OLDWICK, N.J.--(BUSINESS WIRE)--A.M. Best has downgraded the Financial Strength Rating to C++ (Marginal) from B (Fair) and the Long-Term Issuer Credit Ratings to “b+” from “bb+” of Colorado Choice Health Plans (Colorado Choice) (Alamosa, CO). These Credit Ratings (ratings) remain under review with the implication revised to developing from negative.
The rating actions reflect a significant deterioration in Colorado Choice’s absolute and risk-adjusted capital at year-end 2016. The company reported a $4.8 million net loss for the year driven by sizeable premium growth and its persistently high loss ratio. At year-end 2016, the capital and surplus was $1.6 million, while annual premium exceeded $92 million resulting in risk-based capital falling below 50% company action level. Furthermore, a substantial portion of Colorado Choice’s capital at year-end 2016 was comprised of subordinated debentures. The company entered into an agreement to merge with Melody Health Insurance (Melody Health) in November 2016; however, the approval and closing of the transaction is not expected until second quarter 2017.
While Colorado Choice anticipates a capital contribution from Melody Health to bring the risk-based capital above 200% upon closing of the transaction, A.M. Best is concerned that Colorado Choice may not be able to meet its financial obligations to policyholders should the closing of the transaction be delayed or if the terms of the anticipated capital contribution are changed. If the capital contribution is not received as currently planned, an additional rating downgrade is likely. Conversely, if the transaction closes and the capital contribution as specified above is provided, A.M. Best may consider an upgrade for the ratings.
This press release relates to Credit Ratings 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 see A.M. Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Understanding Best’s Credit Ratings.
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