OLDWICK, N.J.--(BUSINESS WIRE)--A.M. Best has placed under review with negative implications the financial strength rating of B (Fair) and the issuer credit rating of “bb+” of Colorado Choice Health Plans (Colorado Choice) (Alamosa, CO).
The rating actions reflect a $2.5 million deterioration in Colorado Choice’s absolute capital at year-end 2015. Although underlying operations remained strong and the medical loss ratio slightly improved in 2015, the company reported a $1.9 million net loss for the year driven by an unexpected material payment for the 2014 Affordable Care Act (ACA) risk adjustment and a substantially lower-than-anticipated amount received for the 2014 ACA risk corridor. An increase in non-admitted assets from additional technology expenditures related to the ACA also contributed to the decline in capital. Together, these three items resulted in a decrease of approximately one-third of Colorado Choice’s capital. A.M. Best believes Colorado Choice currently maintains an inadequate level of risk-adjusted capital, as measured by Best’s Capital Adequacy Ratio (BCAR), for its present insurance and investment risks, as well as business growth.
A.M. Best believes capital strengthening is necessary following the material impact of 2015 results. Additionally, premium growth resulting from 2016 membership expansion is expected to put further pressure on capitalization. If capitalization does not significantly improve by the end of the second quarter 2016, A.M. Best will likely take negative rating action that potentially could result in a multi-level downgrade. The ratings will remain under review while A.M. Best continues dialogue with management about capital enhancement initiatives currently being discussed with outside sources.
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