AM Best Upgrades Credit Ratings for Most UnitedHealth Group Incorporated Life/Health Subsidiaries

AM Best has upgraded the Financial Strength Rating (FSR) to A+ (Superior) from A (Excellent) and the Long-Term Issuer Credit Rating (Long-Term ICR) to “aa-” (Superior) from “a+” (Excellent) for the majority of the health and dental insurance subsidiaries of UnitedHealth Group, collectively referred to as UnitedHealthcare. AM Best also has upgraded the Long-Term ICR to “a” (Excellent) from “a-” (Excellent) and its associated Long-Term Issue Credit Ratings and Short-Term Issue Credit Rating (Long-Term IR’s, Short-Term IR) of UnitedHealth Group Incorporated (UnitedHealth Group) (Minnetonka, MN) [NYSE: UNH]. The outlook of these Credit Ratings (ratings) has been revised to stable from positive.

Concurrently, AM Best has upgraded the FSR to A+ (Superior) from A (Excellent) and the Long-Term ICRs to “aa-” (Superior) from “a” (Excellent) of Freedom Life Insurance Company of America, Enterprise Life Insurance Company and National Foundation Life Insurance Company, which are now collectively referred to as UnitedHealthcare. These companies are domiciled in Fort Worth, TX. In addition, AM Best has affirmed the FSR of A (Excellent) and the Long-Term ICR of “a” (Excellent) of The Chesapeake Life Insurance Company (Chesapeake Life) (Oklahoma City, OK). The outlook of these ratings is stable. (See link below for a detailed listing of the companies and ratings.)

The ratings reflect UnitedHealthcare’s balance sheet strength, which AM Best assesses as strong, as well as its very strong operating performance, very favorable business profile and very strong enterprise risk management (ERM).

The rating upgrades for UnitedHealthcare reflect robust profitability metrics, supported by premium growth, very strong earnings and strategic capital management. UnitedHealthcare has experienced significant premium development driven by growth across multiple business segments but with a more pronounced growth in government programs. Underwriting gains have been consistently outperforming, setting a new record high over the past three years reflecting solid underwriting practices, growing vertical integration, value-based arrangements and technology innovations leading to care efficiencies and more advanced medical management.

In addition, expanding membership and premium enhance the economies of scale and provide foundation for diligent administrative expense control. The ability to control cost positions the organization for further profitable growth in all segments, especially in government programs in which margins are lower and competition remains very intense. Stability and growth in earnings have left UnitedHealthcare well-positioned to navigate the uncertainties of the COVID-19 pandemic. While the impacts of the pandemic have altered operating results in 2020, over the past nine months utilization has reverted to more normal levels, albeit with fluctuations and some depression in actual claims volume during certain periods. This has been reflected in profitability metrics, which remain stable to improving. The 2020 five-year statutory return-on-equity was nearly 35%, while return-on-revenue reached 5.1% in 2020, trending higher than its peers. UnitedHealthcare reported solid statutory net income results outperforming historical trends, by setting new record high net income each of the past five years, reporting $8.4 billion in 2020.

Balance sheet strength remains strong based on favorable operating results and strategic capital management. Risk-adjusted capital has strengthened over the past three years as earnings growth has led to higher capital and surplus levels while still paying sizeable dividends to the parent. This shows the company’s ability in managing its statutory capital by ensuring capital and liquidity is maintained at appropriate levels across its entities. Investments policy is conservative, and investments are comprised of primarily high quality fixed income securities with minimal to no exposure to below investment grade or equity investments. Liquidity measures remain solid and provide flexibility to adjust asset allocation. High liquidity is supported by consistent, strong operating cash flows, with supplemental support from credit facilities with the parent company.

UnitedHealthcare’s business profile is very favorable as its strong earnings are well-diversified by geography and by business segment. The company has a nationwide presence with a prominent share in most market segments. While the company has an increased and continuously growing amount of business derived from government programs, this balances well against the dependence on commercial business, which is susceptible to economic pressures. Furthermore, the company’s strategic partnerships with AARP and its affiliate, Optum, Inc. (Optum), enhance product offerings and its health care service capabilities, as well as for client retention.

UnitedHealth Group has a very mature and high-functioning ERM program. The company performs advanced stress and scenario testing, solvency assessment and economic capital modeling. The program is embedded within the company and is utilized in operational management of its business, strategic planning and in its response to the COVID-19 pandemic.

Strong top line growth and consistently favorable operating earnings from both the health insurance entities at UnitedHealthcare and from its nonregulated business, Optum, have provided UnitedHealth Group with continued solid financial flexibility. The non-regulated business from Optum, which comprises approximately half of UnitedHealth Group’s consolidated earnings, has experienced margin expansion and double-digit growth year-over-year, for each of the past three years. It also provided UnitedHealth Group with slightly more than half of its cash flow during 2021, a trend that is likely to increase as the business continues to grow. UnitedHealth Group has a high level of financial flexibility with material nonregulated cash flow, high dividend capacity from its health insurance subsidiaries and a $12.5 billion credit facility.

UnitedHealth Group has managed its financial leverage in the 40% range over the long-term experiencing temporary fluctuations following sizeable acquisitions. This might reoccur once the previously announced acquisition of Change Healthcare is completed, which could temporarily increase the measure to above 40%. However, AM Best anticipates the company will deploy deleveraging actions to revert to its 40% range, as it has demonstrated in the past. This transaction has been delayed, but is expected to close in the first half of 2022.

The percentage of goodwill and intangible assets to equity has been declining, mainly due to equity growth, and was at 117% at Sept. 30, 2021. Although this metric is higher than some of its peers, the company has no history of material write-downs and the company tests its goodwill annually. UnitedHealth Group’s earnings before interest and taxes (EBIT) interest coverage are strong at over 13 times for full-year 2020 based on its strong operating earnings.

The ratings reflect Chesapeake Life’s balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, limited business profile and appropriate ERM.

A complete listing of UnitedHealth Group’s health and dental insurance subsidiaries’ FSRs, Long-Term ICRs and Short- and Long-Term IRs also is available.

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 Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best’s Ratings & Assessments.

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