AM Best Affirms Credit Ratings of Most of CVS Health Corporation’s Aetna Inc. Subsidiaries; Withdraws Credit Ratings of Members of Texas Health Aetna

AM Best has affirmed the Financial Strength Rating (FSR) of A (Excellent) and the Long-Term Issuer Credit Ratings (Long-Term ICRs) 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 ICR of “a” (Excellent) of Allina Health and Aetna Insurance Company (Allina Health) (St. Louis Park, MN). Allina Health is a joint venture with subsidiaries of Aetna Inc. The outlook of these Credit Ratings (ratings) is stable.

In addition, 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 are referred to as Texas Health Aetna. The outlook of these ratings is stable. At the same time, AM Best has withdrawn the ratings of Texas Health Aetna as the companies have requested to no longer participate in AM Best’s interactive rating process.

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 group’s risk-adjusted capitalization, which remains at the strongest level, as measured by its Best Capital Adequacy Ratio (BCAR). Capital and surplus has grown steadily despite large annual dividend payments in each of the past five years. The growth in absolute capital is reflected in the group's five-year compound annual growth rate of 7.6%. The risk profile of the investment portfolio has improved over time, as there has been a reduction in the holdings in several asset classes over the past few years, including commercial mortgages and equities, as well as the allocation to Class 2 and below investment grade bonds.

Additionally, the balance sheet strength is supported by adequate liquidity measures, which are strengthened by access to the Federal Home Loan Bank of Boston at the lead entity, ALIC. Aetna Life & Health Group has moderate reinsurance leverage and its reinsurance arrangements differentiates Aetna from its health insurance peers. In addition to traditional reinsurance with highly rated carriers, Aetna Health & Life Group maintains a quota share reinsurance agreement with Health Re Inc. and subsequent excess of loss protection by Vitality Re entities. Furthermore, the group exhibits good quality of capital and currently does not hold any debt.

Over the past few years, favorable development in net premium has been driven by membership growth in the commercial, Medicare Advantage and Medicaid managed care product lines. While premium growth is expected to continue for commercial and Medicare Advantage over the near term, it will be offset partially by declines in Medicaid membership in 2023 and the first half of 2024 due to the resumption of redeterminations following the end of the public health emergency. Premium growth has impacted operating earnings trends positively over the past few years. Aetna Health & Life Group has reported underwriting and net income exceeding $2 billion in each of the past five years with return on revenues at or exceeding 5% and return on equity exceeding 20%. The group reported an increase in underwriting income through year-end 2022; however, it noted an increase in claims driven by increased utilization in its Medicare Advantage segment, a trend that began in 2023, and is expected to continue into 2024. Moreover, investment income has been steady over the past five years and is expected to improve in 2023 and 2024 due to the interest rate environment. Investment income has meaningfully contributed to net earnings.

Aetna is one of the leading players in the managed care markets offering products throughout the United States. While Aetna’s Medicare Advantage and Medicaid managed care markets have experienced significant membership growth over the past few years, Aetna remains competitive and continues to gain enrollment in other segments.

The ratings of Aetna Health & Life Group reflect the negative impact from its ultimate parent, CVS Health, which has elevated financial leverage and goodwill that is not expected to change materially in the near to medium term. While the financial leverage at CVS Health has declined substantially since the acquisition of Aetna, financial leverage increased modestly at year-end 2023, driven by the acquisitions of Signify Health Inc. and Oak Street Health Inc. Signify Health adds in-home health care to the CVS Health organization, while Oak Street Health is a leading multi-payer, value-based primary care company. Goodwill-to-shareholders equity increased over the prior year and exceeded 110% at year-end 2023. While the acquisitions of Oak Street and Signify Health are part of the organization’s health care services strategy, AM Best recognizes the inherent execution risk within these transactions. Over the near term, there may be pressure from additional business expansion related to acquisitions.

The ratings of Allina Health reflect its balance sheet strength, which AM Best assesses as adequate, as well as its marginal operating performance, limited business profile and appropriate ERM. In 2022, Allina Health marked its first year of underwriting gains since inception. However, the company continues to report net losses as underwriting gains were not sufficient to offset the amortization of intangible assets. In recent years, premium growth has trended favorably in Medicare Advantage products, while commercial products have increased modestly.

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 and appropriate ERM. Texas Health Aetna was supported by the strongest level of risk-adjusted capitalization, as measured by BCAR. Underwriting results have been favorable in four of the past five years and net income turned positive in 2022 as the amortization of intangibles concluded.

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 ICRs, 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 Louisiana 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 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
• 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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