A.M. Best Affirms Financial Strength and Debt Ratings of Sierra Health Services; Revises Outlook to Positive.Business Editors OLDWICK, N.J.--(BUSINESS WIRE)--May 13, 2004 A.M. Best Co. has affirmed the financial strength ratings of B+ (Very Good) of Sierra Health Services health services Managed care The benefits covered under a health contract , Inc.'s (Sierra) (NYSE NYSE See: New York Stock Exchange : SIE SIE Sierra Health (stock symbol) SIE Serial Interface Engine SIE Serviciul de Informatii Externe (Romanian: Intelligence Service for the Exterior) SIE Società Italiana di Endocrinologia ) core HMO HMO health maintenance organization. HMO n. A corporation that is financed by insurance premiums and has member physicians and professional staff who provide curative and preventive medicine within certain financial, , Health Plan of Nevada, Inc (both of Las Vegas Las Vegas (läs vā`gəs), city (1990 pop. 258,295), seat of Clark co., S Nev.; inc. 1911. It is the largest city in Nevada and the center of one of the fastest-growing urban areas in the United States. , NV), and its health insurance company, Sierra Health and Life Insurance Company, Inc. (Los Angeles Los Angeles (lôs ăn`jələs, lŏs, ăn`jəlēz'), city (1990 pop. 3,485,398), seat of Los Angeles co., S Calif.; inc. 1850. , CA). Concurrently, A.M. Best has affirmed the debt rating of "bb-" on Sierra's $115 million 2.25% senior unsecured convertible debentures due 2023. The outlook for all ratings is revised to positive from stable. Membership and revenue growth at the Nevada companies, primarily Health Plan of Nevada, continues to be strong. The companies have increased their leading market share in the growing Las Vegas area where a successful integrated delivery network provides a competitive advantage. A.M. Best expects strong growth to continue over the medium term, aided by Las Vegas' favorable demographic projections. Sierra's consolidated cash earnings and debt service capability have improved substantially. A.M. Best expects this positive trend to continue during 2004. A meaningful drag on the strong earnings of Health Plan of Nevada from the workers' compensation workers' compensation, payment by employers for some part of the cost of injuries, or in some cases of occupational diseases, received by employees in the course of their work. company is substantially behind the company with its divestiture completed on March 31, 2004. Additionally, the loss of the bid for the new TRICARE contract has eliminated expansion risk and reduced demands on capital at Sierra. Despite the excellent cash earnings trend at Health Plan of Nevada, Sierra's balance sheet strengthening has been below A.M. Best's expectations because of management's focus to right-size the company's capital structure through aggressive share repurchase Share Repurchase A program by which a company buys back its own shares from the marketplace, reducing the number of outstanding shares. This is usually an indication that the company's management thinks the shares are undervalued. . In A.M. Best's opinion, high financial leverage--exceeding 40%--may be understated due to potential future write-downs of the carrying value Carrying Value Also know as "book value," it is a company's total assets minus intangible assets and liabilities, such as debt. Notes: This is different than market value, as it can be higher or lower depending on the circumstances. of the disposed workers' compensation business note receivable note receivable A debt due from borrowers and evidenced by a written promise of payment. Note receivable, an entry on the asset side of many corporate balance sheets, indicates the dollar amount of loans due to be repaid by borrowers. . This financial leverage ratio is mitigated somewhat as Sierra's only outstanding debt is the 2.25% senior unsecured convertible debentures due in March 2023, which Sierra could repay with equity. Also, the holding company cash balance and risk-based capital at Health Plan of Nevada, while adequate for the current rating level, could benefit from further strengthening, improving corporate financial flexibility. A.M. Best believes Sierra's forecast cash earnings, if achieved and retained within the enterprise, could address these financial strength issues during the near term, supporting the positive outlook. Given the enterprise's previous financial strength challenges, a stable business profile is a key prerequisite for additional positive rating actions. The financial strength ratings of B+ (Very Good) have been affirmed and assigned positive outlooks for the following subsidiaries of Sierra Health Services, Inc.: -- Health Plan of Nevada, Inc. -- Sierra Health and Life Insurance Company, Inc. The following debt rating has been affirmed and assigned a positive outlook: Sierra Health Services, Inc. -- -- "bb-"on $115 million 2.25% senior unsecured convertible debentures, due 2023 For current Best's Ratings, independent data and analysis on more than 1,050 health companies and more than 130 HMO industry composites, please visit http://www3.ambest.com/health/. For a list of A.M. Best's debt ratings, please visit http://www3.ambest.com/debtratings/. A.M. Best Co., established in 1899, is the world's oldest and most authoritative insurance rating and information source. For more information, visit A.M. Best's Web site at www.ambest.com. |
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