Coventry Health Care, Inc. : A.M. Best Affirms Ratings of Coventry Health Care, Inc. and Upgrades Ratings of Selected Subsidiaries
05/17/2012| 03:25pm US/Eastern
A.M. Best Co. has affirmed the issuer credit rating (ICR) of
"bbb-" and all debt ratings of Coventry Health Care, Inc.
(Coventry) (Delaware) (NYSE: CVH).
At the same time, A.M. Best has upgraded the financial strength rating
(FSR) to A- (Excellent) from B++ (Good) and the ICRs to "a-" from "bbb+"
for Coventry Health Care of Iowa, Inc. (Omaha, NE) and Coventry
Health Care of Illinois, Inc. (Champaign, IL) (f/k/a PersonalCare
Insurance of Illinois, Inc.). A.M. Best also has upgraded the FSR to A-
(Excellent) from B++ (Good) and the ICR to "a-" from "bbb" for Coventry
Health Care of Kansas, Inc. (Kansas City, MO) and upgraded the FSR
to A- (Excellent) from B+ (Good) and the ICRs to "a-" from "bbb-" for Coventry
Health Care of Louisiana, Inc. (Metairie, LA) and Coventry Health
Care of Delaware, Inc. (Newark, DE). The rating upgrades reflect
each company's strategic importance to the Coventry brand, as well as
the geographic and earnings diversification in each company's respective
Additionally, A.M. Best has upgraded the ICR to "bbb+" from "bbb" and
affirmed the FSR of B++ (Good) of HealthCare USA of Missouri, LLC
(St. Louis, MO), due to its improved operating performance and
enrollment growth. Concurrently, A.M. Best has upgraded the FSR to B++
(Good) from B+ (Good) and the ICR to "bbb" from "bbb-" for OmniCare
Health Plan, Inc. (Detroit, MI) based on its favorable underwriting
trend and the adequate capitalization for its ratings.
A.M. Best also has upgraded the FSR to B+ (Good) from B (Fair) and the
ICRs to "bbb-" from "bb+" for Coventry Health Care of Florida, Inc.
, Coventry Health Plan of Florida, Inc. and Coventry Summit
Health Plan, Inc. (all domiciled in Sunrise, FL). The revised
ratings for each company are attributed to the strategic importance of
each to the Coventry brand in Florida by adding geographical and
earnings diversification as a health insurance carrier. The outlook for
all ratings is stable. (See link below for a detailed listing of the
companies and ratings.)
Coventry's operating results were strong in 2011 and near-term results
are indicative of its strong performance. The earnings generated by
Coventry have geographic and product diversification with no single
reliance on one market or product. The medical loss ratios have been
managed well, and the company has strived to build low cost structures
in the various markets in which it operates. The organization has done
well over the medium term to expand its footprint by acquiring
businesses and by servicing new Medicaid contracts. Coventry's financial
flexibility and liquidity position is excellent, with cash flows from
operations of approximately $400 million in 2011, and more recently, a
reported $900 million of free cash. The company also has a new five-year
$750 million revolving credit facility of which no balances were
outstanding through the early part of 2012.
Offsetting these favorable rating attributes is the weakness in
Coventry's individual line of business compared to its industry peers, a
decline in membership in its commercial risk segment and the competitive
pressure in its large group administrative services only line of
business. Due to the size of Coventry's individual business segment, it
may not have the size to compete in the exchanged based market system
against other larger established carriers. Coventry has built critical
scale in other segments through acquisitions, which is an avenue not
available in the individual line. Additionally, membership in the health
plan commercial risk segment continued to decline through March 31,
2012. These losses may be attributed to large groups converting from
fully-insured products to self-funded, and the losses also highlight the
competitive environment in the large group market space where higher
group retention is critical to achieving scale.
While the Coventry organization is well positioned at its present
ratings, positive rating actions could occur if there were substantial
and sustained earnings growth trends, expansion of its total membership
base and an increase in its level of risk-adjusted capital. Key rating
drivers that could lead to negative rating actions include a material
deterioration in the organization's risk-adjusted capitalization, a
weakening trend of operating performance on an overall basis or in core
markets and unfavorable regulatory pressure upon the commercial and
government lines of business as well as deterioration in total
For a complete listing of Coventry Health Care, Inc. and its
subsidiaries' FSRs, ICRs and debt ratings, please visit www.ambest.com/press/051707coventry.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. Key criteria utilized include: "Risk
Management and the Rating Process for Insurance Companies";
"Understanding BCAR for Life/Health Insurers"; "Rating Members of
Insurance Groups"; "Assessing Country Risk"; and "Insurance Holding
Company and Debt Ratings." Best's Credit Rating Methodology can be found
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
A.M. Best Co.
Wayne Kaminski, 908-439-2200, ext. 5061
Zazzera, MBA, 908-439-2200, ext. 5797
Morrow, 908-439-2200, ext. 5378
Senior Manager, Public
Peavy, 908-439-2200, ext. 5644
Assistant Vice President,
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