Best’s News & Research Service - April 16, 2015 02:39 PM (EDT)
A.M. Best Affirms Ratings of Blue Shield of California and Its Subsidiary
- April 16, 2015 02:39 PM (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 California Physicians' Service (d/b/a Blue Shield of California) (Blue Shield) and its wholly owned life/health insurance subsidiary, Blue Shield of California Life & Health Insurance Company (Blue Shield Life). Additionally, A.M. Best has downgraded the FSR to B++ (Good) from A- (Excellent) and the ICR to "bbb+" from "a-" of Blue Shield's separately rated wholly owned life insurance subsidiary, CareAmerica Life Insurance Company (CareAmerica). The outlook for all ratings is stable. All companies are domiciled in San Francisco, CA.
The affirmation of the ratings reflects Blue Shield's well-established market presence, consistently favorable operating and net income trends on its core business, earnings diversification and sound risk-adjusted capitalization. Additionally, the group's product portfolio is diversified, offering a good spread of revenue and earnings. Blue Shield's integrated business approach has allowed for an efficient cost structure and management of its diverse business activities, which enables the group to perform at a profitable level while servicing the needs of its members. Offsetting these factors are the anticipated reduction in Blue Shield's financial flexibility due to the planned acquisition of Care1st Health Plan, Inc. (Care1st) and the challenging and highly competitive California marketplace. Furthermore, A.M. Best believes the competitive commercial segment makes maintaining consistent and sustainable revenue growth and earnings a challenge.
The acquisition of Care1st is expected to close in the second half of 2015. Care1st is a for-profit, provider-founded managed care company serving more than 500,000 Medicaid and Medicare members. Care1st has more than 20 years of experience administering government-sponsored health plans, primarily in Southern California and with a minor presence in Arizona and Texas. Upon close and following integration, A.M. Best expects the transaction to enhance Blue Shield's market position by diversifying its products into the large and growing Medicaid (MediCal) market. Additionally, this acquisition is in line with the organization's strategic growth initiatives and positions Blue Shield to further increase its enrollment, revenue and earnings base.
The downgrade of CareAmerica's ratings primarily reflects A.M. Best's view of its reduced strategic importance to the overall organization and its limited business profile. Due to its healthy level of risk-adjusted capital, CareAmerica remains a potential source of dividends for its parent. Management is in the process of moving the majority of active business in CareAmerica to its affiliated entity, Blue Shield Life.
A.M. Best believes that positive rating movement for Blue Shield is unlikely in near to medium term. Factors that may lead to a negative rating action include a further decline in overall financial flexibility, complications related to the integration of Care1st, sizable decline in risk-adjusted capitalization, significant weakening of operating performance or deterioration in Blue Shield's market share beyond A.M. Best's expectations.
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:
- Rating Members of Insurance Groups
- Risk Management and the Rating Process for Insurance Companies
- 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 .
A.M. Best Company is the world's oldest and most authoritative insurance rating and information source.