The insurance ratings agency A.M. Best Co. said Wednesday that it believes the deal announced by Indianapolis-based WellPoint Inc. to buy a competing health insurer, WellChoice Inc. of New York, will strengthen the former’s reach in the Northeast.
WellChoice has more than five million members in a region that includes New York City and 10 downstate counties as well as counties in upstate New York.
WellPoint is the nation’s largest health insurer.
The $6.5 billion deal is consistent with WellPoint’s focused strategy of aligning core businesses in specific markets, A.M. Best said. The ratings agency said it expects WellPoint’s record of successful and conservative purchases and integrations to hold true in this deal.
WellPoint’s enrollment increases, diversified sources of earnings, solid capitalization, and strong operating cash flows and earnings growth are also expected to continue, A.M. Best said.
The insurer’s diversified revenue sources and consistent profitability reduce its dependence on any one customer or segment, according to the ratings agency.
The transaction is expected to be financed with a mix of stock, cash, and debt. The consequent debt-to-capital ratio should be about 23% — below WellPoint’s stated maximum of 25%.
