Aetna Inc. AET and its affiliates recently received rating actions from A.M. Best. The health insurer’s issuer credit rating (ICR) was lowered to “bbb” from “bbb+” and it was removed from under review with negative implications. Concurrently, the credit rating giant reiterated the financial strength ratings (FSR) of A (Excellent) of Aetna Life Insurance Company and other subsidiaries.
Additionally, issue ratings of the existing debt of Aetna and Coventry Health Care Inc.’s senior unsecured notes were revised to “bbb” from “bbb+”. Another unit – Aetna Insurance Company of Connecticut – saw its FSR lowered to B++ (Good) from A (Excellent) and ICR downgraded to “bbb” from “a”. Both these units were removed from under review with negative implications.
Notably, the ratings carry stable outlook.
The rating downgrade on Aetna reflects a surge in financial ratio due to the issuance of $13 billion debt for the Humana Inc. HUM buyout. This not only limited the firm’s borrowing capacity but also lowered interest coverage ratio. Also, the company remains exposed to integration risks, while its goodwill and intangibles are expected to rise to more than total equity.
Nevertheless, A.M. Best notes Aetna has been delivering sustained solid operating results fueled by low medical cost trends and improved operational efficiencies besides solid cash flows and health insurance and group insurance operations offering a diversified revenue stream.
Zacks Rank and Stocks to Consider
Aetna carries a Zacks Rank of #3 (Hold). Some better-ranked stocks in the medical sector are Magellan Health, Inc. MGLN and AMN Healthcare Services Inc. AHS. Both these stocks sport Zacks Rank #1 (Strong Buy).
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