A.M. Best Downgrades Ratings of Highmark Inc., Keystone Health Plan West, Inc. and Highmark West Virginia Inc.

OLDWICK, N.J.--()--A.M. Best Co. has downgraded the financial strength ratings (FSR) to A- (Excellent) from A (Excellent) and the issuer credit ratings (ICR) to “a-” from “a” of Highmark Inc. (Highmark), Keystone Health Plan West, Inc. and Highmark West Virginia Inc. (Parkersburg, WV). Concurrently, A.M. Best has downgraded the debt ratings of Highmark to “bbb+” from “a-”.

Additionally, A.M. Best has affirmed the FSR of A- (Excellent) and the ICRs of “a-” of Highmark’s life/health and property/casualty subsidiaries, which include HM Life Insurance Company (HM Life), HM Life Insurance Company of New York (New York, NY), Highmark Casualty Insurance Company and HM Casualty Insurance Company, as well as Highmark’s dental subsidiaries, which operate under the United Concordia brand name. All the above ratings have been removed from under review with negative implications and assigned a stable outlook.

A.M. Best also has assigned an FSR of A- (Excellent) and an ICR of “a-” to HM Health Insurance Company, a health subsidiary of Highmark. All the above companies are domiciled in Pittsburgh, PA, unless otherwise specified. (See below for a detailed listing of the ratings.)

The rating downgrades for Highmark are due to an anticipated decline in its earnings and the financial impact of its proposed affiliation with West Penn Allegheny Health System (WPAHS), as well as the overall effect of Highmark’s broader integrated delivery system development strategy. Earnings for Highmark are anticipated to weaken due to multiple factors: pricing pressure, increased expenses for operational changes related to health care reform, pressure on government program funding and expenditures for the organization’s integrated delivery system development. Highmark’s affiliation agreement with WPAHS was amended to include, among other things, the tender offer to purchase up to 100% of the WPAHS 2007A bonds at a discount of 12.5% from par. WPAHS’ financial condition continues to deteriorate based on lower patient volume and continued operating losses as well as a negative net asset position based upon September 2012 financials. As a result, it may be difficult for WPAHS to return to profitability and a positive net asset position over the next few years. Additionally, further spending is expected as Highmark continues to build its integrated delivery system, which also includes the affiliations with two other health care systems, the acquisition of physician practices and the development of free standing medical facilities.

The affirmation of the ratings of HM Life and HM Life Insurance Company of New York recognize their continued profitability and the contribution they make to the organization for business and earnings diversity, as well as enabling the organization to offer a comprehensive portfolio of products. Earnings for HM Life are primarily driven by its medical stop loss business that is predominantly offered along with Highmark and other Blue Plans’ health products and services.

The ratings for Highmark Casualty Insurance Company and HM Casualty Insurance Company acknowledge their combined companies’ strong operating performance, adequate capitalization and the solid business strategy that focuses on aggressive claims management and prudent reserving practices. The ratings also recognize the inherent benefits these companies derive as operating subsidiaries of their ultimate parent, Highmark.

The affirmation of the ratings of Highmark’s United Concordia dental subsidiaries reflects their favorable operating results and strong level of risk-adjusted capital. United Concordia offers a comprehensive portfolio of dental products nationwide. Although premiums have declined due to the loss of the TRICARE Dental Program contract, new business development has contributed positively to the organization.

The ratings of HM Health Insurance Company recognize its strategic role in Highmark’s business strategy as well as its favorable operating performance.

A.M. Best believes that the ratings of Highmark and its subsidiaries are well positioned at their current rating levels. Key rating drivers that may lead to negative rating actions include a material deterioration in the organization’s operating performance beyond A.M. Best’s expectations, reporting of a substantial decline in risk-adjusted capitalization or if the organization is adversely affected by their Integrated Delivery System development strategy.

The following debt ratings have been downgraded:

Highmark, Inc.
-- to “bbb+” from “a-” $375 million 6.8% of senior unsecured notes, due 2013
-- to “bbb+” from “a-” $350 million 4.75% of senior unsecured notes, due 2021
-- to “bbb+” from “a-” $250 million 6.125% of senior unsecured notes, due 2041

The FSRs of A- (Excellent) and ICRs of “a-” have been affirmed for the following dental subsidiaries of Highmark, Inc.:

  • United Concordia Companies, Inc.
  • United Concordia Life and Health Insurance Company
  • United Concordia Insurance Company
  • United Concordia Insurance Company of New York
  • United Concordia Dental Plans of California, Inc.
  • United Concordia Dental Plans of Pennsylvania, Inc.
  • United Concordia Dental Plans, Inc.

The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.

A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

Copyright © 2013 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.

Contacts

A.M. Best Co.
Bridget Maehr—L/H
Senior Financial Analyst
908-439-2200, ext. 5567
bridget.maehr@ambest.com
or
W. Dolson Smith, CFA—P/C
Managing Senior Financial Analyst
908-439-2200, ext. 5379
w.dolson.smith@ambest.com
or
Rachelle Morrow
Senior Manager, Public Relations
908-439-2200, ext. 5378
rachelle.morrow@ambest.com
or
Jim Peavy
Assistant Vice President, Public Relations
908-439-2200, ext. 5644
james.peavy@ambest.com

Sharing

Contacts

A.M. Best Co.
Bridget Maehr—L/H
Senior Financial Analyst
908-439-2200, ext. 5567
bridget.maehr@ambest.com
or
W. Dolson Smith, CFA—P/C
Managing Senior Financial Analyst
908-439-2200, ext. 5379
w.dolson.smith@ambest.com
or
Rachelle Morrow
Senior Manager, Public Relations
908-439-2200, ext. 5378
rachelle.morrow@ambest.com
or
Jim Peavy
Assistant Vice President, Public Relations
908-439-2200, ext. 5644
james.peavy@ambest.com