Best’s News & Research Service - June 16, 2023 12:29 PM (EDT)
AM Best Revises Outlooks to Positive for Vision Service Plan and Its Subsidiaries
- June 16, 2023 12:29 PM (EDT)
Oldwick //BestWire// - AM Best has revised the outlooks to positive from stable and affirmed the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Ratings of “a-” (Excellent) of Vision Service Plan (Rancho Cordova, CA) and its subsidiaries, collectively known as VSP Vision. (See below for a detailed list of the subsidiaries.)
The Credit Ratings (ratings) reflect VSP Vision’s balance sheet strength, which AM Best assesses as adequate, as well as its adequate operating performance, favorable business profile and appropriate enterprise risk management.
The revision of the outlooks to positive reflects the sustained improvement of VSP Vision’s operating performance metrics to a level more aligned with AM Best’s expectations for the strong operating performance assessment. VSP Vision has reported increasing profitability ratios with operating returns on equity outpacing the peer composites. The group’s earnings continued to improve in 2022, driven by expense management initiatives offset by increased post-COVID-19 utilization across both risk and administrative services contract businesses. The favorable results reflect the group’s sustainable competitive advantage that has been achieved through scale and multiple distribution capabilities. Premium levels have remained flat year-over-year as VSP Vision has managed rate decreases to remain competitive. However, enrollment has been steadily growing and additional revenues have been generated through increased fee income.
While VSP Vision reported continued capital and surplus growth through 2022, its balance sheet strength remains pressured due to the previous acquisitions, including Visionworks and its subsidiaries. The acquisitions resulted in a material increase in goodwill and intangible assets, as well as high financial leverage. Goodwill and intangibles to capital was 70.4%, and financial leverage was 44.7% at year-end 2022. However, VSP Vision refinanced and repaid outstanding principal balances drawn under the 2019 credit facility. The new credit facility signed in December of 2021 replaced the 2019 credit facility. VSP Vision is making quarterly repayments and the loan is scheduled to be paid off in 2027. The group’s interest coverage remains good.
AM Best categorizes VSP Vision’s business profile as favorable, as the group continues to maintain a leading market share in the vision care benefit marketplace, with a well-established network of providers and strong brand recognition. The addition of Visionworks and its subsidiaries adds a substantial network of retail vision care locations that enhances VSP Vision’s competitive advantage in the integrated vision care space, which is expected to drive meaningful growth in the near to medium term.
The FSR of A- (Excellent) and the Long-Term ICRs of “a-” (Excellent) have been affirmed with revised outlooks to positive from stable for the following subsidiaries of VSP Vision:
- Eastern Vision Service Plan, Inc.
- VSP Vision Care, Inc.
- Vision Service Plan Insurance Company (OH)
- Vision Service Plan of Illinois, NFP
- Vision Service Plan Insurance Company (MO)
- Vision Service Plan (CA)
This press release relates to Credit Ratings that have been published on AM 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 AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best’s Credit Ratings. For information on the proper use of Best’s Credit Ratings, Best’s Performance Assessments, Best’s Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best’s Ratings & Assessments.
AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City.