A.M. Best Places Ratings of Coventry Health Care, Inc. and Its Subsidiaries Under Review With Positive Implications

A.M. Best Co. has placed under review with positive implications the financial strength ratings (FSR) and issuer credit ratings (ICR) of Coventry Health Care, Inc.’s (Coventry) (Bethesda, MD) [NYSE: CVH] insurance subsidiaries. A.M. Best also has placed under review with positive implications the ICR and debt ratings of Coventry. (See link below for a detailed listing of the companies and ratings.)

These rating actions follow the announcement that Aetna Inc. (Aetna) (Hartford, CT) [NYSE: AET] has entered into a definitive agreement to acquire Coventry in a transaction valued at $7.3 billion. As part of the agreement, Aetna will assume Coventry’s $1.6 billion of the senior debt outstanding. Under the terms of the agreement, Coventry stockholders will receive $27.30 in cash and 0.3885 in Aetna common shares for each Coventry share, or $42.08 per share, based on the closing price of Aetna’s common shares as of Friday, August 17, 2012. The acquisition is expected to close mid-2013, subject to state and federal regulatory approvals.

The under review status reflects the financial strength of Aetna and the synergies projected to develop as the consolidated entity matures over the next couple of years. In addition, Aetna’s history of maintaining solid capitalization levels at its operating subsidiaries also is factored into the rating actions.

A.M. Best acknowledges the long-term earnings potential through network synergies achieved through the consolidation of Aetna and Coventry. However, A.M. Best believes there are uncertainties in the Medicaid and small group market business managed by Coventry that may present challenges over the medium term as the health insurance market continues to work through the transition to a market-based system under the Patient Protection and Affordable Care Act (PPACA). Furthermore, there are risks present for Medicaid as state governments are pressured from budget constraints and local government waivers on Medicaid expansion.

The ratings will remain under review pending the completion of the transaction and A.M. Best’s continuing discussions with Coventry’s management. A.M. Best will continue to monitor Coventry’s operating performance, risk-based capitalization at the operating companies and its capital structure.

For a complete listing of Coventry Health Care, Inc. and its subsidiaries’ FSRs, ICRs and debt ratings, please visit www.ambest.com/press/082107coventry.pdf.

The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.

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