inc.

Oxford Health Insurance, Inc.

Oxford Health Plans of New York, Inc.

United Healthcare of Wisconsin, Inc

PacifiCare of Texas, Inc.

PacifiCare of California

Fitch has withdrawn the following UnitedHealth Group Incorporated ratings:

Health Net of Connecticut, Inc.

PacifiCare of Colorado, Inc.

United Healthcare of New York, Inc.

AmeriChoice of New Jersey, Inc.

United Healthcare of North Carolina, Inc.

United HealthCare of Ohio, Inc.

UnitedHealthcare of the Mid-Atlantic, Inc.

Great Lakes Health Plan, Inc.

Oxford Health Plans (NJ), Inc.

MD-Individual Practice Association, Inc.

United HealthCare of the Midwest, Inc.

Optimum Choice, Inc.

Health Net of New Jersey, Inc.

PacifiCare of Washington, Inc.

United Healthcare of New England, Inc.

United HealthCare of Alabama, Inc.

Health Net of New York, Inc.

PacifiCare of Oklahoma, Inc.

PacifiCare of Oregon, Inc.

United HealthCare of Georgia, Inc.

Oxford Health Plans (CT), Inc.

United HealthCare of the Midlands, Inc.

United HealthCare of Arizona, Inc.

MAMSI Life and Health Insurance Company

United HealthCare of Utah, Inc.

AmeriChoice of Pennsylvania, Inc.

United Healthcare of Illinois, Inc.

PacifiCare of Nevada, Inc.

United HealthCare of Kentucky, Ltd.

United HealthCare of Texas, Inc.

United HealthCare of Louisiana, Inc.

United HealthCare of Tennessee, Inc.

United HealthCare of Arkansas, Inc.

United HealthCare of Colorado, Inc.

United HealthCare of Mississippi, Inc.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Insurance Rating Methodology', dated Aug. 13, 2010;

--'U.S. Health Insurance and Managed Care Rating Methodology', dated March 24, 2010;

--'Fitch's Approach to Rating Insurance Groups', dated March 24, 2010.

Applicable Criteria and Related Research:

Insurance Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=547766

U.S. Health Insurance and Managed Care Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=506365

Fitch￢ﾀﾙs Approach to Rating Insurance Groups

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=506368

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