A.M. Best Places Financial Strength and Debt Ratings of Insurance Subsidiaries of Coventry Health and First Health Under Review

A.M. Best Places Financial Strength and Debt Ratings of Insurance Subsidiaries of Coventry Health and First Health Under Review

OLDWICK, N.J. — A.M. Best Co. has placed the financial strength ratings of B++ (Very Good) and B+ (Very Good) of the insurance subsidiaries of Coventry Health Care Inc. (Coventry) (NYSE: CVH) (Bethesda, MD) under review with negative implications. A.M. Best has also placed the debt rating of “bb+” on Coventry’s $170.5 million 8.125% 10-year senior unsecured notes, due 2012 under review with negative implications.

In addition, A.M. Best has placed the financial strength ratings of A- (Excellent) of the insurance subsidiaries of First Health Group Corporation (First Health) (NASDAQ: FHCC) (Downers Grove, IL) under review with negative implications.

These rating actions follow the announcement that Coventry has signed a definitive merger agreement to acquire First Health. The merger, valued at $1.8 billion, is expected to be structured as a combination of cash and common stock. The transaction remains subject to regulatory review and approval. A.M. Best anticipates the merger will be completed in the first quarter of 2005.

A.M. Best acknowledges Coventry’s successful acquisition and integration strategy. However, A.M. Best has concerns about the size of the First Health acquisition compared to prior Coventry acquisitions, which have been mostly small, single HMO organizations that were purchased with internal cash holdings. Furthermore, some of First Health’s product lines, such as workers’ compensation, would be new business for Coventry. As this transaction is much larger than prior transactions, integration challenges may exist. Coventry has indicated that there will be no further acquisitions until the First Health integration is substantially completed.

A.M. Best will be evaluating the quality and liquidity of Coventry’s balance sheet, particularly with regards to the financial leverage and the amount of goodwill created by this transaction. Upon completion of the review and meetings with company management, A.M. Best will determine the appropriate rating action.

For a complete list of Coventry Health Care Inc. and First Health Group Corporation’s financial strength and debt ratings, please visit http://www.ambest.com/press/101405coventry.pdf.

For current Best’s Ratings, independent data and analysis on more than 1,050 health companies and more than 130 HMO industry composites, please visit http://www.ambest.com/health/.

For a list of A.M. Best’s Debt Ratings, please visit http://www.ambest.com/debtratings/.

A.M. Best Co., established in 1899, is the world’s oldest and most authoritative insurance rating and information source. For more information, visit A.M. Best’s Web site at http://www.ambest.com.

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