OLDWICK, N.J.--(BUSINESS WIRE)--AM Best has upgraded the Financial Strength Rating to A (Excellent) from A- (Excellent) and the Long-Term Issuer Credit Ratings to “a” from “a-” of Premera Blue Cross and its subsidiaries, LifeWise Assurance Company and LifeWise Health Plan of Washington. The outlook of the Credit Ratings (ratings) has been revised to stable from positive. These companies collectively are known as Premera Group (Premera), and are domiciled in Mountlake Terrace, WA.
The ratings reflect Premera’s balance sheet strength, which AM Best categorizes as strongest, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management.
The upgrades are based on Premera’s continuous capital growth and strengthening of risk-adjusted capitalization measures. Premera’s capital and surplus grew almost 50% since 2016, driven in large part by the refund of tax credits that resulted from elimination of the alternative minimum tax by the Tax Cuts and Jobs Act, which was passed in late 2017. Premera expects to receive additional refunds, albeit smaller, of the tax credits over the next three years. Furthermore, stronger underwriting earnings, supported by low medical cost trends and a focus on profitable market segments, have enhanced capital and surplus. Premera’s financial flexibility is supported by very strong liquidity measures and access to Federal Home Loan Bank borrowing. Premera benefits from its market leadership position in Washington and Alaska, especially as it relates to large groups. The organization leverages its favorable market position by building and expanding innovative value-based and risk-sharing reimbursement models, including primary care. AM Best expects future earnings to remain positive, but to moderate due to investments in the business and partial returns of tax credits to members via lower premium and community initiatives.
Offsetting rating factors include exposure to higher risk assets and recent history of earnings and membership fluctuations. Premera’s exposure to common stocks and Schedule BA assets, including private equity funds, is higher compared with peers. However, the risks are mitigated partially by the strongest level of risk-adjusted capitalization. Similar to the industry, Premera experienced earnings volatility related to the individual and small group markets. Premera scaled down its participation in unprofitable segments; however, while profitability improved, these actions resulted in membership losses.
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