AM Best Affirms Credit Ratings of Most of CVS Health Corporation’s Aetna Inc. Subsidiaries; Withdraws Credit Ratings of Members of Texas Health Aetna - Seite 2

Additionally, the balance sheet strength is supported by adequate liquidity measures, which are strengthened by access to the Federal Home Loan Bank of Boston at the lead entity, ALIC. Aetna Life & Health Group has moderate reinsurance leverage and its reinsurance arrangements differentiates Aetna from its health insurance peers. In addition to traditional reinsurance with highly rated carriers, Aetna Health & Life Group maintains a quota share reinsurance agreement with Health Re Inc. and subsequent excess of loss protection by Vitality Re entities. Furthermore, the group exhibits good quality of capital and currently does not hold any debt.

Over the past few years, favorable development in net premium has been driven by membership growth in the commercial, Medicare Advantage and Medicaid managed care product lines. While premium growth is expected to continue for commercial and Medicare Advantage over the near term, it will be offset partially by declines in Medicaid membership in 2023 and the first half of 2024 due to the resumption of redeterminations following the end of the public health emergency. Premium growth has impacted operating earnings trends positively over the past few years. Aetna Health & Life Group has reported underwriting and net income exceeding $2 billion in each of the past five years with return on revenues at or exceeding 5% and return on equity exceeding 20%. The group reported an increase in underwriting income through year-end 2022; however, it noted an increase in claims driven by increased utilization in its Medicare Advantage segment, a trend that began in 2023, and is expected to continue into 2024. Moreover, investment income has been steady over the past five years and is expected to improve in 2023 and 2024 due to the interest rate environment. Investment income has meaningfully contributed to net earnings.

Aetna is one of the leading players in the managed care markets offering products throughout the United States. While Aetna’s Medicare Advantage and Medicaid managed care markets have experienced significant membership growth over the past few years, Aetna remains competitive and continues to gain enrollment in other segments.

The ratings of Aetna Health & Life Group reflect the negative impact from its ultimate parent, CVS Health, which has elevated financial leverage and goodwill that is not expected to change materially in the near to medium term. While the financial leverage at CVS Health has declined substantially since the acquisition of Aetna, financial leverage increased modestly at year-end 2023, driven by the acquisitions of Signify Health Inc. and Oak Street Health Inc. Signify Health adds in-home health care to the CVS Health organization, while Oak Street Health is a leading multi-payer, value-based primary care company. Goodwill-to-shareholders equity increased over the prior year and exceeded 110% at year-end 2023. While the acquisitions of Oak Street and Signify Health are part of the organization’s health care services strategy, AM Best recognizes the inherent execution risk within these transactions. Over the near term, there may be pressure from additional business expansion related to acquisitions.