A.M. Best Comments on Coventry Healthcare's Earning Guidance

OLDWICK, N.J., Jun 20, 2008 (BUSINESS WIRE) -- CVH | Quote | Chart | News | PowerRating -- A.M. Best Co. has commented that the ratings of Coventry Health Care, Inc. (Coventry) (NYSE: CVH | Quote | Chart | News | PowerRating) (Delaware) and its insurance subsidiaries remain unchanged following the company's release of its revised revenue outlook for 2008 and reduced second quarter and annual 2008 earning estimates.

On June 18, 2008, Coventry revised its earning outlook downwards as a result of lower than previously expected results in Private Fee For Service (PFFS) and commercial group risk product. Coventry expects the 2008 Medicare Advantage medical loss ratio (MLR) to be between 85.5% and 85.9%, an increase of approximately 300 to 340 basis points from the prior estimate. The driver of this change is the PFFS business.

Coventry has received a much higher than expected level of PFFS claims related to prior periods, which is inconsistent with claims submission patterns of network-based Medicare Advantage products. As a result, Coventry is projecting negative development of PFFS reserves related to 2007 of approximately $50.0 million. In addition, the commercial group risk MLR is being pressured by higher than expected levels of outpatient utilization and, to a lesser extent, a higher than expected inpatient unit cost trend caused by an increased severity level of facility claims. Coventry's revised 2008 health plan commercial group risk MLR forecast is approximately 80.3% versus previous guidance of approximately 78.8%.

A.M. Best is concerned that lower earnings could cause a decline in capitalization levels at both statutory entities and the holding company, leading to an increase in overall financial leverage. A.M. Best is concerned that lower earnings combined with possible additional share repurchase and/or new borrowings for business expansion purposes may bring the debt/capital ratio up from its anticipated level. A.M. Best expects Coventry's debt/capital ratio not to exceed 33% and interest coverage ratio to remain above 10 times. If any of these should change, or earnings decline becomes larger than is currently anticipated, negative rating action may follow. A.M. Best will continue to monitor the financial results and capitalization of Coventry and its insurance subsidiaries, as well as continue its ongoing dialogue with company management.

For Best's Ratings, an overview of the rating process and rating methodologies, please visit www.ambest.com/ratings.

Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers. For more information, visit www.ambest.com.

SOURCE: A.M. Best Co.

A.M. Best Co. Analysts Doniella Pliss, 908-439-2200, ext. 5104 doniella.pliss@ambest.com or Sally Rosen, 908-439-2200, ext. 5280 sally.rosen@ambest.com or Public Relations Jim Peavy, 908-439-2200, ext. 5644 james.peavy@ambest.com or Rachelle Morrow, 908-439-2200, ext. 5378 rachelle.morrow@ambest.com

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