A.M. Best Co. has downgraded the financial strength rating (FSR) to B++ (Very Good) from A- (Excellent) of Health Care Indemnity, Inc. (HCI) (Nashville, TN). The rating has been removed from under review with negative implications and assigned a negative outlook.

These rating actions follow the completion of the leveraged buyout (LBO) of HCI's ultimate parent company, HCA Inc. (HCA) (Nashville, TN) [NYSE: HCA] to a private equity consortium. The $33.2 billion transaction, which includes the assumption or repayment of approximately $11.7 billion of existing debt, makes this the largest LBO in U.S. history. The new debt taken on by HCA places its financial leverage at an excessive level, hence necessitating the downgrade of HCI. At the close of the transaction, HCA's pro forma financial leverage (total debt to total capital) ratio is estimated to be 85%.

HCI mainly insures the primary layer of professional and general liability risks for all domestic health care facilities owned or indirectly owned by HCA. As a result of the LBO, coverage provided by HCI to HCA beginning in 2007 will include a large self-insured retention and an extraordinary dividend of $365 million, which was approved by the Colorado Division of Insurance and paid by HCI on November 16, 2006. Despite these changes, HCI remains very well capitalized. HCI continues to employ a conservative reserving philosophy, and in order to further reduce volatility has initiated a plan to liquidate its investments in common stocks.

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