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FOR IMMEDIATE RELEASE
OLDWICK, N.J. - APRIL 25, 2013 12:00 AM (EDT)
A.M. Best Co. has revised the outlook to positive from stable and affirmed the financial strength rating of B- (Fair) and the issuer credit ratings of “bb-” for the subsidiaries of USHEALTH Group, Inc., which include Freedom Life Insurance Company of America (Freedom Life) and National Foundation Life Insurance Company (NFL), commonly known as USHEALTH Group. All companies are domiciled in Fort Worth, TX.
The rating affirmations and revised outlook reflect USHEALTH Group’s improved operating results reported more recently, continued adequate capitalization, effective expense management and the group’s innovative and value-added approach to product design. In prior years, USHEALTH Group’s operating results had been adversely impacted by several sizable legal settlements; however, beginning in 2011, no material litigation expenses have been incurred. Additionally, USHEALTH Group has reported improved underwriting results in its core health lines of business over the past few years. The group has been focused on implementing various operating efficiencies throughout the organization in an effort to offset the impact of The Patient Protection and Affordable Care Act’s (PPACA) regulations on its business model. Historically, USHEALTH Group has been quick to market with innovative products, which are well serving of its target individual and small employer demographic. Most recently, USHEALTH Group has diversified its product portfolio by offering “excepted benefit” fixed indemnity health products, which are exempt from PPACA, and complementary supplemental coverages.
Partially offsetting these positive rating factors is USHEALTH Group’s need to service the sizable debt payable by USHEALTH Group, Inc. to its majority stockholder. The payment-in-kind (PIK) note matures in March 2014; however, several extensions of the maturity date have been granted by the majority stockholder over the past few years. The group recently made a principal payment of $2.5 million and plans to continue to make material principal payments over the next few years or potentially take advantage of other financing options to completely pay off the note. A.M. Best believes the repayment of the debt may continue to hinder USHEALTH Group’s surplus growth in the near to medium term.
Future positive rating actions may result from sustained earnings growth, continued reduction in leverage throughout the organization and enhanced risk-adjusted capitalization levels.
Negative rating actions could result from a decline in risk-adjusted capitalization, a return to operating losses, an increase in premium leverage or if USHEALTH Group, Inc. is unable to extend or refinance its existing PIK note payable prior to its maturity.
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.
A.M. Best Company is the world’s oldest and most authoritative insurance rating and information source.