AM Best Affirms Credit Ratings of CVS Health Corporation’s Aetna Inc. Subsidiaries

AM Best has affirmed the Financial Strength Rating (FSR) of A (Excellent) and the Long-Term Issuer Credit Ratings (Long-Term ICR) of “a” (Excellent) of Aetna Life Insurance Company (ALIC) (Hartford, CT) and the other members of Aetna Health & Life Group, which are operating entities of Aetna Inc. (Aetna) and wholly owned subsidiaries of CVS Health Corporation (CVS Health) [NYSE: CVS]. The outlook of the FSR is stable, while the outlook of the Long-Term ICR is positive. (Please see below for a detailed listing of the companies.)

Concurrently, AM Best has affirmed the FSR of A (Excellent) and the Long-Term ICRs of “a” (Excellent) of Texas Health + Aetna Health Insurance Company, as well as Texas Health + Aetna Health Plan Inc. Both companies are domiciled in Arlington, TX, and collectively referred to as Texas Health Aetna. In addition, AM Best has affirmed the FSR of A (Excellent) and the Long-Term ICR of “a” (Excellent) of Allina Health and Aetna Insurance Company (St. Louis Park, MN). Texas Health Aetna and Allina Health and Aetna Insurance Company are joint ventures with subsidiaries of Aetna Inc. The outlook of these Credit Ratings (ratings) is stable.

The ratings of Aetna Health & Life Group reflect its balance sheet strength, which AM Best assesses as very strong, as well as its strong operating performance, favorable business profile and appropriate enterprise risk management (ERM).

The positive outlook on the Long-Term ICR for Aetna Health & Life Group reflects the strengthening of its risk-adjusted capitalization, which remains at the strongest level, as measured by Best Capital Adequacy Ratio (BCAR). Capital expansion in recent years has been supported by strong earnings and lower dividends paid to the parent. The growth of its absolute level of capital and surplus exceeded premium growth, a trend that has been continuing over the last few years. Additionally, the share of high-risk investments –commercial mortgage loans and BA assets –continued to decrease further contributing to improved risk-adjusted capitalization.

The balance sheet strength is supported by good overall liquidity measures, which is further enhanced by the access to the Federal Home Loan Bank of Boston, borrowing at the largest insurance company within the Aetna Health & Life Group, Aetna Life Insurance Company. Furthermore, the quality of capital is good as the group does not have any debt.

Premium development over the last three years has been driven by the expansion of Aetna’s government business in Medicare Advantage (MA) and Medicaid, which composed three quarters of total membership through year-end 2022. Medicaid’s double-digit growth over the last two years is attributed to the relaxation of eligibility checks, known as redeterminations, which have been suspended until April 2023. Medicaid enrollment is expected to moderate during 2023 and into early 2024. However, with Aetna’s expansion in the individual public health exchanges during 2022, the contraction in Medicaid might be offset partially by growth in the individual segment. Premium growth has impacted operating earnings trends favorably over the last three years. While claims experience has fluctuated, resulting in improved loss ratios in the early stages of the COVID-19 pandemic in 2020 before increasing in 2021 due to higher-than-expected COVID-19-related medical costs, overall profitability metrics have improved. Despite the recent volatility, which was largely attributable to COVID-19, the Aetna Health & Life Group has reported underwriting and net income of $2 billion in each of the last five years, with one-year return on equity (ROE) exceeding 20% and one-year operating return on revenue (ROR) in the 5-7% range.

Aetna remains one of the leading players in the managed care markets throughout the United States. While Aetna’s government segments have experienced significant membership growth, the company remains competitive in its other segments. The relationship with CVS Health adds a competitive advantage, as some Aetna insurance products emphasize affiliated MinuteClinic as a low-cost provider of primary care services.

The ratings of Aetna Health & Life Group reflect the ultimate parent, CVS Health, and an expectation of elevated leverage due to the recently announced acquisitions. The financial leverage at CVS Health has declined to 41% at year-end 2022 as part of the organization’s deleveraging efforts. However, financial leverage is expected to increase during 2023 as CVS Health is expected to finance a portion of two recently announced acquisitions, Signify Health and Oak Street Health, which are both expected to close this year. Goodwill to shareholders equity exceeded 100% at year-end 2022, which is likely to increase upon the close of Signify Health and Oak Street Health. While AM Best recognizes that these acquisitions are part of the organization’s health care services strategy, as with any transaction there is execution risk.

The ratings of Texas Health Aetna reflect its balance sheet strength, which AM Best assesses as strong, as well as its adequate operating performance, limited business profile, appropriate ERM and support of its parents. During 2022, the joint venture’s risk-adjusted capitalization improved, supported by net income of approximately $10 million. Marking the first year of profits, net income was supported by underwriting gains and lower amortization of intangibles.

The ratings of Allina Health and Aetna Insurance Company reflect its balance sheet strength, which AM Best assesses as adequate, as well as its marginal operating performance, limited business profile, appropriate ERM and support of its parents. The joint venture’s net results continue to be negative as the amortization of intangibles exceeded underwriting income. However, underwriting results in 2022 were positive for the first time since inception, primarily driven by growth in its Medicare segment.

The FSR of A (Excellent) and the Long-Term ICRs of “a” (Excellent) have been affirmed, with a stable outlook for the FSR and a positive outlook for the Long-Term ICR, for the following members of Aetna Health & Life Group:

• Aetna Life Insurance Company
• Aetna Health and 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 New Jersey corporation)
• Aetna Health Inc. (a New York corporation)
• Aetna Health Inc. (a Maine Corporation)
• Aetna Health Inc. (a Pennsylvania corporation)
• Aetna Health Inc. (a Texas corporation)
• Aetna Health Inc. (LA)
• Aetna Health Insurance Company
• Aetna Health Insurance Company of New York
• Aetna Better Health of Florida, Inc.
• Aetna Health of California Inc.
• Aetna Health of Iowa Inc.
• Aetna Health of Utah Inc.
• Aetna Dental of California Inc.
• Aetna Dental Inc. (a New Jersey corporation)
• Aetna Dental Inc. (a Texas corporation)
• American Continental Insurance Company
• Accendo Insurance Company
• Continental Life Insurance Company of Brentwood, Tennessee
• Coventry Health and Life Insurance Company
• Aetna Better Health of Michigan, Inc.
• Aetna Better Health of Missouri LLC
• Coventry Health Care of Illinois, Inc.
• Coventry Health Care of Kansas, Inc.
• Coventry Health Care of Missouri, Inc.
• Coventry Health Care of Nebraska, Inc.
• Coventry Health Care of Virginia, Inc.
• Coventry Health Care of West Virginia, Inc.
• First Health Life & Health Insurance Company
• HealthAssurance Pennsylvania, Inc.
• SilverScript Insurance Company

This press release relates to Credit Ratings that have been published on AM 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 see AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best's Credit Ratings. For information on the proper use of Best’s Credit Ratings, Best’s Performance Assessments, Best’s Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best’s Ratings & Assessments.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

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