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A.M. Best Removes Ratings of WellPoint, Inc. and Its Subsidiaries From Under Review; Assigns Ratings to AMERIGROUP Companies



  A.M. Best Removes Ratings of WellPoint, Inc. and Its Subsidiaries From Under
  Review; Assigns Ratings to AMERIGROUP Companies

Business Wire

OLDWICK, N.J. -- April 25, 2013

A.M. Best Co. has removed from under review with negative implications and
affirmed the financial strength ratings (FSR) and issuer credit ratings (ICR)
of the core insurance subsidiaries of WellPoint, Inc. (WellPoint)
(Indianapolis, IN) [NYSE: WLP]. The outlook assigned to these ratings is
stable.

Concurrently, A.M. Best has removed from under review with negative
implications and affirmed the ICR and debt ratings of “bbb+” of WellPoint and
the debt rating of “a-” on the surplus notes of Anthem Insurance Companies,
Inc. (Indianapolis, IN).

Additionally, A.M. Best has assigned an FSR of A- (Excellent) and ICRs of “a-”
to AMERIGROUP Community Care New Mexico (Albuquerque, NM), AMERIGROUP Florida
Inc. (Tampa, FL) , AMERIGROUP Maryland Inc. (Hanover, MD), AMERIGROUP Nevada
Inc. (Las Vegas, NV), AMERIGROUP New Jersey Inc. (Iselin, NJ), AMERIGROUP Ohio
Inc. (Cincinnati, OH), AMERIGROUP Tennessee Inc. (Nashville, TN), AMERIGROUP
Texas Inc. (Houston, TX) and AMGP Georgia Managed Care Co. (Atlanta, GA). All
the above companies are subsidiaries of WellPoint. The outlook for these
ratings is stable. (See link below for a detailed listing of the companies.)

The ratings of WellPoint and its subsidiaries were placed under review
following the announcement that it had entered into a definitive agreement to
acquire AMERIGROUP Corporation (AMERIGROUP). This transaction closed in late
December 2012. A.M. Best has since had discussions with management regarding
the business strategy around the AMERIGROUP acquisition and integration as
well as WellPoint’s consolidated 2013 outlook for operating results and key
financial metrics.

The ratings of the AMERIGROUP  subsidiaries reflect positive operating
results, premium and enrollment growth, as well as the business and geographic
diversity these companies provide to WellPoint. Through the acquisition of the
AMERIGROUP subsidiaries, WellPoint increased its state-sponsored business by
approximately 150% and now has a Medicaid presence in 20 states including
eight of WellPoint’s core BlueCross BlueShield (Blue) states. It is projected
that the state-sponsored business will continue to contribute favorably to
premiums growth and operating earnings for WellPoint. While state-sponsored
business is a growing market segment, margins are considerably lower than
WellPoint’s commercial business and they could be pressured in the future due
to the uncertainty surrounding funding of managed Medicaid programs, as state
budgets remain under significant economic pressure and decisions on the
expansion of the program vary on a state-to-state basis.

The affirmation of the ratings for the insurance subsidiaries of WellPoint
reflect the organization’s leading market share in its core markets, favorable
operating results, strong operating cash flows and good level of risk-adjusted
capitalization. WellPoint has a strong membership base serving almost 36
million members and is a market leader in its 14 Blue markets. WellPoint’s
core Blue plans continue to report strong operating results and generate
strong cash flows from operations, which contribute positively to the
financial flexibility of the organization. Commercial membership has declined
due to strategic pricing and product actions in certain states and market
segments as well as due to competitive pricing pressure. Additionally, margins
have shown some compression due to the change in business mix, Medicare
reimbursement and competitive and economic pressures on pricing as well as
operational investments being made by WellPoint in preparation for health
insurance exchanges and in its Medicare market segment.

The affirmation of the ICR and debt ratings of WellPoint acknowledges its good
level of financial flexibility through a strong parent company cash balance,
good level of subsidiary dividends, its $2.5 billion commercial paper program
and its available $2 billion credit facility, as well as the expectation of a
moderation of its share repurchase program. WellPoint’s debt-to-capital ratio
was 38.1% at March 31, 2013, which is considered high. The elevation in its
leverage is due to the financing of the acquisition of AMERIGROUP; however, it
is anticipated that the ratio will come down over the medium term. Interest
coverage has declined but remains good at almost eight times. Fixed charge
coverage continues to decline due to the increased level of quarterly
dividends to shareholders and was approximately four times at December 31,
2012, down from five times in 2011.

WellPoint also has a high amount of goodwill and other intangible assets on
its balance sheet in comparison to its peers. As of March 31, 2013, these
assets comprised approximately 45% of its total asset base and 109% of total
consolidated shareholders’ equity. A.M. Best does note that WellPoint’s Blue
trademarks represent a significant portion of its $9.1 billion of total
intangible assets. A.M. Best recognizes that although debt-to-capital and
goodwill and intangible assets to equity are high, these ratios are
anticipated to moderate over time, and parent company financial flexibility
remains good due to favorable operating trends, good operating cash flow and
strong subsidiary dividends.

WellPoint and its core insurance subsidiaries are well positioned for their
current ratings. Negative rating actions could occur if operating earnings
from the organization’s health operations weaken considerably, the
subsidiaries’ capitalization declines significantly or if leverage metrics
increase drastically.

For the AMERIGROUP subsidiaries, positive rating movement could occur if the
these entities show continued enrollment and premium growth, become a more
significant contributor to overall earnings and increase the level of their
risk-adjusted capitalization at certain lower capitalized entities.
Conversely, negative rating actions could occur if operating earnings from
their core Managed Medicaid operations weaken considerably, capitalization
declines or they are negatively impacted by state budget constraints.

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/042511wellpoint.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. Best’s Credit Rating Methodology can be found at
www.ambest.com/ratings/methodology.

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 © 2013 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.

Contact:

A.M. Best Co.
Bridget Maehr, 908-439-2200, ext. 5321
Senior Financial Analyst
bridget.maehr@ambest.com
or
Joseph Zazzera, MBA, 908-439-2200, ext. 5797
Assistant Vice President
joseph.zazzera@ambest.com
or
Rachelle Morrow, 908-439-2200, ext. 5378
Senior Manager, Public Relations
rachelle.morrow@ambest.com
or
Jim Peavy, 908-439-2200, ext. 5644
Assistant Vice President, Public Relations
james.peavy@ambest.com
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