Fitch Affirms Health Insurance Plan of Greater New York; Outlook to Negative

CHICAGO--(BUSINESS WIRE)--Fitch Ratings has affirmed the 'BB+' Issuer Default Rating (IDR) and 'BBB-' Insurer Financial Strength (IFS) rating of Health Insurance Plan of Greater New York (HIP-NY). The Rating Outlook has been revised to Negative from Stable.

The change in the Rating Outlook reflects the earnings deterioration in recent years. In 2007 and 2008, profitability was materially weakened, primarily by the company's Medicaid business. In addition, net income has been negatively impacted by significant other than temporary impairments taken on the company's asset portfolio. Fitch's estimated consolidated statutory net income has swung from a $267 million profit in 2006 to a $102 million loss in 2008. If HIP-NY's earnings do not generate a profitable operating margin in the near term, the ratings may be downgraded.

The ratings continue to consider the company's business profile, which contains heavy concentration risk, particularly to the economic conditions of the New York metropolitan area and a very large single-client exposure with the city of New York's group health plan. While Fitch believes the company is well entrenched in this account, the sheer size of this plan creates exposure to a significant risk if this account were to leave.

Following a series of mergers and acquisitions in recent years, Fitch views HIP-NY in the context of its parent, EmblemHealth, Inc. (EmblemHealth) and affiliated corporations. The other primary operations of EmblemHealth include Group Health, Inc. (GHI) and Connecticare Inc. These operations are all considered core operations, as all provide a significant share of total revenue.

The ratings consider favorably the organization's good market share in the New York metropolitan area, lack of financial leverage and good operating company capital. Fitch's estimated consolidated NAIC risk-based capital ratio for EmblemHealth was approximately 209% at year-end 2008, which is a decline from 287% the prior year given the asset impairments taken in 2008.

Fitch believes that overall membership trends will remain level and the New York City account will remain a long-term client. EmblemHealth is seeking conversion to a for-profit corporation. If this were to occur, Fitch will evaluate any potential changes to the corporate and financial profile. At this time, material changes are not anticipated.

Fitch has affirmed the following ratings with a Negative Outlook:

Health Insurance Plan of Greater New York

--IDR at 'BB+';

--IFS at 'BBB-'.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.