Fitch Revises Outlook on Health Net to Negative from Stable.Business Editors CHICAGO--(BUSINESS WIRE)--May 4, 2004 Fitch Ratings Fitch Ratings An international rating agency for financial institutions, insurance companies, and corporate, sovereign, and municipal debt. Fitch Ratings has headquarters in New York and London and is wholly owned by FIMALAC of Paris. today revised the Rating Outlook on the 'BBB' long-term issuer and senior debt ratings of Health Net, Inc. (HNT HNT Hostage Negotiation Team ) to Negative from Stable. The rating action affects approximately $400 million of senior unsecured notes outstanding. In addition, Fitch revised the Rating Outlook on the 'A-' insurer financial strength rating on Health Net of California and Health Net of Connecticut to Negative from Stable. A list of Fitch's ratings on Health Net and its subsidiaries can be found below. Today's rating action follows the company's disclosure this morning that claims development in the first quarter on services provided prior to 2004 was significantly more negative than anticipated when management first disclosed an adverse development issue during a conference call in February. The additional claims development substantially lowered the company's first quarter 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 . The change in the Rating Outlook reflects Fitch's concerns regarding the deterioration in HNT's underwriting results and reduced earnings profile over the near term, as well as ongoing concerns regarding the risk-based capital levels of HNT's regulated operating subsidiaries. Specifically, Fitch does not believe that risk-adjusted capital in the company's primary operating company operating company A business that engages in transactions with outsiders. , Health Net of California, developed in 2003 to the extent Fitch had anticipated, due primarily to upstream dividend payments in excess of net earnings. Fitch's ratings on HNT continue to reflect the company's good operating performance in recent years, moderate financial leverage, good competitive position in the health insurance / managed care markets in California and in the New York metropolitan area New York–Northern New Jersey–Long Island is the most populous metropolitan area in the United States and the third most populous in the world, after Tokyo and Mexico City. , and strong presence in the traditionally stable margin TRICARE business. In 2003, HNT was awarded the contract to administer the TRICARE program in the North Region. The contract is one of three that were awarded as part of the Department of Defense's re-bidding process for the entire TRICARE program, and the award is considered a positive development for HNT. 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. In addition, although the company announced a settlement of the litigation An action brought in court to enforce a particular right. The act or process of bringing a lawsuit in and of itself; a judicial contest; any dispute. When a person begins a civil lawsuit, the person enters into a process called litigation. related to the 1998 sale of its 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. business to Superior National Insurance Group, Inc., a follow-up suit has been filed. The final outcome of this litigation is currently uncertain. The company's March 31, 2004 leverage, as measured by debt to total capital, was approximately 24%, up slightly from its year-end 2003 level of 23.5%. Fitch expects HNT to maintain leverage below management's stated maximum of 30%. Fitch considers statutory capital levels at HNT's regulated subsidiaries to be adequate, and expects risk-adjusted capitalization to strengthen moderately going forward. Health Net, Inc. (HNT) is among the largest publicly traded managed care operations in the United States, reporting March 31, 2004, enrollment of 5.3 million individuals. Although HNT's largest presence is in the state of California, the company operates in a total of 14 states. The company provides a variety of indemnity, PPO PPO abbr. preferred provider organization PPO Managed care Preferred provider organization, see there Infectious disease Pleuropneumonia-like organism, see there , POS (1) See point of sale and packet over SONET. (2) "Parent over shoulder." See digispeak. POS - point of sale and 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, plans in the group, individual, Medicare risk, Medicaid and TRICARE markets. Entity/Issue/Type Action Rating/Outlook Health Net of California, Inc. -- Insurer Financial Strength Affirm 'A-'/Negative. Health Net of Arizona, Inc. -- Insurer Financial Strength Affirm 'BBB'/Stable. Health Net Health Plan of Oregon, Inc. -- Insurer Financial Strength Affirm 'BBB'/Stable. Health Net of Connecticut, Inc. -- Insurer Financial Strength Affirm 'A-'/Negative. Health Net of New Jersey, Inc. -- Insurer Financial Strength Affirm 'BBB'/Stable. 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. -- Insurer Financial Strength Affirm 'BBB'/Stable. Health Net, Inc. -- Long-Term Issuer Affirm 'BBB'/Negative; -- Senior Debt Affirm 'BBB'/Negative. |
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