OLDWICK, N.J.--(BUSINESS WIRE)--A.M. Best Co. has downgraded the financial strength rating to B- (Fair) from B (Fair) and issuer credit ratings to “bb-” from “bb” of Freedom Life Insurance Company of America (Freedom Life) and National Foundation Life Insurance Company (NFL), both subsidiaries of USHEALTH Group, Inc. (USHEALTH). The outlook for both ratings has been revised to stable from negative. All companies are domiciled in Fort Worth, TX.
The rating downgrades reflect Freedom Life and NFL’s worse than expected 2010 operating results, due principally to a litigation charge, resulting in a decline in their risk-adjusted capitalization. Last year, USHEALTH accrued for a possible sizeable adverse legal judgment in its non-core, run-off cancer insurance business, which negatively impacted its operating results. Additionally, given the group’s concentrated business profile in the individual medical insurance market, the passage of the Patient Protection and Affordable Care Act (PPACA) creates numerous additional challenges for USHEALTH. A.M. Best believes small medical carriers like Freedom Life and NFL will have the most difficulty adapting to PPACA. While the organization is trying to address many of these additional challenges with expense reduction initiatives and revamping its product portfolio to adapt to the new regulatory environment, it remains to be seen how successful these efforts will be.
To help bolster its capital position somewhat, NFL divested, via a reinsurance agreement, its non-core, limited benefit supplemental specified disease business in the second half of 2010. A.M. Best notes USHEALTH continues to maintain a conservative investment portfolio.
The principal methodology used in determining these ratings is Best’s Credit Rating Methodology -- Global Life and Non-Life Insurance Edition, which provides a comprehensive explanation of A.M. Best’s rating process and highlights the different rating criteria employed. Additional key criteria utilized include: “Risk Management and the Rating Process for Insurance Companies”; “Understanding BCAR for Life/Health Insurers”; “Rating Health Insurance Companies”; and “Rating Members of Insurance Groups.” Methodologies can be found at www.ambest.com/ratings/methodology.
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