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Recently, A. M. Best Co. affirmed the issuer credit rating (ICR) of Health Net Inc. (HNT - Analyst Report) at “bb”. The rating agency also affirmed the debt rating on the company’s $400 million 6.375% senior unsecured notes due 2017 at “bb.”

Further, A. M. Best affirmed the financial strength rating (FSR) Health Net’s subsidiaries – Health Net of California, Inc., Health Net Life Insurance Company, Health Net Health Plan of Oregon, Inc. and Health Net of Arizona, Inc. – at “B++” and their ICR at “bbb.” The outlook for all the above-mentioned ratings is stable.

The rating affirmation was based on the renovation and stabilization of the business, enhanced balance sheet strength of Health Net and strong operating capacity. These positive factors were somewhat offset by negatives such as a decline in operating income, lack of geographical diversification and payer-type concentration risk. Moreover, the company is witnessing decline in retention rates in the commercial business.

However, overall A. M. Best believes that Health Net and its subsidiaries meet the requirements for the rating category they fall in. Thus, the ratings have a stable outlook indicating low possibility of a rating change in the near term. However, if the company witnessed a surge in leverage ratios due to insufficient reserve formation or its risk-adjusted capitalization falls or balance sheet gets affected due to losses over a sustained time period, then a downward revision of ratings is possible.

Health Net currently carries a Zacks Rank #2 (Buy). Other health maintenance organizations worth considering are Molina Healthcare Inc. (MOH - Analyst Report) – Zacks Rank #1 (Strong Buy), Aetna Inc. (AET - Analyst Report) – Zacks Rank #2 (Buy) and WellPoint Inc. (WLP - Analyst Report) – Zacks Rank #2 (Buy).

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