Partially offsetting these positive rating factors are A.M. Best’s concerns, which arise from UnitedHealth managing to a lower level of risk-based capitalization at its regulated entities. Following consistently high dividends to UnitedHealth, the level of risk-based capitalization at the leading regulated subsidiary, UnitedHealthcare Insurance Company (UHIC) (Hartford, CT), though improved in 2011 remains low compared to its peers and A.M. Best’s expectations. However, this is offset by the parent’s ability to support the legal entities through capital infusions.A.M. Best does acknowledge that UHIC is a significant source of dividends and consistently produces strong operating results. In addition, UHIC’s improved ability to predict claims trends and better fund transfer mechanisms within UnitedHealth enhances the entire organization’s ability to support each subsidiary and mitigate lower capitalization concerns. Although A.M. Best expects earnings to remain strong, operating margins at UnitedHealth, in line with the industry trend, have declined compared to its historical levels and are likely to moderate further. The earnings deterioration is due to competitive pressure, implementation of minimum loss ratio requirements related to the Patient Protection and Affordable Care Act and the changing business mix within the organization’s growing share of Medicare and Medicaid products where the margins are lower. In the near term, A.M. Best notes that UnitedHealth’s financial flexibility is reduced because of the expected increase in its financial leverage as well as the increase of the level of goodwill in its related acquisition of Amil Participacoes SA (Brazil). However, both UnitedHealth’s financial leverage and goodwill are in line with peers. Furthermore, UnitedHealth has proven its ability to quickly reduce financial leverage. The upgrading of the ratings for Health Plan of Nevada Inc. and Sierra Health and Life Insurance Company Inc. acknowledges their strong earnings, improved capitalization and integration into UnitedHealth. Key rating drivers that may lead to positive rating actions for UnitedHealth and its subsidiaries include substantial earnings growth, improvement in risk-adjusted capital at regulated entities and reduction in financial leverage. Key rating drivers that may lead to negative rating actions include a sizeable decline in risk-adjusted capital at UnitedHealth’s lead operating entity, UHIC, significant weakening of operating performance across the enterprise, an increase in financial leverage beyond A.M. Best’s expectations or substantial deterioration in interest coverage.