UnitedHealth Group outlook revised to negative by AM Best

Investing.com -- AM Best, a renowned credit rating agency, has revised the outlook for UnitedHealth Group Incorporated (NYSE:UNH) and its subsidiaries from stable to negative. Despite this, the Long-Term Issuer Credit Ratings (Long-Term ICR) of “a” (Excellent) and the Long-Term Issue Credit Ratings (Long-Term IRs) of UnitedHealth Group have been affirmed. The Short-Term IR of UnitedHealth Group has also been confirmed by the agency.

Simultaneously, AM Best has revised the outlook to negative from stable and affirmed the Financial Strength Rating (FSR) of A+ (Superior) and the Long-Term ICRs of “aa-” (Superior) for the health and dental insurance subsidiaries of UnitedHealth Group, collectively known as UnitedHealthcare.

These ratings are a testament to UnitedHealthcare’s robust balance sheet, its strong operating performance, favorable business profile, and appropriate enterprise risk management (ERM).

The shift in the outlook from stable to negative is primarily due to anticipated deterioration in operating performance in 2025. This is largely driven by the Medicare Advantage segment. In the first quarter earnings report of UnitedHealth Group, the company noted a late-quarter acceleration in trends in the Medicare Advantage segment. This acceleration continued and expanded to more benefit offerings in May 2025.

Moreover, UnitedHealth Group reported that the medical costs of many new Medicare Advantage beneficiaries at UnitedHealthcare were higher than anticipated. Due to the structure of the Medicare Advantage program, UnitedHealthcare cannot implement corrective pricing actions until 2026. Consequently, the issues within the Medicare Advantage segment are expected to persist throughout 2025.

AM Best will keep a close watch on UnitedHealth Group’s operating performance and may adjust ratings if the performance no longer aligns with the very strong assessment.

UnitedHealthcare’s risk-adjusted capitalization, as gauged by Best’s Capital Adequacy Ratio, is at a very strong level. The company’s capital and surplus growth are bolstered by retained net earnings exceeding dividends to the parent company. UnitedHealthcare actively manages subsidiary risk-adjusted capital on a near- to long-term basis to ensure capital levels support premium growth.

UnitedHealthcare has a significant market share in all lines of business and across the nation. Its premiums and earnings are well-diversified by business segment and geography. The large membership base of the company provides economies of scale.

UnitedHealth Group’s ERM program is well developed, and the group’s risk management capabilities align with its risk profile. The ERM program is dynamic and used in daily operations and strategic business planning.

UnitedHealth Group has strong financial flexibility with significant non-regulated operating cash flows from its Optum operations. The company’s equity has shown consistent growth over the past five years, driven entirely by retained earnings despite large share repurchases and growing dividend programs. Strong liquidity is driven by favorable operating cash flows, parent company cash, a commercial paper program, and a $21 billion revolving credit facility.

However, financial leverage at the end of 2024 was high at 43.7%, as measured by AM Best, and is above the company’s long-term target of 40%. Earnings before interest and tax coverage remained good but declined in 2024 to about eight times. UnitedHealth Group also had a substantial amount of goodwill and intangibles on the balance sheet, amounting to approximately 132% of equity. Despite this, there has been no history of any material impairments, and acquired assets continue to contribute favorably to revenues and earnings.

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