A.M. Best Affirms Ratings of Health Net's Life/Health Subsidiaries and HMOs; Affirms Debt Rating.Business Editors OLDWICK, N.J.--(BUSINESS WIRE)--Oct. 6, 2003 A.M. Best Co. has affirmed the financial strength ratings of Health Net Inc.'s (Health Net) (NYSE NYSE See: New York Stock Exchange :HNT HNT Hostage Negotiation Team ) (Woodland Hills, CA) life/health and health maintenance organizations (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, ) subsidiaries. (See list below.) Concurrently, A.M. Best has affirmed the debt rating of Health Net. The outlook for all the ratings is stable. The ratings of the Health Net companies reflect their leadership position in most of the states in which they operate, a diverse product portfolio and the historically profitable operations of Health Net's principal health plan subsidiary, Health Net of California, Inc. The rating also reflects the improved earnings at the Arizona and Oregon health plans and overall strengthened capitalization at the regulated entities. Offsetting these strengths are the challenges of operating in a highly competitive and regulated environment, specifically California and the Northeast, and operating losses at Health Net's New Jersey plan. Over the last several years, Health Net has made significant progress in realigning its businesses to stem operating losses and return the business to profitability. The company has increased premiums while culling culling removal of inferior animals from a group of breeding stock. The removal is premature, i.e. before completion of its life span, disposal of an animal from a herd or other group. unprofitable membership and produced good operating earnings Operating Earnings Profits after subtracting expenses such as marketing, cost of goods sold, administration and general operating costs from revenue. Notes: Tax and interest expenses are not subtracted - operating earnings are synonymous with EBIT (earnings before . Health Net's earnings have grown largely in response to this business improvement plan. A.M. Best believes that Health Net will continue to advance its operations, services and products by leveraging its multi-market presence and the consistency of its operations and processes. Health Net also increased its equity and continues to achieve strong operating cash flows Operating cash flow Earnings before depreciation minus taxes. Measures the cash generated from operations, not counting capital spending or working capital requirements. . A.M. Best believes that Health Net's regulated subsidiaries are adequately capitalized to support their level of business risks. Additionally, A.M. Best recognizes that Health Net's management is committed to maintaining aggregated subsidiary capital at a minimum of 300% of Managed Care Organizations' Risk-Based Capital (MCO MCO Managed care organization, see there RBC RBC red blood cell. RBC or rbc abbr. red blood cell RBC, n See red blood cell count. RBC red blood cells; red blood (cell) count (see blood count). ), thus exceeding mandatory thresholds. A.M. Best acknowledges the presence of cash and liquid assets Cash, or property immediately convertible to cash, such as Securities, notes, life insurance policies with cash surrender values, U.S. savings bonds, or an account receivable. at the holding company that could be used to support the subsidiaries should the need arise. Excess cash has been used to pay down debt and reduce financial leverage. Health Net's total debt to capital has declined from 63% in 1998 to 23% as of June 30, 2003. Over the near term, A.M. Best expects Health Net will continue to manage its financial leverage at or below 30% of total capitalization Total capitalization The total long-term debt and all types of equity of a company that constitutes its capital structure. total capitalization See capitalization. . A.M. Best acknowledges that financial flexibility is good, given a borrowing capacity at over $700 million from a bank line of credit should any need arise. Health Net of New Jersey reported negative underwriting results in 2002 and through June 30, 2003. A.M. Best expects remedial actions to return the plan to profitability by 2004. The financial strength rating of A- (Excellent) has been affirmed for the following subsidiaries of Health Net, Inc.: -- Health Net of California, Inc. -- Health Net Life Insurance Company The financial strength rating of B++ (Very Good) has been affirmed for the following subsidiaries of Health Net, Inc.: -- Health Net of Arizona, Inc. -- Health Net Health Plan of Oregon, Inc. -- Health Net of Connecticut, Inc. -- Health Net Insurance of Connecticut, Inc. -- Health Net of New Jersey, Inc. -- Health Net of New York New York, state, United States New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of , Inc. -- Health Net Insurance of New York, Inc. The following debt rating has been affirmed: Health Net, Inc.-- -- "bbb-" on $400 million 8.375% senior notes, due April 2011 For a list of A.M. Best's debt ratings, please visit: http://www.ambest.com/ratings/debtrating/companies.html. 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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