OLDWICK, N.J.--(BUSINESS WIRE)--A.M. Best has removed from under review with negative implications and affirmed the Financial Strength Ratings (FSR) of A (Excellent) and the Long-Term Issuer Credit Ratings (Long-Term ICR) of “a+” of the core Blue Cross Blue Shield branded insurance subsidiaries of Anthem, Inc. (Anthem) (Indianapolis, IN) [NYSE:ANTM]. The outlook assigned to these Credit Ratings (ratings) is stable.
Concurrently, A.M. Best has removed from under review with negative implications and affirmed the Long-Term ICR of “bbb+”, the Long- and Short-Term Issue Credit Ratings (Long-Term IR; Short-Term IR) of Anthem and the Long-Term IR on the existing surplus notes of Anthem Insurance Companies, Inc. (Indianapolis, IN). The outlook assigned to these ratings is stable.
Furthermore, A.M. Best has removed from under review with negative implications and affirmed the FSR of A- (Excellent) and the Long-Term ICRs of “a-” of the UniCare, Amerigroup and CareMore companies. The outlook assigned to these ratings is stable.
Additionally, A.M. Best has assigned an FSR of A (Excellent) and a Long-Term ICR of “a+” to Anthem Kentucky Managed Care Plan, Inc. (Louisville, KY). The outlook assigned to these ratings is stable. (See link below for a detailed listing of the companies and ratings.)
The rating actions follow the April 28, 2017, ruling by the U.S. Court of Appeals for the District of Columbia Circuit to uphold the decision of the U.S. District Court of the District of Columbia to block the proposed merger of Anthem and Cigna Corporation (Cigna). While Anthem and Cigna are scheduled for a hearing on May 8, 2017, in the Delaware Court of Chancery regarding the termination of the merger agreement, A.M. Best believes at this time that the probability of the merger being completed is low. However, if the courts determine Anthem is to pay Cigna an amount in excess of the $1.85 billion break-up fee, A.M. Best may revisit the ratings of Anthem.
The rating affirmations reflect Anthem’s strong operating results, solid consolidated insurance subsidiary risk-adjusted capital, strength of its Blue Cross Blue Shield brands and market positions, as well as robust holding company liquidity. Anthem continues to report good top-line growth driven by organic enrollment gains in all business segments. Operating earnings have remained very strong, although its total operating margin has declined. Additionally, operating cash flows are consistently favorable and were 1.3 times net income for full-year 2016. The solid consolidated risk-adjusted capital is driven by the higher level of capital held by the Blue Cross Blue Shield subsidiaries. Anthem manages its non-Blue branded insurance subsidiaries to a much lower level of risk-adjusted capital. Anthem’s core Blue Cross Blue Shield subsidiaries have a high level of brand recognition and large market shares in their respective markets. Anthem’s financial flexibility is favorable with a high level of cash and investments at the holding company of $4.2 billion, a $2.5 billion commercial paper program and a $3.5 billion untapped revolving credit facility. Additionally, subsidiary dividend capacity has been more than $2.5 billion for each of the past three years.
Conversely, Anthem’s operating margins are declining, and there continues to be a high level of uncertainty around the individual market and Anthem’s litigation matters regarding the Cigna transaction, as well as its Express Script contract. Anthem’s total operating margins have shown compression due to business mix change, losses in its individual business and increased utilization in its Medicaid business. Government business continues to grow for Anthem and has become a larger portion of total earnings for the company. Government business produces materially lower operating margins than commercial business, which is contributing to the lower total operating margin. A.M. Best believes that Anthem will continue to be challenged in individual markets within its core Blue Cross Blue Shield states due to its market share and a declining number of competitors participating in the exchange marketplace combined with pressure on Anthem to continue offering individual coverage. Additionally, new legislative actions that affect the Patient Protection and Affordable Care Act or the cost-sharing reduction (CSR) subsidiaries could negatively impact Anthem’s individual business. Furthermore, margins in the company’s Medicaid segment most likely will remain suppressed due to state and federal funding constraints suppressing rates offset by a more stable level of utilization as the majority of contracts are mature.
For a complete listing of Anthem, Inc. and its subsidiaries’ FSRs, Long-Term ICRs and Long- and Short-Term IRs, please visit Anthem Inc.
This press release relates to Credit Ratings that have been published on A.M. Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see A.M. Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Understanding Best’s Credit Ratings.
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