Best’s News & Research Service - March 04, 2011 11:21 AM (EST)
A.M. Best Removes Ratings of PacificSource Health Plans From Under Review
OLDWICK, N.J. //BestWire// - A.M. Best Co. has removed from under review with developing implications and affirmed the financial strength rating of B++ (Good) and issuer credit rating of “bbb” of PacificSource Health Plans (PSHP) (Eugene, OR). The outlook assigned to both ratings is stable.
The ratings were placed under review following PSHP’s announced acquisition of Clear One Health Plans, Inc. (Clear One), which closed in May 2010. After A.M. Best’s meeting with management and further reviewing the details of the transaction, financial terms, strategic and integration plans related to the purchase of Clear One, the ratings were removed from under review.
The ratings of PSHP reflect its adequate risk-adjusted capital position, market penetration and premium growth, favorable earnings trends and the strategic acquisition. Offsetting these positive rating factors are the company’s expansion risks and limited expertise in government sector programs.
PSHP acquired Clear One, a for-profit company that provides Medicare Advantage and commercial products in Oregon and Montana. The acquisition creates the opportunity for PSHP to expand its health insurance offerings and increase its presence in central Oregon via its expansion into Medicaid and Medicare through Clear One’s operations while also growing its commercial business line. Clear One’s regional footprint and government program expertise also provides a knowledge base, as the organization prepares to establish operations for the expansion of its government sector programs.
A.M. Best views the expansion favorably, but is concerned about PSHP’s limited business profile and the challenges posed by health care reform. However, A. M. Best believes that these concerns can be mitigated by the company’s adequate capital position and profitable growth strategies. A.M. Best also notes that PSHP’s operating results were strong in 2009 and through the later part of 2010, driven by favorable net underwriting income and improved investment results.
The principal methodology used in determining these ratings is Best’s Credit Rating Methodology - Global Life and Non-Life Insurance Edition, which provides a comprehensive explanation of A.M. Best’s rating process and highlights the different rating criteria employed. Additional key criteria utilized include: “Rating Health Insurance Companies”; “Update to BCAR for Life & Health Insurers”; “Risk Management and the Rating Process for Insurance Companies”; “Rating Members of Insurance Groups”; and “Assessing Country Risk.” Methodologies can be found at www.ambest.com/ratings/methodology.