Best’s News & Research Service - March 19, 2015 10:14 AM (EDT)
A.M. Best Affirms Ratings of UPMC Health Plan, Inc. and Its Affiliates; Assigns Ratings to Two Subsidiaries
- March 19, 2015 10:14 AM (EDT)
Oldwick //BestWire// - A.M. Best has affirmed the financial strength rating (FSR) of A- (Excellent) and the issuer credit ratings (ICR) of "a-" of UPMC Health Plan, Inc. and its affiliates, UPMC Health Network, Inc., UPMC For You, Inc. and Community Care Behavioral Health Organization (CCBH). The outlook for these ratings is stable. Concurrently, A.M. Best has assigned the FSR of A- (Excellent) and the ICRs of "a-" to UPMC Health Options, Inc. and UPMC Health Coverage, Inc. The outlook assigned to these ratings is stable. Additionally, A.M. Best has placed under review with developing implications the FSR of A- (Excellent) and the ICR of "a-" of UPMC Health Benefits, Inc. (Health Benefits). Collectively, the group is herein referred to as UPMC Health Plans. All companies are headquartered in Pittsburgh, PA.
The rating affirmations and assignments reflect UPMC Health Plans' strategic role as the managed care affiliate of the University of Pittsburgh Medical Center (UPMC), a fully integrated health care delivery system that is formed around one of the nation's premier academic medical centers. The ratings also consider UPMC's well-established network and overall high creditworthiness, which enhances each entity's stand-alone assessment.
UPMC Health Plans continues to demonstrate solid consolidated underwriting and net income, supplemented by expansion of its geographic footprint outside of its core market of western Pennsylvania. Moreover, strong membership and premium growth were reported across the majority of its diversified business lines. The company's business mix continues to shift more toward government-sponsored lines of business, which have become a growing segment for the organization. Of note is the considerable contribution of the Medicaid product line to the group's consolidated operating performance in 2014.
Additionally, the parent organization has demonstrated explicit financial support of the insurance operations through capital contributions, which have come in the form of surplus notes. A.M. Best is concerned about the stand-alone risk-adjusted capitalization of certain affiliates within the group and the considerable use of surplus notes, which are viewed as lower quality capital. Going forward, A.M. Best will continue to monitor the need for additional capital contributions for the majority of the rated entities, with the expectation that more capital would be infused by UPMC if necessary to support UPMC Health Plans' strategic growth initiatives.
A.M. Best believes that UPMC Health Plans has been pressured by the competitive nature of the commercial market, which is driving significant margin compression on existing and new business. However, management has implemented stricter underwriting guidelines to aid in returning this line to profitability while maintaining a steady premium growth trend in each of its regulated entities.
The ratings assigned to UPMC Health Options, Inc. and UPMC Health Coverage, Inc. reflect their anticipated cost saving opportunity, good initial risk-adjusted capitalization, parental support and access to an experienced management team. However, A.M. Best remains uncertain about the ultimate impact of these newly created companies on UPMC Health Plans and will continue to monitor the two entities' ongoing strategic direction, with the expectation that both companies will successfully execute and meet their business plans. A.M. Best notes that both entities reported operating losses through year-end 2014. Moreover, A.M. Best expects these entities to maintain sound risk-adjusted capitalization, as measured by Best's Capital Adequacy Ratio (BCAR), as they continue to grow within the group.
The under review status for Health Benefits reflects its new strategic role within the group, with greater emphasis on workers' compensation business. The entity has recorded significant premium growth in its workers' compensation line of business through year-end 2014 and changed its regulatory filing status to a property/casualty statement type. A.M. Best will continue its discussions with the management team while assessing its capitalization, level of premium leverage and future strategic direction. A.M. Best anticipates that UPMC will continue to implicitly and explicitly support Health Benefits to fund its future growth initiatives.
Given the stable outlook, upward rating movement for UPMC Health Plans remains unlikely in the near to medium term. Key rating drivers that could lead to a negative rating action include material deviation from the group's projections beyond A.M. Best's expectations, significant deterioration in operating performance particularly in its commercial segment and/or capitalization, as well as lack of financial support from the parent organization.
The methodology used in determining these ratings is Best's Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best's rating process and contains the different rating criteria employed in the rating process. Best's Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
Key insurance criteria reports utilized:
- Evaluating Non-Insurance Ultimate Parents
- Risk Management and the Rating Process for Insurance Companies
- Rating Members of Insurance Groups
- Understanding BCAR for U.S. and Canadian Life/Health Insurers
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 visit A.M. Best's Ratings & Criteria Center .
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