A.M. Best Upgrades Ratings of Coventry Health Care, Inc. and Its Selected Subsidiaries

Business Wire,  Oct 30, 2007  

Tags: A.M. Best Co., Coventry Health Care Inc.

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OLDWICK, N.J. -- A.M. Best Co. has upgraded the issuer credit rating (ICR) and debt ratings to "bbb-" from "bb+" of Coventry Health Care, Inc. (Coventry) (Bethesda, MD) [NYSE: CVH]. A.M. Best also has upgraded the financial strength rating (FSR) to A- (Excellent) from B++ (Good) and the ICR to "a-" from "bbb+" for selected subsidiaries of Coventry. Additionally, A.M. Best has assigned an FSR of B (Fair) and ICRs of "bb+" to Vista Healthplan, Inc. (Sunrise, FL), Vista Healthplan of South Florida, Inc. (Sunrise, FL) and Summit Healthplan, Inc. (Sunrise, FL) (collectively known as Vista).

Concurrently, A.M. Best has affirmed the FSR of B++ (Good) and upgraded the ICR to "bbb+" from "bbb" of Personal Care Insurance Company of Illinois, Inc. (Champaign, IL). The ratings of the remaining subsidiaries of Coventry have been affirmed. All ratings have a stable outlook. (See link below for a detailed listing of the companies and ratings.)

Coventry's subsidiaries' ratings reflect the organization's expanded geographic coverage, growing business diversification and consistent consolidated net income growth. Offsetting rating factors include increased financial leverage following the Vista acquisition and a highly competitive environment leading to commercial risk membership decline.

The acquisition of First Health Group Corporation (First Health) in 2005 added diversification to Coventry's product portfolio and significantly expanded its geographic reach.

The predominantly non-risk cash flow from First Health as well as the recent Concentra workers' compensation services acquisition contributed to Coventry's non-regulated earnings growth and decreased its dependence on dividends from health plans. The consolidated financial results, both earnings and revenues, were further accelerated by Coventry's participation in the new Medicare Part D and Private Fee For Service (PFFS) business. Coventry generates sound financial returns and has strong liquidity with earnings before interest, taxes, depreciation and amortization (EBITDA) coverage at approximately 13 times as of second quarter 2007.

Offsetting rating factors include the membership decline at Coventry's health plans, as well as increased financial leverage and goodwill exposure following the Vista acquisition. Coventry continues its strategy of growth through acquisitions, with acquisitions exceeding $1.2 billion during the first nine months of 2007. Following the $685 million Vista purchase, Coventry's financial leverage increased from 25% in second quarter 2007 to 35% in third quarter 2007. In addition, subsequent to the Vista transaction, the ratio of goodwill and intangibles to total equity reached 99%, compared to just below 70% as of year-end 2006. A.M. Best expects Coventry to bring the debt/capital ratio below 30% during 2008.

The ratings assigned to the Vista companies follow the completion of their acquisition by Coventry. The ratings reflect the lower level of risk-based capitalization as compared to other Coventry subsidiaries and the highly competitive Florida market. A.M. Best believes that Vista's operating performance, similar to other companies acquired by Coventry, may benefit from administrative synergies that might result in capitalization level improvement.

For a complete listing of Coventry Health Care, Inc.'s FSRs, ICRs and debt ratings, visit www.ambest.com/press/103002coventry.pdf.

Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers. For more information, visit www.ambest.com.

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