AM Best Affirms Credit Ratings of Anthem, Inc. and Most Subsidiaries; Upgrades Credit Ratings of AMERIGROUP Affiliates

AM Best has affirmed the Financial Strength Rating (FSR) of A (Excellent) and the Long-Term Issuer Credit Rating (Long-Term ICR) of “a+” (Excellent) of the core Blue Cross Blue Shield-branded insurance subsidiaries of Anthem, Inc. (Anthem) (Indianapolis, IN) [NYSE:ANTM], as well as its branded life insurance subsidiaries. Concurrently, AM Best has upgraded the FSR to A (Excellent) from A- (Excellent) and the Long-Term ICR to “a+” (Excellent) from “a-” (Excellent) of various AMERIGROUP affiliates. All companies listed above are collectively referred to as Anthem Health. At the same time, AM Best has affirmed the Long-Term ICR of “bbb+” (Good), the Long- and Short-Term Issue Credit Ratings (Long-Term IR; Short-Term IR) of Anthem and the Long-Term IR on the existing surplus notes of Anthem Insurance Companies, Inc. (Indianapolis, IN).

Furthermore, AM Best has affirmed the FSR of A- (Excellent) and the Long-Term ICR of “a-” (Excellent) of the members of UNICARE Life & Health Group (UNICARE) a subsidiary of Anthem.

The outlook of these Credit Ratings (ratings) is stable. See below for detailed listing of the companies and Long- and Short-Term IRs.

The ratings reflect Anthem Health’s balance sheet strength, which AM Best assesses as very strong, as well as its strong operating performance, favorable business profile and appropriate enterprise risk management.

Anthem Health’s risk-adjusted capitalization is viewed as strongest, as measured by Best’s Capital Adequacy Ratio (BCAR). The Anthem Health entities comprise the main source of earnings and dividends for the parent organization, Anthem, with dividends from subsidiaries exceeding $3 billion in each of the past three years, although projected to be slightly lower in 2021. The Anthem Health entities have been able to grow capital and support the premium growth despite sizeable dividend payments. Anthem Health’s reported earnings are generally stable and strong, albeit with some fluctuations at the product and entity level. The Anthem Health entities generated underwriting gains in excess of $4 billion over the past five years; however, underwriting results declined each year since 2018. Profitability metrics remains strong, although they declined in 2020, with a return on revenue (ROR) of 4% and return on equity (ROE) of 22.9%, compared with ROR of 4.5-5.3% and ROE in the 27-30% range in 2016-2019. Earnings compression was due to faster growth of lower-margin Medicare Advantage and Medicaid lines of business, as well as initiatives taken by Anthem to support members and providers during the COVID-19 pandemic and to lower risk-adjustment revenues in 2021 given the lower level of member visits with physicians in 2020 due to the pandemic. This trend is in line with the industry and AM Best expects it to continue. Furthermore, through nine months of 2021, Anthem Health saw elevated claims costs related to a higher-than-anticipated volume of COVID-19 testing, which may pressure full-year 2021 earnings. The group has good product and geographic diversity, as Anthem operates Blue Cross Blue Shield plans in 14 states with excellent brand recognition and leading market shares in the majority of its states. Strong penetration into national accounts and large group markets continue to support Anthem Health’s leading market position. In addition, Anthem Health expanded its individual exchange product offerings over the past two years. AMERIGROUP entities operate in an additional 12 states in the Managed Care Medicaid segment, further expanding Anthem’s footprint. In addition, various non-regulated business under the Anthem organization, including pharmacy benefit management, complex and home care management and behavioral health administration add a competitive advantage in all lines of business and allow for cost efficiencies.

The rating upgrades of the AMERIGROUP affiliates reflect closer integration with Anthem and greater importance of the Medicaid segment for Anthem’s overall strategy and growth. The AMERIGROUP entities have been instrumental for capturing Medicaid growth opportunities in the states where Anthem does not have Blue licenses. Anthem has owned AMERIGROUP since 2012, and has been supporting the affiliates with capital infusions when needed.

Financial leverage at Anthem was 39% as of the end of third-quarter 2021 and AM Best expects financial leverage to moderate slightly through a combination of eliminating existing debt and increases in shareholders’ equity. Earnings before interest and taxes interest coverage was adequate at 8.7 times for 2020, a slight decline when compared with 2019, but an improvement over 2017-2018. The holding company maintains ample liquidity, with access to a $2.5 billion revolving-credit facility; a $1 billion, 364-day senior revolving credit facility; a $3.5 billion commercial paper program; and access to the Federal Home Loan Bank through several of its insurance subsidiaries. Anthem has been active in small and midsize mergers and acquisitions over the past two years, expanding its presence in various insurance markets and building stronger non-regulated vertical integration. However, AM Best considers Anthem’s goodwill plus intangibles to equity as high, at over 94%, through September 2021. Furthermore, AM Best acknowledges that a portion of the intangibles is the Blue Cross Blue Shield trademarks, which are required to operate as a Blue Cross Blue Shield-branded entity.

The ratings of UNICARE reflect its balance sheet strength, which AM Best assesses as strong, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management. Over the past two years, UNICARE entities have been assuming large volume of premium from various Anthem’s affiliates. Anthem has contributed capital to support that premium transfer.

