Fitch Places Health Net's Ratings on Watch Negative

Source: Fitch Ratings
April 30, 2009

CHICAGO, Apr 30, 2009 (BUSINESS WIRE) -- Fitch Ratings has placed Health Net, Inc.'s (Health Net) ratings on Rating Watch Negative. (A full list of rating actions follows at the end of this release.)

The placement on Watch Negative reflects Fitch's expectations for continued pressure on Health Net's financial results in 2009, the uncertainties surrounding the potential sale of its Northeast and Arizona businesses, and renewal of its TRICARE contract.

Currently, Fitch views Health Net's financial leverage as measured by debt-to-EBITDA as relatively high, and the company's consolidated statutory capitalization as low relative to its peers in the health insurance and managed care sector. Additionally, weaker operating performance in 2008, coupled with declining commercial enrollment and management's expectations for further enrollment declines in its California business in 2009 place further pressure on the company's ratings. Fitch will continue to monitor the company's progress with regard to strengthening operating earnings, curbing enrollment declines, and bolstering its capital position.

In recent months, management has announced its interest in divesting the Health Net's Northeast and Arizona operations. Should the company enter into an agreement to sell these units, Fitch will consider the net financial impact of a transaction and the use of proceeds. Health Net's ability to profitably sell these operations and to use the proceeds to reduce financial leverage and/or bolster statutory capital may support the current rating.

Fitch also considers the uncertainty surrounding the renewal of the company's TRICARE contract for the North Region. The contract will be renewed with Health Net or granted to another carrier at the discretion of the Department of Defense, whose timing continues to be uncertain. Fitch views the TRICARE business as increasingly important to Health Net in the past few years, particularly in light of recent weakness in the company's commercial business. Renewal of the contract may lead Fitch to affirm the ratings, while loss of the contract could lead to a downgrade of one or more rating levels.

Health Net's ratings reflect the company's good competitive position in the health insurance and managed care markets in California and strong presence in the traditionally stable margin TRICARE business.

The ratings also reflect industry challenges related to the unsustainable increase in the cost of providing health care, increasing competitive pressures, and regulatory and legal challenges that may affect the extent to which industry participants can manage costs and price their products appropriately.

Health Net, Inc. (HNT) is among the largest publicly traded managed care operations in the U.S., reporting Dec. 31, 2008 enrollment of 6.4 million individuals, including enrollment associated with its TRICARE business. The company provides a variety of indemnity, PPO, POS, and HMO plans in the group, individual, Medicare risk, Medicaid, and TRICARE markets. The company also reported membership of approximately 545,000 in the company's Medicare Part D plans at Dec. 31, 2008.

Fitch places Health Net's ratings on Rating Watch Negative as follows:

Health Net, Inc.'s

--Issuer Default Rating 'BBB-';

--$400 million 6.375% senior unsecured notes 'BB+'.

Fitch also places the 'BBB+' Insurer Financial Strength ratings of the following Health Net insurance subsidiaries on Rating Watch Negative:

--Health Net Of California, Inc.

--Health Net of Arizona, Inc.

--Health Net Health Plan of Oregon, Inc.

--Health Net of Connecticut, Inc.

--Health Net of New Jersey, Inc.

--Health Net of New York, Inc.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, ''. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.

SOURCE: Fitch Ratings

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