Market Overview

A.M. Best Removes From Under Review With Negative Implications and Affirms Credit Ratings of Aetna Inc. and Its Subsidiaries


A.M. Best has removed from under review with negative
implications and affirmed the Long-Term Issuer Credit Rating (Long-Term
ICR) of "bbb" of Aetna Inc. (Aetna) (headquartered in Hartford, CT)
(NYSE:AET). Concurrently, A.M. Best has removed from under review with
negative implications and affirmed the Financial Strength Rating (FSR)
of A (Excellent) and the Long-Term ICRs of "a" of Aetna Life Insurance
Company (ALIC) (Hartford, CT) and the other operating entities of Aetna.
Additionally, A.M. Best has removed from under review with negative
implications and upgraded the FSR to A (Excellent) from A- ( Excellent)
and the Long-Term ICRs to "a" from "a-" of Coventry Health Care of
Florida, Inc. (Coventry HC of FL) (Sunrise, FL). A.M. Best also
has removed from under review with negative implications and affirmed
the FSR of A- (Excellent) and the Long-Term ICRs of "a-" of Coventry
Health Plan of Florida, Inc. (Coventry HP of FL) (Sunrise, FL) and Aetna
Insurance Company Limited (AICL) (United Kingdom). A.M. Best has
removed from under review with negative implications and withdrawn the
FSR of B++ (Good) and the Long-Term ICR of "bbb" of Aetna Insurance
Company of Connecticut (Aetna IC of CT) (Hartford, CT). Lastly, A.M.
Best has removed from under review with negative implications and
affirmed the Long- and Short-Term Issue Credit Ratings (Long-Term IR;
Short-Term IR) of Aetna. The outlook assigned to these Credit Ratings
(ratings) is stable. Please see link below for a detailed listing of the
companies and ratings.

The majority of Aetna's operating entities, along with Coventry HC of
FL, are part of the core subsidiaries of Aetna Inc. (Aetna Health & Life
Group). The ratings of Aetna Health & Life Group reflect its balance
sheet strength, which A.M. Best categorizes as strong, as well as its
strong operating performance, favorable business profile and appropriate
enterprise risk management (ERM).

Aetna Health & Life Group's strong risk-adjusted capitalization is
supported through a steady stream of positive earnings. The sale of the
group life and disability business to Hartford Life and Accident
Insurance Company (Hartford) in late 2017 lowered the organization's
exposure to longer-term liabilities and reduced the need to carry higher
risk assets on the balance sheet. The insurance entities' liquidity and
financial flexibility are further supported by access to approximately
$700 million of Federal Home Loan Bank borrowing at ALIC and Aetna's $2
billion revolving credit facility with no current balance outstanding on
either facility. However, the capital and surplus at ALIC declined in
2017, driven by a higher dividend to the parent, reduced value of
deferred tax asset and the transfer of assets related to the Hartford
transaction. As a result, year-end 2017 risk-adjusted capitalization at
ALIC was at its lowest level in five years.

While Aetna's current financial leverage and interest coverage are in
line with industry peers, the potential merger with CVS Health
Corporation (CVS) may put additional pressure on the organization, as it
is expected that financial leverage at the new parent will be
approximately 60% with a very high level of goodwill and intangible
assets at the combined organization. In addition, there is a significant
integration risk related to the Aetna-CVS merger given the vertical
nature of the transaction and potential complexity to achieve meaningful
synergies. However, CVS stated its intention to maintain the current
capitalization level at Aetna's insurance entities and accelerate
de-leveraging through robust cash flow and reduced share repurchases.
Following the announcement of the transaction, Aetna stopped share
repurchases. Aetna's share repurchases totaled $3.85 billion in 2017.

The operating performance of Aetna's insurance subsidiaries remains
strong, with 2017 earnings supported by positive results in all lines of
business and margins exceeding targets. Earnings in the commercial
segment strengthened in 2017 following the exit from the majority of
individual exchange markets where the organization experienced losses in
2015 and 2016. Medicare Advantage gains expanded, owing in part to a
growing share of members enrolled in plans with higher Star ratings.
However, the exit from individual business, combined with a loss of
Medicaid contracts in several states, resulted in a material premium
decline. Aetna is focused on maintaining stability of commercial group
earnings while profitably expanding in government programs: Medicare
Advantage and Medicaid.

Aetna maintains a strong market presence throughout the United States in
commercial and government segments. In line with industry trends, the
Medicare Advantage line of business primarily has generated recent
growth, while the commercial group business has experienced modest
fluctuations. Aetna's strategy of building effective partnerships with
providers to deliver high quality and cost-effective care is supported
by the build-out of an information technology platform to facilitate
data-driven impacts on members' behavior and life style in order to
control chronic health conditions. The merger with CVS, if consummated,
will provide further opportunities for vertical integration and outreach
to members through increased local presence.

The rating upgrades of Coventry HC of FL reflect closer integration with
Aetna operations. The withdrawal of Aetna IC of CT ratings is due to
lack of activity at the entity.

The ratings of AICL reflect its balance sheet strength, which A.M. Best
categorizes as very strong, as well as its marginal operating
performance, limited business profile and appropriate ERM. Furthermore,
the ratings of AICL factor in rating enhancement from the Aetna
organization. AICL is Aetna's European underwriting platform, which in
recent years has benefited from capital injections and the transfer of
international business from the wider group.

For a complete list of Aetna Inc.'s subsidiaries' FSRs, Long-Term ICRs
and Long- and Short-Term IRs, please visit Aetna

This press release relates to Credit Ratings 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 see A.M. Best's
Rating Activity
web page. For additional information
regarding the use and limitations of Credit Rating opinions, please view
Best's Credit Ratings
. For information on the proper media
use of Best's Credit Ratings and A.M. Best press releases, please view
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