AM Best Affirms Credit Ratings of Elevance Health, Inc. and Its Subsidiaries

AM Best has affirmed the Financial Strength Rating (FSR) of A (Excellent) and the Long-Term Issuer Credit Ratings (Long-Term ICRs) of “a+” (Excellent) of the core Blue Cross Blue Shield-branded insurance subsidiaries of Elevance Health, Inc. (Elevance) (Indianapolis, IN) [NYSE: ELV], as well as its life insurance subsidiaries. These companies collectively are 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 Elevance and the Long-Term IR on the existing surplus notes of Anthem Insurance Companies, Inc. (Indianapolis, IN).

Concurrently, 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 Elevance.

In addition, AM Best has affirmed the FSR of A- (Excellent) and the Long-Term ICR of “a-” (Excellent) of WellPoint Insurance Services, Inc. (WISI) (Honolulu, HI).

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

The ratings of Anthem Health reflect its 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 (ERM).

The rating affirmations of Anthem Health reflect its very strong balance sheet, which has been driven by its favorable operating performance and strong cash flow trends. The company’s risk-adjusted capitalization is at the very strong level, as measured by Best’s Capital Adequacy Ratio (BCAR). Anthem Health continues to report consistent capital and surplus growth, driven by favorable net earnings, which has consistently outpaced premium growth and led to increased absolute and risk-adjusted capitalization. Anthem Health’s very strong balance sheet assessment is also supported by its investment portfolio, which has historically been held predominantly in investment grade fixed income securities and cash and liquid investments, as well as minor allocations to other invested assets. Furthermore, the group has more-than-adequate liquidity measures and access through its holding company to a $4 billion revolving credit facility and a $4 billion commercial paper program. Anthem Health also has access to Federal Home Loan Bank (FHLB) program borrowings through its insurance subsidiaries. There were no borrowings outstanding at the company’s credit facility or FHLB borrowing as of Sept. 30, 2023.

Financial leverage at Elevance remains below 40% at the end of third-quarter 2023. However, AM Best expects financial leverage to increase modestly, driven by merger and acquisition activities, and therefore will continue to monitor its leverage. Elevance has been active in small and midsize acquisitions over the past three years, expanding its presence in various insurance markets and building stronger nonregulated and vertical integration capabilities. However, while financial leverage has been managed down slightly, AM Best considers Elevance’s goodwill plus intangibles to equity as high, at over 90% through September 2023. 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. Elevance’s earnings before interest and taxes coverage was solid at nearly 10 times in third-quarter 2023 and is expected to stay in the same range in the near term. Cash flows from its regulated and nonregulated operations also have been very good and generally increased over the past five years.

Anthem Health’s operating performance is considered strong, with the company reporting premium growth and solid earnings. Premium growth has been driven by enrollment gains in most of its lines of business. The company’s operating earnings benefit from its sizeable overall membership and the related economies of scale, which benefits its medical expenditures and administrative expenses metrics. However, the company’s Medicaid membership has declined with the advent of state redeterminations of eligibility in 2023, driving declines that have offset growth from new contracts. Although investment income is positive, it contributes modestly to overall net earnings. Profitability ratios remain strong as measured by its return on revenue (ROR) and return on equity (ROE) metrics for year-end 2022.

Anthem Health’s vast and diversified product offerings remain the basis for its favorable business profile. The group has good geographic diversity, as Elevance operates Blue Cross Blue Shield (BCBS) plans in 14 states, as well as its non-Blue branded with CareMore, AMERIGROUP and UNICARE entities. The group has benefited from strong brand name recognition and a leading market share in the majority of these BCBS states. Additionally, the Elevance companies have a strong presence in the national account/BlueCard market segment and there has been a significant expansion of individual exchange product offerings over the past few years. AMERIGROUP entities operate in an additional 12 states in the Managed Care Medicaid segment, further expanding Anthem’s footprint. In addition, various nonregulated business in 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.

Anthem Health’s ERM is managed at the ultimate parent level, but it has local functionality as well. The ERM program is well-established and is coordinated at the corporate level. Elevance’s ERM is considered appropriate for its risk profile but has a lower level of sophistication when compared with some of its peers. Risk identification and reporting are completed on a regular basis, and ERM is incorporated into the corporate strategic planning. There is established oversight and monitoring of the ERM program.

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 ERM. The ratings also factor the support of its parent. Over the past five years, UNICARE entities have been assuming large volume of Medicaid premium from various Elevance’s affiliates. Elevance has contributed capital to support that premium transfer.

The ratings of WISI reflect its balance sheet strength, which AM Best assesses as adequate, as well as its adequate operating performance, limited business profile and appropriate ERM.

WISI’s rating affirmations reflect its risk-adjusted capitalization at the strong level at year-end 2022, as measured by BCAR, driven mainly by a lower capital level due to reserve strengthening for its core lines of business and sizeable unrealized loss on the fixed income portfolio. However, WISI’s capital did grow, supported by positive earnings and no dividends to the parent company through third-quarter 2023. Elevance has demonstrated explicit and implicit support of WISI in past years. WISI benefits from the parent’s operational resources and expertise. WISI’s importance to the parent has increased in recent years as the volume of business in the core and the cell has expanded.

WISI is a Hawaii-domiciled captive and a wholly owned subsidiary of Elevance. WISI was established nearly two decades ago primarily for the purpose of formalized self-insurance and an instrument of corporate risk management. In the past several years, Elevance expanded the volume of excess managed care errors and omission (E&O) coverage placed with WISI as the market for this line of business has hardened considerably. In addition, WISI established a segregated cell to assume Federal Employees Health Benefits Program (FEP) premium from Elevance affiliates to optimize capital at statutory entities a few years ago. Furthermore, the cell structure provides a formal separation of FEP from other WISI business, provides transparency for Hawaii’s regulators and allows for potential future WISI expansion into assuming other health lines. WISI’s core

operations in the protected cell – FEP premiums – continue to drive revenue and earnings for the company. The core corporate insurance lines of business – workers’ compensation and E&O – have posted fluctuating operating results, including lower operating losses over the past couple of years. These results have been driven in part by fluctuations in claims severity and increases in coverage limits, which resulted in the need for reserve strengthening in recent years, including sizeable reserve increases through 2022. WISI expects the consolidated financial performance of the company to be stable in the current year.

A complete listing of Elevance Health, Inc.’s FSRs, Long-Term ICRs and Long-Term IRs also is available.

AM Best remains the leading rating agency of alternative risk transfer entities, with more than 200 such vehicles rated in the United States and throughout the world. For current Best’s Credit Ratings and independent data on the captive and alternative risk transfer insurance market, please visit www.ambest.com/captive.

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