A.M. Best Affirms Ratings of Health Net, Inc. and Its Subsidiaries
05 March 2015 - 9:11AM
Business Wire
A.M. Best has affirmed the financial strength rating of
B++ (Good) and the issuer credit ratings (ICR) of “bbb” of
Health Net of California, Inc., Health Net Life Insurance
Company, Health Net Health Plan of Oregon, Inc. and
Health Net of Arizona, Inc. A.M. Best has also affirmed the
ICR of “bb” and the debt rating of “bb” on the $400 million 6.375%
senior unsecured notes due 2017 of the parent company, Health
Net, Inc. (Health Net) (Woodland Hills, CA) [NYSE:HNT]. The
outlook for all ratings is stable.
The ratings affirmations for Health Net and its subsidiaries
reflect the organization’s long established and solid presence in
the southern California market, recent membership growth, adequate
risk-adjusted capitalization and the overall financial flexibility
of Health Net. Health Net has executed on a number of its business
development, geographic expansion and diversification initiatives.
A.M. Best notes that, after several years of enrollment decline,
the trend reversed in 2014 through its strong participation in
health exchanges and Medicaid expansion. While Health Net’s
insurance operations are largely concentrated in California, Health
Net Federal Services also provides a number of services to the
military, which includes contracts with TRICARE and the U.S.
Department of Veterans Affairs. Health Net has historically
provided financial support to help fund core insurance operations
through capital contributions. A.M. Best believes that Health Net’s
financial leverage is manageable at roughly 23% as of year-end
2014, with adequate interest coverage that is consistent within
A.M. Best’s guidelines for the current ratings.
A.M. Best expects Health Net’s growth trends to persist as a
result of continued involvement in exchanges and Medicaid programs.
A.M. Best has some concerns with this level of growth, which not
only places a strain on risk-adjusted capitalization, but could
also result in unfavorable morbidity experience. A.M. Best
acknowledges the existence of risk-mitigating programs that may
temper these concerns. In addition, the costs of participating in
the exchange and other fees related to the Patient Protection and
Affordable Care Act has led to a significant decline in earnings at
some of Health Net’s core insurance subsidiaries. Health Net set up
a premium deficiency reserve adding downward pressure on the
capital balances of some of its subsidiaries. A number of capital
infusions from the holding company were made to several of its
insurance subsidiaries in an effort to ensure risk-adjusted capital
levels were maintained in 2014. A.M. Best expects that the parent
company will continue to provide capital support when
necessary.
Key rating factors that could lead to a positive rating action
are profitable membership growth, overall favorable trends in
operating performance and improved risk-adjusted capitalization.
Key rating factors that could lead to a negative rating action are
a decline in risk-adjusted capital, continued lower level of
earnings at the core insurance subsidiaries, and a material
increase in financial leverage or deterioration in interest
coverage at Health Net, Inc.
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. Best’s
Credit Rating Methodology can be found at
www.ambest.com/ratings/methodology.
Key insurance criteria reports utilized:
- Risk Management and the Rating Process
for Insurance Companies
- Understanding BCAR for U.S. and
Canadian Life/Health Insurers
- Rating Members of Insurance Groups
- Insurance Holding Company and Debt
Ratings
- Analyzing Insurance Holding Company
Liquidity
- A.M. Best's Liquidity Model for U.S.
Life Insurers
This press release relates to rating(s) 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 visit A.M.
Best’s Ratings & Criteria Center.
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 © 2015 by A.M. Best Company,
Inc. ALL RIGHTS RESERVED.
A.M. Best CompanyDavid Mitchell, 908-439-2200, ext.
5556Senior Financial
Analystdavid.mitchell@ambest.comorJeffrey Lane,
908-439-2200, ext. 5567Managing Senior Financial
Analystjeffrey.lane@ambest.comorChristopher Sharkey,
908-439-2200, ext. 5159Manager, Public
Relationschristopher.sharkey@ambest.comorJim Peavy,
908-439-2200, ext. 5644Assistant Vice President, Public
Relationsjames.peavy@ambest.com
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