OLDWICK, N.J.--(BUSINESS WIRE)--A.M. Best has affirmed the financial strength ratings (FSR) and issuer credit ratings (ICR) of the core insurance subsidiaries of WellPoint, Inc. (WellPoint) [NYSE: WLP]. Concurrently, A.M. Best has affirmed the ICR of “bbb+” and the debt ratings of “bbb+” of WellPoint as well as the debt rating of “a-” on the surplus notes of Anthem Insurance Companies, Inc. . The outlook for all ratings is stable. Both companies are headquartered in Indianapolis, IN. (See link below for a detailed listing of the companies and ratings.)
The affirmation of WellPoint’s ratings reflects a combination of the organization’s strong level of premium revenue and earnings, brand strength, leading market share in its core markets, strong operating cash flows and a good overall level of risk-adjusted capitalization. WellPoint has a strong membership base serving almost 37 million members, offering products and services in the individual, local employer group and national account segments, as well as serving the government sector, both the Medicare and Medicaid markets. The organization is a market leader in its 14 Blue Cross Blue Shield (Blue) markets and serves enrollees in other local and regional markets through the UNICARE, CareMore and AMERIGROUP companies. WellPoint’s core Blue plans continue to drive revenue and earnings for the company, reporting strong operating results and cash flows from operations, which contribute positively to the financial flexibility of the organization. The UNICARE, CareMore and AMERIGROUP companies also contribute positively to earnings and cash flows. Additionally, the AMERIGROUP companies’ premium base is increasing as the organization retains and was awarded new state managed Medicaid contracts, as well as achieved increased enrollment in expansion states where it already has a presence. Furthermore, WellPoint has captured a good amount of individual market business, both on and off the health care exchanges, with enrollment in its core Blue markets increasing significantly.
Overall, WellPoint’s commercial premiums have been trending downward due to continued economic pressure on employers and the trend away from fully insured products to self-funding arrangements. Medicare enrollment also has shown a decline as the organization has discontinued some product offerings in certain markets. The decline in Medicare enrollment is more than offset by expanding Medicaid enrollment, driving growth in government sector premiums for WellPoint. As a result, the company’s business is shifting more to self- funded and government funded programs, which generate lower margins in general. Furthermore, margins for the industry as a whole are being pressured due to industry premium taxes and fees associated with The Patient Protection and Affordable Care Act.
A.M. Best acknowledges the company’s considerable financial flexibility through a robust parent company cash balance, strong level of subsidiary dividends, its $2.5 billion commercial paper program and its untapped $2 billion credit facility. WellPoint’s debt-to-capital ratio was 38.5% at March 31, 2014, which A.M. Best considers relatively high. The elevation in its leverage is partially related to the financing of the acquisition of AMERIGROUP in 2012; however, A.M. Best anticipates that the ratio will moderate over time. Interest coverage has declined, but remains solid at approximately seven times and fixed charge coverage (which includes shareholder dividends) was approximately four times in 2013. In the first quarter of 2014, WellPoint will have deployed a material amount of its capital through its share repurchase program, expending approximately $1.3 billion, as well as $123 million for its quarterly dividend to shareholders.
Additionally, WellPoint has a high amount of goodwill and other intangible assets on its balance sheet compared to its peers. As of March 31, 2014, these assets comprised approximately 41% of its total asset base and 104% of total consolidated shareholders’ equity. A.M. Best notes that WellPoint’s Blue trademarks represent a significant portion of its $8.4 billion of other intangible assets.
WellPoint and its core insurance subsidiaries could have positive rating movement if they continue to report favorable premium growth and maintain strong earnings, experience meaningful margin expansion in their core health insurance businesses, there is a material increase in the risk-adjusted capitalization at the insurance entities or earnings become materially more diversified. Conversely, negative rating actions could occur if the operating trends of the organization’s core health insurance operations weaken considerably, the subsidiaries’ risk-adjusted capitalization declines significantly or leverage metrics increase notably.
For a complete listing of WellPoint, Inc. and its key life/health subsidiaries’ FSRs, ICRs and debt ratings, please visit www.ambest.com/press/060609wellpoint.pdf.
The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology. A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.
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