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

A.M. Best Co. has affirmed the financial strength rating (FSR) of A (Excellent) and issuer credit ratings (ICR) of "a+" of the insurance and health maintenance organization (HMO) subsidiaries of Aetna Inc. (Aetna) (NYSE: AET). Concurrently, A.M. Best has affirmed the FSR of A (Excellent) and ICR of "a" of Aetna Insurance Company of Connecticut and the FSR of A (Excellent) and ICRs of "a" of Continental Life Insurance Company of Brentwood, Tennessee (Continental Life) and its subsidiary, American Continental Insurance Company (American Continental) (both headquartered in Franklin, TN). A.M. Best also has affirmed the ICR of "bbb+" and debt ratings of Aetna. The outlook for all ratings is stable. These companies are headquartered in Hartford, CT, except where specified. (See below for a detailed listing of the companies and ratings.)

The rating affirmations of the lead operating entity, Aetna Life Insurance Company (ALIC), and the insurance and HMO subsidiaries of Aetna reflect their strong operating and net income trends, which have been heavily favored by lower utilization rates. However, A.M. Best expects the medical loss ratios to rise to more normal levels over the medium term, which could impact the organization's earnings. Furthermore, ALIC's financial results through March 31, 2012 indicate a marginal increase in cost trends and membership may be challenged in the near term. Aetna maintains a good level of liquidity through parent company cash, subsidiary dividends, an untapped $1.5 billion credit facility, and it actively uses its commercial paper program. The consolidated Aetna insurance operations' favorable net income has contributed to the group's solid capital position through retained earnings.

The consolidated membership of Aetna stabilized in 2011 after a period of decline; however, near-term membership has decreased and is partially pressured by the competitive environment as well as the economic weakness in the marketplace as the recovery has been slow. Additionally, Aetna has placed a strategic focus on growing its government-sponsored businesses, and has acquired companies to support these initiatives. Some of this investment has been realized in its Medicare lines where membership is growing; however, the company has had set backs in securing long-term multi-year contracts in both the federal and state level programs. A.M. Best acknowledges that Aetna's insured government business is not a large percentage of its overall earnings. Any future acquisitions may result in an increase in Aetna's debt to capital should it issue debt or utilize its commercial paper program to fund these acquisitions. A.M. Best expects Aetna's debt to capital to be managed to a range of or near 30% over the medium term.

The company is well positioned at its current rating level. Negative rating actions may occur should Aetna increase its financial leverage above A.M. Best's expectations, its interest coverage deteriorates, risk-adjusted capital declines at its core operating subsidiaries, or its operating earnings significantly weaken.

The FSR of A (Excellent) and ICRs of "a+" have been affirmed for the following insurance and HMO subsidiaries of Aetna Inc.:

• Aetna Life Insurance Company
• Aetna Life & Casualty (Bermuda) Ltd.
• Aetna Health Inc. (a Connecticut corporation)
• Aetna Health Inc. (a Florida corporation)
• Aetna Health Inc. (a Georgia corporation)
• Aetna Health Inc. (a Maine corporation)
• Aetna Health Inc. (a New Jersey corporation)
• Aetna Health Inc. (a New York corporation)
• Aetna Health Inc. (a Pennsylvania corporation)

• Aetna Health Inc. (a Texas corporation)
• Aetna Health Insurance Company of New York
• Aetna Health Insurance Company
• Aetna Health of California Inc.
• Aetna Dental Inc. (a New Jersey corporation)
• Aetna Dental Inc. (a Texas corporation)
• Aetna Dental of California

The following debt ratings have been affirmed:

Aetna Inc.--

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

-- "bbb+" $500 million 6.5% of senior unsecured notes, due 2018

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

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

-- "bbb+" $750 million 3.95% of senior unsecured notes, due 2020

-- "bbb+" $500 million 4.5% of senior unsecured notes, due 2042

-- "bbb+" $500 million 4.125% of senior unsecured notes, due 2021

-- "bbb+" $250 million 1.75% of senior unsecured notes, due 2017

-- 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

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. Key criteria utilized include: "Understanding BCAR for Life/Health Insurers"; "Understanding Universal BCAR"; "Risk Management and the Rating Process for Insurance Companies"; "Rating Members of Insurance Groups"; "Rating Commercial Paper"; "Evaluating Country Risk"; and "Insurance Holding Company and Debt Ratings." Best's Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.

Founded in 1899, A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

Copyright © 2012 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.

A.M. Best Co.
Wayne Kaminski
Senior Financial Analyst
(908) 439-2200, ext. 5061
wayne.kaminski@ambest.com
or
Sally Rosen
Managing Senior Financial Analyst
(908) 439-2200, ext. 5280
sally.rosen@ambest.com
or
Rachelle Morrow
Senior Manager, Public Relations
(908) 439-2200, ext. 5378
rachelle.morrow@ambest.com
or
Jim Peavy
Assistant Vice President, Public Relations
(908) 439-2200, ext. 5644
james.peavy@ambest.com

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