Press Release - AUGUST 22, 2018
A.M. Best Removes From Under Review With Negative Implications and Affirms Credit Ratings of SilverScript Insurance Company
FOR IMMEDIATE RELEASE
OLDWICK - AUGUST 22, 2018
The ratings reflect SilverScript’s balance sheet strength, which A.M. Best categorizes as very strong, as well as its strong operating performance, neutral business profile and appropriate enterprise risk management.
The ratings also reflect SilverScript’s very strong risk-adjusted capital levels over the past several years, supported by 100% retention of net income and an absence of dividends. Capital and surplus has shown consistent growth, with a five-year compound annual growth rate of 28%. These positive balance sheet attributes are partially offset by potential liquidity concerns resulting from a high dependency on large program receivable balances, due to the Centers for Medicare & Medicaid Services (CMS) reconciliation process and timing of payments. SilverScript’s ceded reinsurance agreements, and if necessary, the support from its ultimate parent, CVS Health Corporation (CVS Health), partially mitigates the feasible risk of a delay in payment from CMS. However, the ability of the ultimate parent to provide may be pressured as CVS Health recently increased its financial leverage to over 60% following the debt issuance to pre-fund the pending acquisition of Aetna, Inc. (Aetna). In addition, there is significant integration risk related to the Aetna acquisition given the vertical nature of the transaction and potential complexity to achieve meaningful synergies. However, CVS Health stated its intention to maintain the current capitalization level at SilverScript and accelerate de-leveraging through robust cash flow and reduced share repurchases. Following the announcement of the transaction, CVS Health stopped share repurchases, starting in 2018. CVS Health’s share repurchases totaled $4.4 billion in 2017.
SilverScript has demonstrated a long-term trend of strong favorable earnings, with a five-year return on equity exceeding 20%. SilverScript is the market leader in stand-alone prescription drug plan enrollment; however, more than 50% of membership is composed of low-income subsidized members auto-assigned by CMS. Such concentration creates lack of product diversification and subjects SilverScript to high degree of regulatory risks.
This press release relates to Credit Ratings that have been published on A.M. 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 A.M. Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Understanding Best’s Credit Ratings. For information on the proper media use of Best’s Credit Ratings and A.M. Best press releases, please view Guide for Media - Proper Use of Best’s Credit Ratings and A.M. Best Rating Action Press Releases.
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