Best’s News & Research Service - August 31, 2016 03:14 PM (EDT)
A.M. Best Removes from Under Review and Downgrades Ratings of Universal American Corp. and Its Subsidiaries
- August 31, 2016 03:14 PM (EDT)
Oldwick //BestWire// - A.M. Best has removed from under review with negative implications and downgraded the issuer credit rating (ICR) to “b+” from “bb” of Universal American Corp. (Universal American) (headquartered in White Plains, NY) [NYSE: UAM]. In addition, A.M. Best has removed from under review with negative implications and downgraded the financial strength rating (FSR) to B+ (Good) from B++ (Good) and the ICR to “bbb-” from “bbb” of American Progressive Life & Health Insurance Company of New York (American Progressive) (headquartered in Lake Mary, FL).
Furthermore, A.M. Best has removed from under review with negative implications and downgraded the FSR to B (Fair) from B+ (Good) and the ICR to “bb+” from “bbb-” of SelectCare of Texas, Inc. (SelectCare) (Houston, TX). The outlook assigned to each rating is stable.
The rating actions follow Universal American’s completed sale of its traditional insurance business to Nassau Reinsurance Group (Nassau Re), which closed on Aug. 3, 2016. Nassau Re acquired all shares of The Pyramid Life Insurance Company and Constitution Life Insurance Company, as well as the traditional operations written by American Progressive, which was reinsured to Constitution Life Insurance Company as part of the transaction.
The ICR downgrade of Universal American reflects its trend of net losses, limited financial flexibility, increased business concentration risk and significant dividends from its insurance subsidiaries. Universal American has reported net losses each of the past three years. Furthermore, while the losses are largely attributable to discontinued operations, continuing operations reported a net loss as well. However, A.M. Best does note that results improved in the first half of 2016 with further improvement projected for the rest of the year. Universal American increased its level of debt outstanding in 2016, the proceeds of which were used to repurchase shares of stock from certain shareholders. While the cash available at Universal American is expected to improve in 2016, it is largely attributable to the sale of assets. A.M. Best believes that Universal American has limited financial flexibility given the increased level of debt within the organization and may become more reliant on dividends from its insurance subsidiaries to service its debt and other activities at the parent organization.
In addition, consolidated premium revenues are lower than historic levels due to the recent sale of operations. Additionally, the company’s business is now heavily concentrated in Medicare, with both Accountable Care Organizations (ACOs) in its non-insurance operations and Medicare Advantage (MA) in its core markets in Texas and the Northeast regions through its insurance entities. However, premium revenue is anticipated to increase modestly in the near term. Furthermore, Universal American has historically taken a steady stream of dividends from its insurance subsidiaries, which have resulted in a decline in the insurance companies’ risk-adjusted capital positions, as the dividends have mostly outpaced net income.
The rating downgrades of American Progressive reflect the business concentration in MA and a decline in earnings. While earnings are expected to improve in 2016 after losses in 2015, the level of net income is projected to be lower than historical levels.
The rating downgrades for SelectCare primarily reflect the continued lower level of risk-adjusted capital level. Whiles operating earnings have remained favorable, SelectCare’s capital has been negatively impacted by dividends to the parent which has outpaced net income. Furthermore, as a result of the dividend payments, SelectCare’s capital has been declining while premiums have steadily grown.
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 see A.M. Best’s Recent Rating Activity web page.
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