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FOR IMMEDIATE RELEASE
OLDWICK - JULY 07, 2021 09:59 AM (EDT)
AM Best has upgraded the Long-Term Issuer Credit Rating (Long-Term ICR) to “a+” (Excellent) from “a” (Excellent) and affirmed the Financial Strength Rating of A (Excellent) of Priority Health. The outlook of these Credit Ratings (ratings) is stable. The company is domiciled in Grand Rapids, MI.
The ratings reflect Priority Health’s balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management, as well as the financial support and strength of the parent company.
The Long-Term ICR upgrade reflects sustained improvement in Priority Health’s overall balance sheet strength and favorable capital and surplus growth on an absolute and risk-adjusted basis. Priority Health has maintained the strongest level of risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), while lowering underwriting leverage over the most recent five-year period. Overall, positive net income has continued to contribute to a solid level of organic capital growth through retained earnings. AM Best expects Priority Health’s risk-adjusted capitalization to remain at the strongest level, although it may fluctuate driven by business growth. Priority Health’s allocation to equity investments remains elevated compared with peers; however, it is offset by higher cash and short-term investment balances, which support strong liquidity measures.
The ratings further reflect Priority Health’s trend of profitable operating performance, which has been sustained over the past five-year period. Further, AM Best notes that operating earnings remained consistent in 2020 and through early 2021, despite the challenges of operating in the COVID-19 pandemic environment. In particular, Priority Health’s underwriting performance was impacted by lower utilization due to the pandemic, driven by the deferral of routine care and elective procedures across various lines of business. Premium growth and operating earnings have been especially strong, driven in part by the company’s expansion of government business, including Medicare Advantage and Medicaid. AM Best notes that potential rapid growth of lower-margin government business may put pressure on future margins and earnings.
The company’s business profile is assessed as neutral based on its solid market share in Western Michigan, as well as growing statewide presence primarily through government programs. The merger with Total Health Care, Inc. completed in 2019 has favorably positioned Priority Health for an expansion into the Medicaid segment. In addition, the recent strategic alliance with Cigna adds a competitive advantage for growth in commercial products.
Priority Health is majority owned by Spectrum Health System (Spectrum), a financially strong integrated health care system within which Priority Health is a key component. AM Best considers Priority Health’s integration with Spectrum as beneficial, having a positive impact on overall operating results through brand recognition, contracting, medical management, as well as administrative savings for shared services. Additionally, Priority Health makes a sizeable contribution to consolidated revenues and earnings for the organization. Spectrum recently announced its intent to combine with Beaumont Health, the largest health system in Michigan. Should this transaction occur, Spectrum does not anticipate any change in the level of its support to Priority Health. Furthermore, the business combination may provide Priority Health with an opportunity to expand further into Eastern Michigan.
This press release relates to Credit Ratings that have been published on AM 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 AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best’s Credit Ratings. For information on the proper media use of Best’s Credit Ratings and AM Best press releases, please view Guide for Media - Proper Use of Best’s Credit Ratings and AM Best Rating Action Press Releases.
AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City.