Fitch Affirms UnitedHealth Group's IDR at 'A': Outlook Stable

NEW YORK--()--Fitch Ratings has affirmed UnitedHealth Group Inc.'s (UnitedHealth) ratings, including the rating on the company's senior unsecured securities at 'A-' and insurance-company subsidiaries' Insurer Financial Strength (IFS) ratings at 'AA-'. A complete list of rating actions follows at the end of this release. The Rating Outlook is Stable.

KEY RATING DRIVERS

The ratings affirmation reflects Fitch's recognition that UnitedHealth has continued to report strong operating margins and solid key credit metrics, despite the headwinds presented by the implementation of various elements of the Patient Protection and Affordable Care Act (PPACA).

UnitedHealth reported record net earnings of $5.6 billion in 2013, which translates into an EBITDA margin of 9.0%, versus 9.5% for the prior year period. Despite the modest year-over-year decline, UnitedHealth's operating margins remain strongly supportive of the company's current rating category.

UnitedHealth's financial leverage improved moderately, benefitting from earnings growth related to increased medical membership. UnitedHealth completed its purchase of Amil SA Participacoes S.A. (Amil)during the first quarter of 2013 and issued debt in the second half of 2012 to help fund the first step of the multi-stage transaction.

The company's financial leverage as measured by debt/ EBITDA improved to 1.5x at Dec. 31, 2013 from 1.6x in the prior year. UnitedHealth reported EBITDA-to-interest coverage of 15.5x in 2013, a moderate decline from very strong levels of 16.7x in 2012.

Fitch considers UnitedHealth's Debt-to-EBITDA ratio to be adequate relative to the current rating category, while EBITDA-to-interest coverage remains strong relative to its current ratings.

UnitedHealth's financial leverage as measured by its ratio of debt-to-total capital also remains at a level that is adequate to support the current ratings. As of Dec. 31, 2013, the company's debt-to-total capital ratio stood at 34%, which is moderately higher than levels reported for the several years prior to the Amil acquisition.

Fitch views UnitedHealth's overall market position within the health insurance and managed care sector as largely unique, in that it enjoys strength across a broad spectrum of products, services, and geographies.

Fitch also notes the increasing scale and diversity of UnitedHealth's businesses, particularly its sources of unregulated earnings and cash flows, which have grown steadily over the past several years. UnitedHealth's Optum business segment, which is comprised predominantly of unregulated businesses, contributed over $2.3 billion of operating income in 2013, a $900 million increase versus 2012.

In Fitch's view, UnitedHealth's diversified business platform and scale advantages provide increased confidence that the company will continue to generate results that support the company's current high rating category, despite the uncertainty created by the evolving regulatory environment facing the health insurance industry.

RATING SENSITIVITIES

An upgrade to UnitedHealth's IFS ratings is unlikely over the next 12-24 months. Upward rating pressure is constrained due to UnitedHealth's current ratings approaching the high end of Fitch's ratings range for health insurers and the possibility of continued unfavorable regulatory developments and their potential effect on UnitedHealth's profits, primarily in government-sponsored businesses.

If the company were to report debt/EBITDA ratios approximating 1.0x and debt-to-capital below 30% on a sustained basis, while maintaining EBITDA/interest coverage ratios in the mid-teens or better, Fitch could compress the notching between UnitedHealth's operating company IFS ratings and holding company Issuer Default Ratings (IDRs). This would result in a one-notch upgrade to UnitedHealth's debt ratings.

Key rating triggers that could result in a downgrade to all of UnitedHealth's ratings include developments related to healthcare reform that significantly impair UnitedHealth's ability to appropriately price its products, or otherwise severely restrict the company's cash flow. In addition, expectations for sustained ratios of debt/EBITDA above 1.9x, debt-to-capital above 35% and EBITDA/interest below 8x could lead to negative rating actions.

Fitch has affirmed the following ratings with a Stable Rating Outlook:

UnitedHealth Group, Incorporated

--Long-term IDR at 'A';

--Short-term IDR at 'F1';

--Commercial paper rating at 'F1';

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

--Floating rate senior unsecured notes due 2014 at 'A-';

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

--0.850% senior unsecured notes due 2015 at 'A-';

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

--1.875% senior unsecured notes due 2016 at 'A-';

--6.000% senior unsecured notes due 2017 at 'A-';

--1.400% senior unsecured notes due 2017 at 'A-';

--6.000% senior unsecured notes due 2017 at 'A-';

--6.000% senior unsecured notes due 2018 at 'A-';

--1.625% senior unsecured notes due 2019 at 'A-';

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

--4.700% senior unsecured notes due 2021 at 'A-';

--3.375% senior unsecured notes due 2021 at 'A-';

--2.875% senior unsecured notes due 2022 at 'A-';

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

--2.750% senior unsecured notes due 2023 at 'A-';

--2.875% senior unsecured notes due 2023 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-';

--5.95% senior unsecured notes due 2041 at 'A-';

--4.625% senior unsecured notes due 2041 at 'A-';

--4.375% senior unsecured notes due 2042 at 'A-';

--3.95% senior unsecured notes due 2042 at 'A-';

--4.25% senior unsecured notes due 2043 at 'A-'.

UnitedHealthcare Insurance Company

UnitedHealthcare Insurance Company of Illinois

UnitedHealthcare Insurance Company of New York

Sierra Health & Life Insurance Company, Inc.

Health Plan of Nevada, Inc.

UnitedHealthcare of Florida, Inc.

UnitedHealthcare of Arizona, Inc.

Oxford Health Insurance, Inc.

Oxford Health Plans of New York, Inc.

UnitedHealthcare of Wisconsin, Inc

UnitedHealthcare Benefits of Texas, Inc.

UHC of California

PacifiCare Life & Health Insurance Company

UnitedHealthcare Plan of the River Valley

--IFS at 'AA-'.

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

Applicable Criteria and Related Research:

--'Insurance Rating Methodology' (Nov. 13, 2013);

--'Health Insurance and Managed Care (U.S.) Sector Credit Factors Special Report' (Dec. 18, 2013).

Applicable Criteria and Related Research:

Health Insurance and Managed Care (U.S.)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=724819

Insurance Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=723072

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=826626

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Contacts

Fitch Ratings
Primary Analyst
Greg Dickerson, +1-212-908-0220
Director
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
or
Secondary Analyst
Mark E. Rouck, CPA, CFA, +1-312-368-2085
Senior Director
or
Committee Chairperson
Douglas L. Meyer, CFA, +1-312-368-2061
Managing Director
or
Media Relations
Brian Bertsch, New York, +1-212-908-0549
brian.bertsch@fitchratings.com

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Contacts

Fitch Ratings
Primary Analyst
Greg Dickerson, +1-212-908-0220
Director
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
or
Secondary Analyst
Mark E. Rouck, CPA, CFA, +1-312-368-2085
Senior Director
or
Committee Chairperson
Douglas L. Meyer, CFA, +1-312-368-2061
Managing Director
or
Media Relations
Brian Bertsch, New York, +1-212-908-0549
brian.bertsch@fitchratings.com