The FSR has been upgraded to A (Excellent) from A- (Excellent) and the Long-Term ICR to “a+” (Excellent) from “a-” (Excellent) with stable outlooks for the following newly added members of Anthem Health Group:

• AMERIGROUP Maryland, Inc.
• AMERIGROUP New Jersey, Inc.
• AMERIGROUP Tennessee, Inc.
• AMERIGROUP Texas, Inc.
• AMGP Georgia Managed Care Company, Inc.
• AMERIGROUP Washington, Inc.
• AMERIGROUP Insurance Company
• AMERIGROUP Kansas Inc.
• AMERIGROUP Community Care of New Mexico, Inc.
• Community Care Health Plan of Louisiana, Inc.
• Community Care Health Plan of Nevada, Inc.

The FSR of A (Excellent) and the Long-Term ICRs of “a+” (Excellent) have been affirmed with stable outlooks of the following subsidiaries of Anthem, Inc.:

• Anthem Blue Cross Life and Health Insurance Company
• Anthem Health Plans of Kentucky, Inc.
• Anthem Health Plans of Maine, Inc.
• Anthem Health Plans of New Hampshire, Inc.
• Anthem Health Plans of Virginia, Inc.
• Anthem Health Plans, Inc.
• Anthem Insurance Companies, Inc.
• Anthem Kentucky Managed Care Plan, Inc.
• Anthem Life & Disability Insurance Company
• Anthem Life Insurance Company
• BlueCare Health Plan
• Blue Cross Blue Shield Healthcare Plan of Georgia, Inc.
• Blue Cross Blue Shield of Wisconsin
• Blue Cross of California
• Community Insurance Company
• Compcare Health Services Insurance Corporation
• Empire HealthChoice Assurance, Inc.
• Empire HealthChoice HMO, Inc.
• Greater Georgia Life Insurance Company
• HealthKeepers, Inc.
• Healthy Alliance Life Insurance Company
• HMO Colorado, Inc.
• HMO Maine
• HMO Missouri, Inc.
• Matthew Thornton Health Plan, Inc.
• Rocky Mountain Hospital and Medical Service, Inc.

The FSR of A- (Excellent) and the Long-Term ICRs of “a-” (Excellent) have been affirmed with stable outlooks of the following subsidiaries of Anthem, Inc.:

• UNICARE Life & Health Insurance Company
• UNICARE Health Plan of West Virginia, Inc.

The following Long-Term IRs have been affirmed with stable outlooks:

Anthem, Inc.—

-- “bbb+” (Good) on $850 million 3.125% senior unsecured notes, due 2022

-- “bbb+” (Good) on $750 million 2.95% senior unsecured notes, due 2022

-- “bbb+” (Good) on $1 billion 3.3% senior unsecured notes, due 2023

-- “bbb+” (Good) on $500 million .45% senior unsecured notes, due 2023

-- “bbb+” (Good) on $800 million 3.50% senior unsecured notes, due 2024

-- “bbb+” (Good) on $850 million 3.35% senior unsecured notes, due 2024

-- “bbb+” (Good) on $1.25 billion 2.375% senior unsecured notes, due 2025

-- “bbb+” (Good) on $750 million 1.5% senior unsecured notes, due 2026

-- “bbb+” (Good) on $1.6 billion 3.65% senior unsecured notes, due 2027

-- “bbb+” (Good) on $1.25 million 4.101% senior unsecured notes, due 2028

-- “bbb+” (Good) on $825 million 2.875% senior unsecured notes, due 2029

-- “bbb+” (Good) on $1.1 billion 2.25% senior unsecured notes, due 2030

-- “bbb+” (Good) on $1 billion 2.55% senior unsecured notes, due 2031

-- “bbb+” (Good) on $499 million ($336 million outstanding) 5.95% senior unsecured notes, due 2034

-- “bbb+” (Good) on $900 million ($399 million outstanding) 5.85% senior unsecured notes, due 2036

-- “bbb+” (Good) on $800 million ($369 million outstanding) 6.375% senior unsecured notes, due 2037

-- “bbb+” (Good) on $300 million ($116 million outstanding) 5.80% senior unsecured notes, due 2040

-- “bbb+” (Good) on $900 million ($885 million outstanding) 4.625% senior unsecured notes, due 2042

-- “bbb+” (Good) on $1.5 billion 2.75% senior unsecured convertible debentures, due 2042

-- “bbb+” (Good) on $1.0 billion ($990 million outstanding) 4.65% senior unsecured notes, due 2043

-- “bbb+” (Good) on $800 million ($787 million outstanding) 5.1% senior unsecured notes, due 2044

-- “bbb+” (Good) on $800 million ($570 million outstanding) 4.65% senior unsecured notes, due 2044

-- “bbb+” (Good) on $1.4 billion 4.375% senior unsecured notes, due 2047

-- “bbb+” (Good) on $850 million 4.55% senior unsecured notes, due 2048

-- “bbb+” (Good) on $825 million 3.70% senior unsecured notes, due 2049

-- “bbb+” (Good) on $1.0 billion 3.125% senior unsecured notes, due 2050

-- “bbb+” (Good) on $1.25 billion 3.6% senior unsecured notes, due 2051

-- “bbb+” (Good) on $250 million 4.85% senior unsecured notes, due 2054

Anthem Insurance Companies, Inc.—

-- “a-” (Excellent) on $25.1 million 9.0% surplus notes, due 2027

The following Short-Term IR has been affirmed:

Anthem, Inc.—

-- AMB-2 (Satisfactory) on commercial paper program

The following indicative Long-Term IRs under the shelf registration have been affirmed with stable outlooks:

Anthem, Inc.—

-- “bbb+” (Good) on senior unsecured debt

-- “bbb” (Good) on subordinated debt

-- “bbb-” (Good) on preferred stock

This press release relates to Credit Ratings that have been published on AM Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best's Credit Ratings. For information on the proper use of Best’s Credit Ratings, Best’s Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best’s Ratings & Assessments.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

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