A.M. Best Places Ratings of Anthem, Inc. and Its Subsidiaries Under Review with Negative Implications

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OLDWICK, N.J.--(BUSINESS WIRE)--

A.M. Best has placed under review with negative implications the financial strength ratings (FSR), issuer credit ratings (ICR) and debt ratings of Anthem, Inc. (Anthem) (Indianapolis, IN) ANTM and its insurance subsidiaries. (See link below for a detailed listing of the companies and ratings.)

The rating actions follow the announcement that Anthem has made a proposal to acquire Cigna Corporation (Cigna) CI for approximately $184 per share in cash and stock. In addition to issuing Anthem shares to Cigna shareholders, Anthem is expected to finance approximately $34 billion through a combination of parent company cash, debt and new equity. Additionally, it is anticipated that if an agreement is reached, Anthem would assume Cigna's outstanding debt. Currently, the two parties are not in agreement on all aspects of the potential transaction; hence, it may not come to fruition. The proposed acquisition is subject to the approval by shareholders, as well as state insurance departments and other regulators, which could extend the closing to late 2016.

The under review status reflects A.M. Best's concerns regarding the projected reduced financial flexibility of Anthem due to heightened financial leverage, estimated to increase to approximately 50% at closing; the significant increase in goodwill and intangibles to nearly 1.5 times equity; and the execution and integration risk related to the acquisition. Post-close, Anthem's financial leverage and goodwill and intangibles-to-equity ratio would be materially higher than similarly rated peers and forecasted interest coverage would decline in the near to medium term. Additionally, while dividend capacity of Anthem's subsidiaries has been strong, narrowing of operating margins can affect future dividends and pressure subsidiary risk-adjusted capital. Moreover, Anthem has historically pursued a considerable share repurchase program and is expected to maintain significant stock dividends. A.M. Best is concerned about execution and integration risk considering the lack of agreement on the transaction's key aspects, especially governance, as well as exposure to regulatory issues and potential litigation.

A.M. Best recognizes that Anthem's current level of liquidity is sound and its 2015 operating results are trending favorably relative to expectations. A.M. Best acknowledges that this potential acquisition would provide Anthem with business diversification and strengthen its commercial, government and specialty business. Additionally, Anthem intends to de-leverage post-close to move towards a debt-to-capital ratio in the low to mid-40% range.

The ratings will remain under review pending resolution of an agreement between Anthem and Cigna on any potential transaction, as well as all necessary approvals. A.M. Best will continue discussions with Anthem's management and monitor Anthem's operating performance, risk-adjusted capital at the operating companies and its capital structure.

For a complete listing of FSRs, ICRs and debt ratings for Anthem, Inc. and its life/health subsidiaries, please visit Anthem, Inc.

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
Bridget Maehr, 908-439-2200, ext. 5321
Senior Financial Analyst
bridget.maehr@ambest.com
or
Joseph Zazzera, MBA, 908-439-2200, ext. 5797
Assistant Vice President
joseph.zazzera@ambest.com
or
Christopher Sharkey, 908-439-2200, ext. 5159
Manager, Public Relations
christopher.sharkey@ambest.com
or
Jim Peavy, 908-439-2200, ext. 5644
Assistant Vice President, Public Relations
james.peavy@ambest.com

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Posted In: Press Releases
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