The FINANCIAL — A.M. Best Co. has revised the issuer credit ratings (ICR) outlook to positive from stable and affirmed the financial strength rating (FSR) of B++ (Good) and ICR of "bbb" of UPMC Health Plan, Inc. and its affiliates, UPMC Health Network, Inc. and UPMC For You, Inc. The outlook for the FSR is stable.
Concurrently, A.M. Best has assigned an FSR of B++ (Good) and ICR of "bbb" to UPMC Health Benefits, Inc. The outlook assigned to the ICR is positive, and the outlook assigned to the FSR is stable.
A.M. Best also has affirmed the FSR of B++ (Good) and ICR of "bbb+" of Community Care Behavioral Health (CCBH). The outlook on these ratings is stable. Collectively, the group is referred to herein as UPMC Health Plans. All companies are domiciled in Pittsburgh, PA.
These ratings partially reflect the insurance services group's strategic role as the managed care affiliates of the University of Pittsburgh Medical Center, a fully integrated health care delivery system, which is formed around one of the nation's premier academic medical centers. The group's ratings factor in UPMC's creditworthiness to enhance each health plan's stand-alone assessment, as well as the plans' well-established provider networks, diversified product offerings, improved overall earnings trends and expanded revenue and membership base.
UPMC Health Plans continues to be successful at growing its geographic footprint outside of its core markets, with plans for further expansion. Additionally, the parent, UPMC, has demonstrated its explicit financial support of the group through capital contributions, including surplus notes. However, A.M. Best does note that capital contributions in this form negatively impact the quality of the capital.
The revised outlook recognizes UPMC Health Plans' very favorable trends in membership growth and net premiums written—particularly in its core government sector business lines (Medicaid and Medicare)—combined with an overall improvement in operating performance of the group. While premium and earnings trends within particular legal entities have fluctuated, UPMC Health Plans has been able to display consolidated profitable premium growth trends in recent periods. A.M. Best will be monitoring the ability of the group to have these trends reach across each of the legal entities, as A.M. Best considers future rating enhancement to UPMC Health Plans.
Additionally, the combination of parental capital support, largely in the form of surplus notes, as well as organic capital growth—through retained earnings—has led to favorable growth in absolute capital levels. UPMC Health Plans has been able to achieve this capital expansion while continuing to retire surplus notes as they come due, reducing its internal debt. However, A.M. Best does remain concerned about the stand-alone risk-adjusted capitalization and quality of capital within certain affiliates in the group. The plans' risk-adjusted capital remains below the threshold for the current ratings of UPMC Health Plan, Inc. and UPMC Health Benefits, based on Best's Capital Adequacy Ratio (BCAR), reflecting the importance of the ultimate parent's creditworthiness in the plans' rating enhancement. A.M. Best also notes that operating results at these two entities recently have deteriorated, with both reporting losses at year-end 2010. The performance and capitalization of these two affiliates will be another area of continued scrutiny going forward.
The ratings of UPMC Health Benefits are based on its new strategic role with in the group. While premium levels and earnings have recently declined, this entity received the group's ratings based on its planned growth projections in several ancillary business lines, which the company plans to use as a means of revenue and earnings diversification. A.M. Best will continue to monitor this company's strategic fit within the organization, its contribution to revenue and earnings and the capital support it receives to fund its future projected growth initiatives.
Source: A.M. Best