OLDWICK, N.J.--(BUSINESS WIRE)--A.M. Best has revised the outlook to negative from stable and affirmed the financial strength rating of B++ (Good) and the issuer credit ratings of “bbb” for PreferredOne Insurance Company (PIC) and its affiliate, PreferredOne Community Health Plan (PCHP) (Golden Valley, MN). Subsequently, A.M. Best has withdrawn the ratings due to management’s request to no longer participate in A.M. Best’s interactive rating process.
The rating action reflects the group’s weakened underwriting and operating performance in 2014. This decline is primarily due to higher utilization, high claims experience and pricing issues surrounding the individual membership added this year through the Minnesota health insurance exchange, MNsure.
The negative outlook reflects A.M. Best’s concerns that the group’s underwriting results may be slow to improve given the level of adverse development experienced in 2014. The organization recently improved its capital structure somewhat by issuing short-term surplus notes to two of its ultimate shareholders, Fairview Health Services (Fairview) and North Memorial Health Care (North Memorial). Additionally, the group has received explicit financial support from its intermediate parent, PreferredOne Administrative Services, Inc. (PAS) through a $10 million capital contribution to help offset its current earnings volatility. Additionally, a line of credit was recently finalized with two external banks, which will be used as a working capital loan.
A.M. Best remains concerned about the short-term nature of the surplus notes, uncertainties surrounding the large receivable associated with risk adjustment and risk corridor estimates related to their exchange population experience, as well as the ultimate impact this block of business will have on the overall operating performance, capitalization and the strategic positioning of the insurance operations going forward.
PIC’s intermediate parent company, PAS, is owned jointly by Fairview (50%), North Memorial (25%) and PreferredOne Physician Associates (25%). The creditworthiness of these shareholders provides lift to the two provider-owned plans. The lack of majority voting control results is a deviation from A.M. Best’s criteria report, “Rating Members of Insurance Groups.” This deviation is mitigated by common management on the board of directors and the level of integration between the two insurance companies with the group’s shared resources.
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.
Key insurance criteria reports utilized:
• Risk Management and the Rating Process for Insurance Companies
• Understanding BCAR for U.S. and Canadian Life/Health Insurers
• Rating Members of Insurance Groups
• Evaluating Non-Insurance Ultimate Parents
This press release relates to rating(s) that have been published on A.M. Best's website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please visit A.M. Best’s Ratings & Criteria Center.
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