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FOR IMMEDIATE RELEASE
OLDWICK - JUNE 15, 2016 01:37 PM (EDT)
A.M. Best has revised the outlooks to negative from stable and affirmed the financial strength ratings (FSR) of A- (Excellent) and the issuer credit ratings (ICR) of “a-” of Highmark Inc. (Highmark), Highmark Choice Company, HM Health Insurance Company and Highmark West Virginia Inc. (Parkersburg, WV). Concurrently, A.M. Best has affirmed the issue ratings of “bbb+” on Highmark’s existing senior notes. Additionally, A.M. Best has affirmed the FSRs of A- (Excellent) and the 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), Highmark Casualty Insurance Company (Highmark Casualty) and HM Casualty Insurance Company (HM Casualty), as well as Highmark’s dental subsidiaries, which operate under the United Concordia brand name. The revisions are primarily based on the poor operating performance driven by the individual exchange business and the risk-adjusted capital decline at the lead operating entity Highmark.
The above companies are domiciled in Pittsburgh, PA, unless otherwise specified. (See below for a detailed listing of the issue and dental companies’ ratings).
The rating of Highmark reflects its strong market share and brand recognition, its successful merger of an acquired Blue Cross branded health plan, and diversified subsidiary earnings. Highmark and its affiliated health plans continue to have strong market shares in their core Pennsylvania, West Virginia and Delaware markets. The organization competes vigorously in the western Pennsylvania market; however, its market share is strong and retention rates in targeted segments are high. Additionally, the company has successfully merged Blue Cross of Northeastern Pennsylvania (BCNEPA) into the lead operating company. This added 13 new county service areas and approximately 260,000 members in 2015. This action continues to deepen the Highmark Blue brand in Pennsylvania.
Highmark’s diversification of both regulated and unregulated complementary business earnings has partially mitigated the health plan’s operating losses over the medium term. Offsetting rating factors include poor medium term underwriting results and increased balance sheet risks. Operating results over the medium term have been challenged by the individual exchange business. The results through 2015 marked the second consecutive year in which Highmark reported underwriting losses directly attributed to the individual line of business. The unfavorable risk corridor settlement has weighed heavily on the results over the past two years, in addition to Highmark incurring expenses relating to its parent company’s integrated provider strategy, the merger of BCNEPA and other non-strategic expenses. Risk-based capitalization has fallen below a range of 300% Company Action Level at the lead operating company and in 2015 reached its lowest level in five years. The decline is primarily driven by the operating losses in Highmark’s individual exchange business. Highmark’s balance sheet risk is further augmented by financial guarantees on debt of its sister company, Allegheny Health Network. A.M. Best is concerned that any future losses may put additional pressure on the current capitalization level; however, Highmark’s subsidiaries and controlled affiliates are adequately capitalized and may withstand near term downward pressure.
The affirmation of the ratings for HM Life and HM Life New York reflect the consolidated long term increase in risk-adjusted capital, stable favorable net operating performance, and their roles as strategic operating units of their intermediate parent, Highmark. A.M. Best anticipates premium and earnings growth to be challenged over the medium term from competitive pressure and pricing discipline in its core line of stop-loss coverage.
The affirmation of the ratings of Highmark’s United Concordia subsidiary group reflects its risk-adjusted capitalization strength, improvement in its long term business profile, broad provider network and its role as a strategic operating unit of intermediate parent, Highmark. The recent award of the TRICARE contract has favorably improved the business profile of the dental companies and is expected to increase the scale needed to spread the dental company’s costs across a larger premium base.
The ratings for Highmark Casualty and HM Casualty acknowledge their combined solid overall operating performance, adequate capitalization and sound business strategy that focuses on aggressive claims management and prudent reserving practices. The ratings also recognize the inherent benefits these companies derive as operating subsidiaries of their parent, Highmark.
The FSR of A- (Excellent) and the ICRs of “a-” have been affirmed with a revised outlook to negative from stable for the following dental subsidiaries of Highmark, Inc.:
The following issue ratings have been affirmed with a revised outlook to negative from stable:
Highmark Inc.—
— “bbb+” on $350 million 4.75% senior unsecured notes, due 2021
— “bbb+” on $250 million 6.125% senior unsecured notes, due 2041
This press release relates to rating(s) 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.
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