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Rating Action:

Moody’s affirms UnitedHealth’s ratings (sr debt at A3); outlook changed to positive

09 June 2022


Moody's affirms Unitedhealthcare Insurance Company; stable outlook

New York , June 9, 2022 – Moody's Investors Service (Moody's) has affirmed UnitedHealth Group Incorporated's long-term issuer rating and senior unsecured debt at A3 (UnitedHealth, NYSE: UNH) and has changed the outlook to positive. At the same time, Moody's affirmed the A1 Insurance Financial Strength rating of UnitedHealthcare Insurance Company (UHC) and maintained the outlook at stable.

RATINGS RATIONALE

The change in the outlook to positive from stable reflects UNH's long-term evolution, including significantly more scale, diversification and consolidated earnings, driven predominantly by its nonregulated health service businesses (collectively Optum). Optum now comprises 50% of operating earnings and even greater percentage of cash flow to the parent. Correspondingly, UNH's reliance on regulated dividends has decreased significantly. Furthermore, management has proven adept at maintaining leverage at a debt-to-capital ratio of approximately 40% and debt-to-EBITDA below 2.0x. Moody's notes that this outlook action reflects Optum's growing contribution to the scale, diversification and capabilities of UNH and signals the potential for narrower notching, currently at two notches, between the insurance financial strength and debt ratings. The anticipated continued evolution in UNH's business between insurance and non-regulated health service businesses also supports a reassessment of the suitability of today's more narrow insurance metrics with the addition of more traditional non-financial services metrics to complement our evaluation of UNH.

Meanwhile, Moody's has maintained a stable outlook on the health insurance business, UHC, reflecting solid performance but moderate growth prospects given its market leading scale and the maturity of the health insurance industry.

The affirmation of Moody's A3 senior unsecured debt rating for UnitedHealth is based on the strength of its two main subsidiaries, UHC and Optum, its health service subsidiary. Optum consists of Optum Health (provider business), Optum RX (pharmacy services) and Optum Insight (data, analytics and consulting). UHC is the largest US health insurer with over 50 million members and leading positions in commercial, Medicare Advantage and a strong position in Medicaid. Health insurance is a mature business, but operating earnings have been growing at 5% annually the past 10 years. Collectively, Optum has been growing rapidly, at a 25% compound average annual growth rate, over the past 10 years and comprised half of the consolidated operating earnings in 2021. With $288 billion in revenue in 2021, UNH was the fifth largest US company.

These strengths are partly offset by sluggish trends in commercial insurance, typically lower risk based capital ratios than its peers and relatively high leverage (as measured by debt-to-capital). Like its peers, UNH is subject to frequent policy reform efforts, some of which could pose significant credit risks for the whole sector. Furthermore, leverage will be temporarily elevated again later in 2022 when UNH finances the announced acquisitions of LHC Group, Inc. and potentially Change Healthcare Holdings LLC (B2 stable), which is being challenged by the Department of Justice on antitrust grounds.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

-UnitedHealth Group Incorporated

The rating agency stated that the ratings of UNH may be upgraded if the following occur: 1) Debt-to-capital adjusted for operating leases is maintained at or restored to approximately 40% and debt-to-EBITDA at or below 2.0x within one year after the closes on both the LHC Group and (potentially) Change Healthcare or other acquisitions; and/or 2) EBITDA interest coverage remains above 15x; and/or 3) The consolidated risk-based capital (RBC) ratio is maintained above 250% of company action level (CAL).

While a downgrade of UNH is unlikely given the positive outlook, Moody's said that the current outlook could be returned to stable if: 1) Adjusted debt-to-capital is maintained above 40% and Adjusted debt-to-EBITDA above 2.0x for a sustained period; and/or 2) The RBC ratio is sustained below 225% of CAL; 3) there is a significant write-down (or increased likelihood) of goodwill/intangibles; and/or 4) there is an adverse regulatory development anticipated to place sustained pressure on EBITDA margins.

-UnitedHealthcare Insurance Company

The rating agency stated that the insurance financial strength (IFS) rating of UHC may be upgraded if the following occur: 1) Improvement in UNH financial flexibility as measured by leverage and coverage; and/or 2) RBC is sustained above 275% of CAL; and/or 3) There is profitable and sustained membership growth within the health insurance business.

Conversely, the rating agency stated that the IFS rating of UHC may be downgraded if the following occur: 1) deterioration in UNH's financial flexibility as measured by leverage and coverage; and/or 2) margin pressure and declines in health insurance membership; and/or 3) profitability as measured by the operating earnings margin at UHC declines over time.

The following ratings have been affirmed:

UnitedHealth Group Incorporated – long term issuer rating at A3; senior unsecured at A3; senior unsecured shelf at (P)A3; subordinate shelf at (P)Baa1; preferred shelf (cumulative and noncumulative) at (P)Baa2; commercial paper at P-2;

UnitedHealthcare Insurance Company – insurance financial strength rating at A1;

The outlook on UnitedHealth Group Incorporated is changed to positive from stable.

The outlook on UnitedHealthcare Insurance Company is maintained at stable.

UnitedHealth Group Incorporated is headquartered in Minnetonka, Minnesota. For the three months ending March 31, 2022 the company reported revenues of about $80.1 billion. At March 31, 2022 shareholders' equity was $76.1 billion and total medical membership (excluding Part D Medicare membership) was approximately 51.0 million.

The principal methodology used in these ratings was US Health Insurance Companies Methodology published in November 2019 and available at https://ratings.moodys.com/api/rmc-documents/65387 . Alternatively, please see the Rating Methodologies page on https://ratings.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found on https://ratings.moodys.com/rating-definitions .

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the issuer/deal page for the respective issuer on https://ratings.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website https://ratings.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://ratings.moodys.com/documents/PBC_1288235 .

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on https://ratings.moodys.com.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on https://ratings.moodys.com.

Please see https://ratings.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the issuer/deal page on https://ratings.moodys.com for additional regulatory disclosures for each credit rating.

Dean Ungar, CFA
VP-Sr Credit Officer
Financial Institutions Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS : 1 212 553 0376
Client Service : 1 212 553 1653

Scott Robinson, CFA
Associate Managing Director
Financial Institutions Group
JOURNALISTS : 1 212 553 0376
Client Service : 1 212 553 1653

Releasing Office :
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS : 1 212 553 0376
Client Service : 1 212 553 1653

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