Coventry Health Care, Inc. : A.M. Best Affirms Ratings of Coventry Health Care, Inc. and Upgrades Ratings of Selected Subsidiaries

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 markets.

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 enrollment.

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 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, 908-439-2200, ext. 5061
Senior Financial Analyst
wayne.kaminski@ambest.com
or
Joseph Zazzera, MBA, 908-439-2200, ext. 5797
Managing Senior Financial Analyst
joseph.zazzera@ambest.com
or
Rachelle Morrow, 908-439-2200, ext. 5378
Senior Manager, Public Relations
rachelle.morrow@ambest.com
or
Jim Peavy, 908-439-2200, ext. 5644
Assistant Vice President, Public Relations
james.peavy@ambest.com

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