OLDWICK, N.J.--(BUSINESS WIRE)--A.M. Best has affirmed the Financial Strength Rating of B+ (Good) and the Long-Term Issuer Credit Rating of “bbb-” of Western Health Advantage (WHA) (Sacramento, CA). The outlook of these Credit Ratings (ratings) is stable.
The rating affirmations reflect the explicit financial support and strategic arrangement that WHA has with its three sponsors: Mercy/Dignity Health Sacramento, NorthBay Healthcare System and the University of California, Davis Medical System. Each sponsor is a financially strong integrated health care delivery system that guarantees a minimum level of capital for WHA and operates within the health plan service area. During 2017, WHA is expected to begin repayment of the subordinated promissory notes issued by its sponsors. Furthermore, the company is further supported by its low-risk business profile, the global capitation by its sponsors for the majority of its commercial lines of business and establishing its medical loss ratio for its core lines of business at less than 92%.
WHA continues to report low absolute and risk-adjusted levels of capitalization as a result of losses in 2015 and the sponsors contributed promissory notes despite current year-end profitability. WHA incurred a sizable loss in 2015 from the impact of transitioning from a mutual benefit company to a 501(c) (4) corporation. The notes were allowed to be included in California’s tangible net equity calculation and its requirements are modest. In addition, due to the promissory notes, WHA’s financial leverage increased to over 50%. A.M. Best is concerned that future capital needs at WHA could lead to further borrowing from its sponsors. The company remains concentrated geographically operating in only nine California counties due to its sponsorship. Furthermore, WHA operates in a concentrated and very competitive and price sensitive group employer market.
A.M. Best deviated from its “Rating Members of Insurance Groups” criteria report because rating enhancement was afforded to WHA as it does not operate under common ownership, greater than 50% with the entity providing lift or maintain board control. WHA is not owned by one entity with a majority, but rather is equally sponsored by three health care systems, each of which has equal representation on WHA’s board.
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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