Fitch Affirms Aetna's IDR at 'A'; IFS at 'AA-'; Outlook Stable

CHICAGO--(BUSINESS WIRE)--Fitch Ratings has affirmed Aetna Inc's. (Aetna) 'A' long-term Issuer Default Rating (IDR) and the 'A-' ratings on Aetna's various issues of senior unsecured notes. Additionally, Fitch has affirmed Aetna's F1 short-term IDR and the 'AA-' Insurer Financial Strength (IFS) ratings of various Aetna insurance company subsidiaries. A complete list of ratings is included at the end of this comment. The Rating Outlooks are Stable.

Aetna is among Fitch's highest rated health insurers and managed care companies. The company's membership base, revenues and earnings are meaningfully larger than the median levels of Fitch's rated universe. Fitch views the scale of Aetna's operations as well as the broad geographical reach and wide breadth of the company's products as key competitive strengths.

Other key rating strengths are the company's consistently solid profitability and interest coverage and overall strong risk-based capital (RBC) ratios.

The agency views Aetna's credit challenges as generating profitable membership growth commensurate with that of similarly positioned peers, and maintaining the company's favorable earnings trends and capitalization in light of intense competitive conditions in the health and managed care sector.

Aetna's 2012 earnings guidance calls for a pre-tax operating margin of 8.5%-9.0%, approximately $1.75 billion of after-tax operating earnings, and a 30% debt-to-capital ratio. Fitch views these as reasonable projections and supportive of the company's current ratings. Through the first nine months of 2011, the company's pre-tax operating margin was 9.8%, it generated $1.6 billion of after-tax operating earnings, and its debt-to-capital ratio was 30%.

Fitch believes that the impact of the Patient Protection and Affordable Care Act (PPACA) in its current, or in a modified form, on Aetna's and other health and managed care companies' business models and financial profiles is likely to be negative but manageable. The agency expects the credit-negative aspects of heightened premium rate oversight, minimum loss ratio requirements and an increase in various forms of mandated coverage to be partially offset by credit-positive aspects of growth in the overall insured population.

Key rating triggers for Aetna's ratings that could lead to an upgrade include:

--Run-rate pre-tax operating margins that exceed 10%;

--Run-rate EBITDA-based interest coverage ratios exceeding 14 times (x);

--Sustainable run-rate debt-to-EBITDA ratios of less than 1.2x;

--A sustained commitment to maintain a debt-to-capital ratio of less than 25%.

Key rating triggers for Aetna's ratings that could lead to a downgrade include:

--Anticipated or actual declines in run-rate pre-tax operating margins to less than 5%;

--EBITDA-based interest coverage ratios of less than 8x or maximum allowable dividend interest expense coverage below 5x;

--Organization-wide run-rate adjusted NAIC RBC ratios below 275% (adjusted RBC ratios exclude the effect of securitization-derived capital from total adjusted capital);

--Sustainable run-rate debt-to-EBITDA ratios that exceed 1.8x;

--Sustained debt-to-capital ratios exceeding 30% by a meaningful margin;

--Implementation of more aggressive capital management strategies.

Fitch has affirmed the following ratings with a Stable Outlook:

Aetna Inc.

--Long-Term IDR at 'A';

--Short-term IDR at 'F1';

--$1.5 billion commercial paper program at 'F1';

--$750 million of 6% senior unsecured notes due June 15, 2016 at 'A-';

--$500 million of 6.5% senior unsecured notes due Sept. 15, 2018 at 'A-';

--$750 million of 3.95% senior unsecured notes due Jan. 9, 2020 at 'A-';

--$500 million of 4.125% senior unsecured notes due June 1, 2021 at 'A-';

--$800 million of 6.625% senior unsecured notes due June 15, 2036 at 'A-';

--$700 million of 6.75% senior unsecured notes due Dec. 15, 2037 at 'A-'.

Fitch has affirmed the following IFS ratings at 'AA-' with a Stable Outlook:

Aetna Life Insurance Company

Aetna Health Inc. (a Pennsylvania Corporation)

Aetna Health Inc. (a Florida Corporation)

Aetna Health Inc. (a New Jersey Corporation)

Aetna Health Inc. (a Texas Corporation)

Aetna Health Inc. (a New York Corporation)

Aetna Health of California Inc.

Additional information is available at www.fitchratings.com.

Applicable Criteria and Related Research:

--(Sept. 22, 2011).

Applicable Criteria and Related Research:

Insurance Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=651018

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE.