A.M. Best Affirms Ratings of Aetna Inc. and Its Subsidiaries

OLDWICK, N.J.--(BUSINESS WIRE)--A.M. Best Co. has affirmed the financial strength ratings (FSR), issuer credit ratings (ICR) and debt ratings of Aetna Inc. (Aetna) (Hartford, CT) [NYSE: AET] and its insurance and HMO subsidiaries. The outlook for all ratings is stable. (Please see below for a detailed listing of the companies and ratings.)

The ratings of Aetna and its insurance and HMO subsidiaries reflect their steady revenue growth, good operating performance and solid risk-based capitalization levels. Aetna continues to generate good revenue growth on membership gains and cross selling of health and complementary products. Aetna’s integrated medical management practices and disciplined pricing have resulted in stable medical cost trends for the organization. Aetna has improved its administrative cost ratio significantly in recent years, but it is still considerably higher than its peers’ mainly due to its large self-funded commercial membership base, which has higher administrative expenses relative to revenue. Continued favorable net income has contributed to the insurance and HMO subsidiaries’ solid capital levels through retained earnings.

Offsetting rating factors include a concentration of business in the self funded commercial market, expansion into lower margin products and increased pricing pressure in the commercial health insurance market. Almost two-thirds of Aetna’s medical membership is from commercial self funded accounts. Aetna has been growing its membership in the Medicare and Medicaid markets segments. Products in these segments typically have higher medical cost ratios and lower margins. Future funding levels of these programs could be pressured due to federal and state budget constraints. Pricing in the commercial market segment could be pressured due to the effect of the current general economic conditions on employers and individuals in this segment.

The FSRs of A (Excellent) and ICRs of “a+” have been affirmed for the following subsidiaries of Aetna Inc.:

• Aetna Life Insurance Company
• Aetna Insurance Company of Connecticut
• Aetna Health Insurance Company of New York
• Aetna Health Inc. (a New York corporation)
• Aetna Health Inc. (a Connecticut corporation)
• Aetna Health Inc. (a Maryland corporation)
• Aetna Health Inc. (a New Jersey corporation)
• Aetna Health Inc. (a Pennsylvania corporation)
• Aetna Health Inc. (a Florida corporation)
• Aetna Health of California Inc.

The FSRs of A- (Excellent) and ICRs of “a-” have been affirmed for the following subsidiaries of Aetna Inc.:

• Aetna Health Insurance Company
• Aetna Health Inc. (an Arizona corporation)
• Aetna Health Inc. (a Colorado corporation)
• Aetna Health Inc. (a Delaware corporation)
• Aetna Health Inc. (a Georgia corporation)
• Aetna Health Inc. (a Maine corporation)
• Aetna Health Inc. (a Michigan corporation)
• Aetna Health Inc. (a Missouri corporation)
• Aetna Health Inc. (an Oklahoma corporation)
• Aetna Health Inc. (a Tennessee corporation)
• Aetna Health Inc. (a Texas corporation)
• Aetna Health Inc. (a Washington corporation)
• Aetna Health of Illinois Inc.
• Aetna Health of the Carolinas Inc.
• Aetna Life & Casualty (Bermuda) Ltd.
• Aetna Dental of California
• Aetna Dental Inc. (a Texas corporation)
• Aetna Dental Inc. (a New Jersey corporation)

The ICR of “bbb+” has been affirmed for Aetna Inc.

The following debt ratings have been affirmed:

Aetna Inc.—

-- “bbb+” $450 million 5.75% of senior unsecured notes, due 2011

-- “bbb+” $450 million 7.875% of senior unsecured notes, due 2011

-- “bbb+” $750 million 6.0% of senior unsecured notes, due 2016

-- “bbb+” $800 million 6.625% of senior unsecured notes, due 2036

-- “bbb+” $700 million 6.75% of senior unsecured notes, due 2037

-- AMB-2 on commercial paper

The following indicative ratings on universal shelf securities have been affirmed:

Aetna Inc.—

-- “bbb+” on senior unsecured debt

-- “bbb” on subordinated unsecured debt

-- “bbb-” on preferred stock

Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers. For more information, visit www.ambest.com.