Coventry's Fitch ratings unaffected by Louisiana Court of Appeals' adverse ruling

Fitch Ratings commented today that its ratings on Coventry Health Care, Inc. (Coventry) are unaffected by the company's announcement this morning that it will take a $278 million charge against second-quarter earnings related to an adverse ruling by the Third Circuit Court of Appeals in the state of Louisiana.

The ruling involves a class action lawsuit filed by providers in the state of Louisiana against First Health Group Corp, Inc. (FHGC), a subsidiary of Coventry. On Friday, the company announced that Louisiana's Third Circuit Court of Appeals had affirmed a trial court's decision to grant summary judgment against FHGC in the amount of $262 million.

Fitch does not view the after-tax judgment amount, although significant, to be sufficient to alter the company's credit metrics beyond expectations for its current ratings. Fitch believes that Coventry maintains ample resources to satisfy it obligations under this litigation, should its appeals prove unsuccessful.

In a press release on May 27, 2010, Fitch affirmed the Coventry's ratings on Negative Outlook. The ratings continue to be supported by the company's solid historical operating performance, good cash flow, and conservative investment profile.

The ratings also reflect the company's adequate but below average statutory capitalization, very strong competition in the commercial health sector, ongoing risks associated with the implementation of health reform legislation, as well as continued concerns related to unsustainable medical cost trends.

Since July 24, 2009, Fitch Ratings has had all U.S. health insurer ratings rated with a Negative Outlook, reflecting risks associated with healthcare reform proposals that were being debated in congress at that time. Despite being signed into law on March 23, 2010, many details of the health reform legislation are still in the process of being worked out. Some of these details could potentially have a meaningful adverse impact on the structure of the industry and on the operating profile of several companies within the sector.

Coventry is a publicly traded managed health care company serving approximately 3.2 million members primarily in the Mid-Atlantic, Midwest and Southeast regions of the U.S. Coventry reported total operating revenue of $2.9 billion and net income of $97.3 million in the first quarter of 2010.

Fitch's current ratings, all with a Negative Outlook, for Coventry Health Care Inc. are as follows:

--IDR at 'BBB';

--$250 million 5.875% senior unsecured notes due 2012 at 'BBB-';

--$250 million 6.125% senior unsecured notes due 2015 at 'BBB-';

--$400 million of 5.95% senior unsecured notes due 2017 at 'BBB-'

--$400 million of 6.30% senior unsecured notes due 2014 at 'BBB-'.

Fitch's ratings on Coventry reflect the application of Fitch's current criteria which is available on Fitch's web site at www.fitchratings.com and specifically includes:

--'Insurance Rating Methodology', dated Dec. 31, 2009;

--'US Health Insurance and Managed Care Rating Methodology', dated March 24, 2010;

--'Cash Flow Measures for Analyzing Health Insurer Financial Leverage', dated Dec. 16, 2008.