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Press release from Business Wire

A.M. Best Places Ratings of WellPoint, Inc. and Its Subsidiaries Under Review With Negative Implications

Tuesday, July 10, 2012

A.M. Best Places Ratings of WellPoint, Inc. and Its Subsidiaries Under Review With Negative Implications16:05 EDT Tuesday, July 10, 2012 OLDWICK, N.J. (Business Wire) -- A.M. Best Co. has placed under review with negative implications the financial strength ratings (FSR), issuer credit ratings (ICR) and debt ratings of WellPoint, Inc. (WellPoint) (Indianapolis, IN) [NYSE: WLP] and its insurance subsidiaries. (See link below for a detailed listing of the companies and ratings.) These rating actions follow the announcement that WellPoint and AMERIGROUP Corporation (Amerigroup) have entered into a definitive agreement for WellPoint to acquire Amerigroup for approximately $4.9 billion. Additionally, as part of the agreement WellPoint will assume Amerigroup's $475 million senior debt. The transaction is expected to be financed through a combination of parent company cash, commercial paper and new debt issuance. The acquisition is expected to close in the first quarter of 2013, subject to state and federal regulatory approval. The under review status reflects A.M. Best's concerns regarding WellPoint's reduced financial flexibility due to: (1) financial leverage that is projected to increase to approximately 40% and (2) projected goodwill and intangibles to equity that will be in excess of 100%. Post transaction, WellPoint's financial leverage and goodwill and intangibles to equity will be higher than similarly rated peer companies. While dividend capacity of WellPoint's subsidiaries has been good any unexpected margin compression could affect future dividends and pressure capitalization levels. Additionally, there also is a level of uncertainty around the expansion and future funding of managed Medicaid programs as state budgets remain under significant economic pressure. A.M. Best recognizes that WellPoint's liquidity and cash levels remain strong and its projected operating results are on track to be very strong in 2012. The acquisition provides WellPoint with diversification through Amerigroup's strong Medicaid platform, especially regarding the very attractive high growth dual eligible segment. Amerigroup's operating performance has been very good, and it has a strong presence in Texas, Florida and Georgia. The ratings will remain under review pending the completion of the transaction and A.M. Best's continuing discussions with WellPoint's management. A.M. Best will continue to monitor WellPoint's operating performance, risk-based capitalization at the operating companies and its capital structure. For a complete listing of WellPoint, Inc. and its key life/health subsidiaries' FSRs, ICRs and debt ratings, please visit http://www.ambest.com/press/071006wellpoint.pdf. The methodology used in determining these ratings is Best's Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best's rating process and contains the different rating criteria employed in the rating process. Key criteria utilized include: “Analyzing Commercial Paper Programs”; “Insurance Holding Company and Debt Ratings”; “Risk Management and the Rating Process for Insurance Companies”; “Understanding BCAR for Life/Health Insurers”; “Rating Members of Insurance Groups”; and “Assessing Country Risk.” Best's Credit Rating Methodology can be found at www.ambest.com/ratings/methodology. Founded in 1899, A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com. Copyright © 2012 by A.M. Best Company, Inc.ALL RIGHTS RESERVED.A.M. Best Co.Bridget Maehr, 908-439-2200, ext. 5321Senior Financial Analystbridget.maehr@ambest.comorCarl Austin, 908-439-2200, ext. 5500Assistant Vice Presidentcarl.austin@ambest.comorRachelle Morrow, 908-439-2200, ext. 5378Senior Manager, Public Relationsrachelle.morrow@ambest.comorJim Peavy, 908-439-2200, ext. 5644Assistant Vice President, Public Relationsjames.peavy@ambest.com