OLDWICK, N.J.--(BUSINESS WIRE)--A.M. Best has revised the outlooks to stable from negative and affirmed the Financial Strength Ratings (FSR) of A- (Excellent) and the Long-Term Issuer Credit Ratings (Long-Term ICR) of “a-” of Highmark Inc. (Highmark) (Camp Hill, PA), Highmark Choice Company, HM Health Insurance Company and Highmark West Virginia Inc. (Parkersburg, WV). Concurrently, A.M. Best has affirmed the Long-Term Issue Credit Ratings (Long-Term IRs) of “bbb+” on Highmark’s existing senior notes. Additionally, A.M. Best has revised the outlooks to stable from negative and affirmed the FSRs of A- (Excellent) and the Long-Term ICRs of “a-” of Highmark’s life/health and property/casualty subsidiaries, which include HM Life Insurance Company (HM Life), HM Life Insurance Company of New York (HM Life New York) (New York, NY) and Highmark Casualty Insurance Company (Highmark Casualty), as well as Highmark’s dental subsidiaries, which operate under the United Concordia brand name. The above companies are domiciled in Pittsburgh, PA, unless otherwise specified. (See below for a detailed listing of the Long-Term IRs and dental companies’ ratings).
The outlook revisions are based primarily on the strong turnaround in Highmark’s operating performance driven by the commercial market and individual exchange business, which has resulted in the strengthening of risk-adjusted capital at the lead operating entity, Highmark.
Highmark and its affiliated health plans on a consolidated basis have reported much stronger operating gains in 2016 compared with prior-year results, in which the company reported large underwriting losses driven by high utilization and inadequate pricing in its direct business or individual segment. Adding to the gains were contributions from higher quality bonuses in the Medicare Advantage/senior segment attributed to higher STAR ratings, a moderated medical trend in the commercial segment and a decline in individual segment losses. An improvement in operating income has driven the risk-adjusted capital measures higher, which in risk-based capital and Best’s Capital Adequacy Ratio (BCAR) measures have increased over the near term. A.M. Best anticipates this trend to continue, as operating earnings have performed stronger through favorable claims development and cost-savings initiatives. Highmark’s ratings reflect the organization’s diversification of regulated and unregulated complementary business earnings. Near-term trends of operating gains have declined slightly in Highmark’s diversified business lines driven by higher stop-loss claim development; however, the vision business, dental and other non-regulated service platform business add earnings diversification. Highmark has a very strong blue brand trademark in Pennsylvania, West Virginia and Delaware. In Pennsylvania, the company has successfully merged the Northeast of Pennsylvania Blue Cross plan (NEPA) into the lead operating company.
The favorable rating attributes are offset partially by weak liquidity measures compared with industry peers in the lead operating company, Highmark, which is attributed to its high percentage of common stock ownership of affiliated entities. However, the organization’s high quality diversified investment portfolio mitigates the risk. Highmark’s financial commitments to Allegheny Health Network (AHN), the integrated delivery system created in 2012 by Highmark Health, remain intact. Should earnings underperform at any of these facilities, it could place financial pressure on Highmark, which currently offers some financial guarantees on debt for two of the hospital systems. Through year-end 2016, the losses at AHN continued, while revenue has grown 30% since the time of the affiliation in 2013. The challenges of integrating the hospital system are diminishing slowly, as the company has made a series of investments focused on improving health care delivery efficiencies through value-based arrangements. Highmark has worked through the Western Pennsylvania market disruption from the termination of its large provider contract and integrated AHN facilities and physicians into its products creating efficient value-based arrangements. However, one large provider offers competing health insurance coverage and has a sizable market, but Highmark maintains its leading market share in this region of Pennsylvania. Other national carriers have added pressure to this highly competitive marketplace.
The rating affirmations of HM Life, HM Life New York and Highmark Casualty reflect the level of risk-adjusted capitalization maintained by each company, strong liquidity measures, expanding partnerships and market strength in the stop-loss market driven by its relationships with Blue plans. Offsetting rating factors are the competition, lower margins and concentration risk in the medical stop-loss business.
The rating affirmations of Highmark’s United Concordia subsidiary group reflect its continued favorable operating performance, the strength of risk-adjusted capitalization levels on a consolidated basis, liquidity and the projected growth from regaining a large government contract, and growth from Blue partnerships. Offsetting these positive rating factors are United Concordia’s near-term decline in enrollment and declining revenue trend.
The FSR of A- (Excellent) and the Long-Term ICRs of “a-” have been affirmed with a revised outlook to stable from negative for the following dental subsidiaries of Highmark Inc.:
- United Concordia Companies Inc.
- United Concordia Insurance Company
- United Concordia Life and Health Insurance Company
- United Concordia Insurance Company of New York
- United Concordia Dental Plans of California, Inc.
- United Concordia Dental Plans of Pennsylvania, Inc.
- United Concordia Dental Plans, Inc.
The following Long-Term IRs have been affirmed with a revised outlook to stable from negative:
-- “bbb+” on $350 million 4.75% senior unsecured notes, due 2021
-- “bbb+” on $250 million 6.125% senior unsecured notes, due 2041
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