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Best’s News & Research Service - November 29, 2023 01:45 PM (EST)

AM Best Removes From Under Review, Affirms Credit Ratings of Blue Cross and Blue Shield of Vermont and its Subsidiary

  • November 29, 2023 01:45 PM (EST)
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Oldwick //BestWire// - AM Best has removed from under review with developing implications and affirmed the Financial Strength Rating (FSR) of B++ (Good) and the Long-Term Issuer Credit Ratings (Long-Term ICRs) of “bbb+” (Good) of Blue Cross and Blue Shield of Vermont (BCBSVT) and its subsidiary, The Vermont Health Plan, LLC. The outlook assigned to the FSR is stable while the outlook assigned to the Long-Term ICRs is negative. These companies are collectively known as Blue Cross and Blue Shield of VT Group (BCBSVT Group). Both companies are domiciled in Berlin, VT.

These Credit Ratings (ratings) reflect BCBSVT Group’s balance sheet strength, which AM Best assesses as strong, as well as its marginal operating performance, neutral business profile and appropriate enterprise risk management.

BCBSVT Group’s ratings were placed under review with developing implications on May 3, 2023, following the announcement of a pending formal affiliation between BCBSVT and Blue Cross Blue Shield of Michigan Mutual Insurance Company (BCBS MI). Under the agreement approved by Vermont’s regulator in October 2023, BCBS MI became a sole corporate member of BCBSVT. Both plans are non-profit organizations and there was no movement of any funds between the companies as part of the transaction. BCBSVT may benefit from access to operational capabilities and tools of BCBS MI.

The negative outlook assigned to the Long-Term ICR reflects AM Best’s concern of continued pressure on BCBSVT Group’s balance sheet strength driven by lack of capital and surplus growth due to sizeable operating losses. Risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), is expected to decline as the company projects premium growth to outpace capital growth over the next two years.

BCBSVT’s balance sheet strength is supported by its very strong risk-adjusted capitalization, as measured by BCAR. The group’s BCAR declined slightly in 2022 over the prior year primarily due to a combination of premium growth and capital decline. The group’s level of capital, both absolute and risk-adjusted, has been volatile and has fluctuated over the past five years. For 2024, capital growth will depend on BCBSVT Group’s ability to meet its projections of material improvement of underwriting and operating results. However, the pressure on risk-adjusted capitalization will increase from higher premiums due to substantial rate increases that have already been implemented for 2023 and 2024. If the group fails to meet its capital growth targets, its BCAR can deteriorate sharply.

BCBSVT Group has reported underwriting losses in four out of the past five years driven by higher-than-expected medical costs, limited ability to raise rates and high administrative expenses due to a lack of scale. Operating results have fluctuated as the underwriting losses were partially offset by investment income and several sizeable one-time items. The group’s financial performance continued to be pressured through the first nine months of 2023; however, the company expects gradual improvement toward year-end 2023 and in 2024, driven by material rate increases and a number of cost containment initiatives. In addition, the affiliation with BCBS MI may enhance technological capabilities and allow for administrative efficiencies.

BCBSVT Group maintains a dominant market share in Vermont, which it has maintained for a long period of time. However, the company’s geographic concentration exposes it to greater regulatory and market risk. In addition, despite the market leadership position, the small population base in Vermont limits the group’s scale and creates challenges to maintain sufficient investments in technology. The group does offer a variety of group plans, Medicare supplemental, Medicare Advantage and other benefit coverage to its members on both an insured and self-funded basis, limiting product concentration risk.

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.

Health Insurers Financial Strength Press Release Vermont A.M. Best Rating Services, Inc. Blue Cross And Blue Shield Plans Insurance Best's Credit Rating Action Issuer Credit Rating

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