Best’s News & Research Service - January 17, 2014 04:18 PM (EST)
A.M. Best Affirms Ratings of Blue Cross and Blue Shield of South Carolina and Its Subsidiaries
OLDWICK, N.J. //BestWire// - A.M. Best Co. has affirmed the financial strength rating (FSR) of A+ (Superior) and the issuer credit ratings (ICR) of “aa-” of Blue Cross and Blue Shield of South Carolina (BCBS SC) and its subsidiaries, BlueChoice HealthPlan of South Carolina Inc, Companion Life Insurance Company (Companion Life) and Niagara Life and Health Insurance Company (Amherst, NY). Additionally, A.M. Best has upgraded the FSR to A (Excellent) from A- (Excellent) and the ICR to “a” from “a-” of InStil Health Insurance Company (InStil), the group’s TRICARE program administration subsidiary.
A.M. Best also has affirmed the FSR of A (Excellent) and the ICRs of “a” of Companion Property and Casualty Insurance Company and its 100% reinsured subsidiaries, Companion Commercial Insurance Company, Companion Specialty Insurance Company (District of Columbia), AmFed Casualty Insurance Company and AmFed National Insurance Company (both domiciled in Ridgeland, MS), collectively referred to as the Companion Property and Casualty Group. These companies also are subsidiaries of BCBS SC. The outlook for all ratings is stable. All companies are domiciled in Columbia, SC, unless otherwise specified.
The affirmation of the ratings of BCBS SC reflects the continuously favorable operating and net income trends on its core health business, earnings diversification and strong risk-adjusted capital. BCBS SC holds a high market share and maintains strong enrollment in South Carolina. Additionally, BCBS SC provides a host of administrative services for the government and private payers. Although earnings from the health business are anticipated to decline in the near term due to additional industry fees and taxes as a result of the provisions from The Patient Protection and Affordable Care Act (PPACA), they are expected to remain favorable.
Additionally, BCBS SC derives a material portion of corporate revenues and earnings from its non-regulated business, which somewhat offsets any volatility in its insurance-related revenue and earnings. BCBS SC’s capital continues to show a good level of growth based on favorable earnings and has a low level of premium leverage. Moreover, BCBS SC maintains excellent financial flexibility, having no outstanding debt and a fairly liquid investment portfolio.
The ratings for Companion Life reflect the stable premiums and earnings growth it has reported as well as its strong level of capital in support of its business and insurance risk. The upgrading of InStil’s ratings acknowledges its favorable operating results and improved level of risk-adjusted capital. A.M. Best believes Companion Life and InStil are integrated into BCBS SC’s overall corporate strategy and business plan; as such, it is expected that they will continue to be supported both operationally and financially, if necessary.
The ratings for the Companion Property & Casualty Group reflect its adequate risk-adjusted capitalization and the significant financial and reinsurance support provided by BCBS SC, which has contributed substantial amounts of capital in recent years to cover significant net losses driven by poorly performing programs, all of which have since been canceled as a result of the new business strategy executed by the new management team.
Somewhat offsetting these positive rating factors are Companion Property & Casualty Group’s substantial underwriting and operating losses, which have occurred over the past three years. Since 2011, in addition to the aforementioned poorly performing programs, results have been adversely impacted by severe weather-related events, goodwill impairments and several other one-time charges driven, in part, by the new management’s review of the group’s operations.
Given that the outlook for the ratings of BCBS SC and its subsidiaries is stable, A.M. Best does not anticipate an upgrading of the ratings in the near to medium term. Conversely, negative rating movement could occur if the organization sees substantial negative effects due to new business from health care exchanges or regulatory and operational changes required under PPACA, experience significant negative operating trends in core group health insurance business, or there is a material decline in risk-adjusted capital.
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.