Best’s News & Research Service - October 04, 2018 11:21 AM (EDT)
A.M. Best Revises Outlooks to Positive for Blue Cross Blue Shield of Michigan; Affirms Credit Ratings of Accident Fund Group
- October 04, 2018 11:21 AM (EDT)
Oldwick //BestWire// - A.M. Best has revised the outlooks to positive from stable and affirmed the Financial Strength Rating (FSR) of A- (Excellent) and the Long-Term Issuer Credit Rating (Long-Term ICR) of “a-” of Blue Cross Blue Shield of Michigan Mutual Insurance Company (BCBS MI) (Detroit, MI) and its subsidiary, Blue Care Network of Michigan (Southfield, MI) (collectively known as BCBS MI). Concurrently, A.M. Best has affirmed the FSR of A- (Excellent) and the Long-Term ICR of “a-” of the members of Accident Fund Group (AF Group). The outlook of these Credit Ratings (ratings) is positive. (See below for a detailed listing of companies.)
The ratings reflect BCBS MI’s balance sheet strength, which A.M. Best categorizes as very strong, as well as its marginal operating performance, neutral business profile and appropriate enterprise risk management (ERM).
The revised outlooks reflect favorable earnings development in 2017 and through the first half of 2018 and A.M. Best’s expectation that this trend will be sustained. The improved underwriting results were driven by the Medicare Supplement (Medigap), individual and Medicare Advantage lines of business. In 2017, BCBS MI implemented rate increases and modernized pricing for its Medigap business after a five-year rate freeze on this product, which was part of the conversion to a non-profit mutual insurer. The conversion also ended a direct subsidy program that had been in effect since 1980. Results in the individual, Affordable Care Act exchange product line were driven by several factors, including multiple years of rate increases, and benefit and network modifications. Increased earnings in Medicare Advantage were driven by growth in revenue, including risk adjustment payments, as well as improved and enhanced pharmacy management leading to additional favorable claims experience.
BCBS MI maintains strongest level of risk-adjusted capitalization as measured by Best’s Capital Adequacy Ratio (BCAR). Furthermore, BCBS MI reported an increase in capital and surplus primarily driven by the Tax Cuts and Jobs Act, which translated to more than $500 million of additional capital and continued improvement in earnings.
Offsetting rating factors include BCBS MI’s history of statutory underwriting losses largely driven by the Medigap and individual lines of business. Furthermore, the group’s higher exposure to risky assets is driven by its elevated investment to equities and Schedule BA assets, as well as its high, although declining, statutory operating leverage level due to its borrowing activity used for arbitrage.
The ratings of AF Group reflect its balance sheet strength, which A.M. Best categorizes as very strong, as well as its adequate operating performance, neutral business profile and appropriate ERM.
The FSR of A- (Excellent) and the Long-Term ICRs of “a-” have been affirmed, each with a positive outlook, for the following members of Accident Fund Group:
- Accident Fund Insurance Company of America
- CompWest Insurance Company
- Accident Fund General Insurance Company
- Accident Fund National Insurance Company
- Third Coast Insurance Company
- United Wisconsin Insurance Company
The positive outlooks reflect the consolidated AF Group’s improved operating performance, driven by increasingly profitable underwriting results and demonstrated expertise within the workers’ compensation marketplace. The outlooks of the members of AF Group could also be impacted by potential rating movement of the parent company, Blue Cross Blue Shield of Michigan Mutual Insurance Company. Furthermore, the ratings acknowledge the group’s utilization of sophisticated predictive analytic modeling tools, as well as medical cost containment practices and initiatives. The improved results also reflect the benefit of improved frequency and severity trends.
Factors that could lead to positive rating action for the members of AF Group include sustained improvement in underwriting and operating results at a level that consistently outperforms other similarly rated peers while maintaining a strong level of risk-adjusted capitalization. Factors that could lead to negative rating action include deterioration in underwriting performance, material loss reserve strengthening actions or rapid premium growth that weakens risk-adjusted capitalization. Negative rating actions could occur on the ratings of the members of AF Group should negative rating movement occur on its parent, Blue Cross Blue Shield of Michigan Mutual Insurance Company.
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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