Fitch Revises Health Net's IFS To 'BBB+' Under New Methodology; Outlook To Stable.

CHICAGO -- Fitch Ratings has revised the Insurer Financial Strength Ratings of Health Net, Inc.'s (HNT) operating subsidiaries to 'BBB+' from 'BBB'. A list of the affected companies can be found below.

Concurrently, Fitch has withdrawn HNT's Long-Term Issuer rating at 'BB+' and assigned an Issuer Default Rating (IDR) of 'BBB-' to the company. Fitch has also affirmed HNT's 'BB+' senior debt rating. Fitch has also revised the Rating Outlook on HNT and its subsidiaries to Stable from Negative. Fitch's rating actions affect approximately $400 million of senior unsecured notes outstanding.

Today's rating action follows recent discussions with the senior management of HNT, and reflects Fitch's implementation of its new ratings standards for the U.S. Health Insurance Sector. These standards, outlined in a Feb. 28, 2006 press release, will add greater transparency to Fitch's ratings. Fitch's new methodology was released in a special report entitled 'Insurance Industry: Global Notching Methodology,' and delineates the impact of default risk, and recovery given default, on ratings.

The implementation of the new ratings standards was done concurrently for most insurance sectors globally, and follows the publication of an exposure draft of the noted methodology report on Dec. 14, 2005 and a market feedback period. A summary of the major areas of feedback, and Fitch's responses, can be found in the report 'Responses to Feedback on Insurance Industry Notching Methodology' also published today and available on the Fitch Ratings web site at 'www.fitchratings.com'.

The new ratings methodology is designed to add greater transparency to Fitch's insurance industry ratings. This is accomplished by more clearly assessing the effect of default risk and recovery given default on ratings. Specifically, the new ratings standards clearly distinguish how default and recovery risk is influenced by various insurance regulatory standards around the world, and varying treatments with respect to policyholder preference and payment restrictions between an operating company and holding company.

As part of the new methodology Fitch has assigned a new IDR to essentially all debt issuing entities rated by Fitch. The IDR is a pure measure of default risk at the entity level. Fitch believes that the distinction between the IDR and unsecured senior debt rating provides significant value added information for investors not previously available.

The relationship between health insurer's IDRs and existing senior unsecured debt ratings is primarily dependent on characteristics of the regulatory jurisdictions and environments in which the debt issuing holding companies and subsidiary life insurance companies operate.

Greater details on Fitch's new guidelines governing notching of issue ratings relative to the IDR, as well as the notching between IFS ratings at an operating company level and debt ratings at a holding company level are available in the noted methodology report.

All rating changes being made as part of the implementation of the new ratings guidelines are being designated as 'revisions', as opposed to upgrades or downgrades. This is being done to make clear that the rating change is driven by a methodology change, as opposed to a change in Fitch's views on the fundamental credit profile of the entity or its rated issues.

However, Fitch's affirmation of HNT's senior debt rating and the Rating Outlook revision is not part of the implementation of the new methodology, but rather reflects Fitch's annual review of the company's performance and capitalization.

Fitch's ratings on HNT continue to reflect the company's moderate financial leverage, good competitive position in the health insurance/managed care markets in California, and strong presence in the traditionally stable margin Tricare business.

The ratings also reflect industry challenges related to the rapidly increasing cost of providing health care, increasing competitive pressures, and regulatory and legal challenges that may affect the extent to which industry participants can manage costs and price their products appropriately.

Health Net, Inc. (HNT) is among the largest publicly traded managed care operations in the U.S., reporting Dec. 31, 2005 enrollment of 6.3 million individuals, including enrollment associated with its Tricare business. Although HNT's largest presence is in the State of California, the company operates in a total of 27 states. The company provides a variety of indemnity, PPO, POS, and HMO plans in the group, individual, Medicare risk, Medicaid, and Tricare markets.

The following ratings experienced an upward revision to 'BBB+' from 'BBB' as a result of implementation of the new guidelines:

Health Net of California, Inc.

Health Net of Arizona, Inc.

Health Net Health Plan of Oregon, Inc.

Health Net of Connecticut, Inc.

Health Net of New Jersey, Inc.

Health Net of New York, Inc.

The following long term issuer rating was also withdrawn and an IDR was assigned as a result of implementation of the new methodology.

Health Net, Inc.

-- Issuer Default Rating (IDR) 'BBB-';

-- Long-term issuer rating, rated 'BB+'.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, 'www.fitchratings.com'. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.