OLDWICK, N.J.--(BUSINESS WIRE)--
A.M. Best Co. has affirmed the financial strength rating of B++
(Good) and issuer credit ratings (ICR) of “bbb” of the core subsidiariesofHealthMarkets, Inc.(HealthMarkets) (headquartered in
North Richland Hills, TX), which include The MEGA Life and Health
Insurance Company (MEGA), The Chesapeake Life Insurance Company
(Chesapeake) (both of Oklahoma City, OK) and Mid-West National Life
Insurance Company of Tennessee (Mid-West) (North Richland Hills,
TX). Concurrently, A.M. Best has affirmed the ICR of “bb” of
HealthMarkets. The outlook for all ratings is stable.
The ratings reflect HealthMarkets’ ability to remain profitable as the
organization executes its revised business strategy. Given the uncertain
impact of the Patient Protection and Affordable Care Act (PPACA) on most
of HealthMarkets’ medical insurance business, the organization created
Insphere, a distributor of third party life and health insurance
products. A.M. Best believes the creation of Insphere, which was
launched in 2010, should help HealthMarkets offset some of the premium
revenue lost from its gradual exit from the individual medical market.
In 2011, Insphere produced $525 million of first year premiums across
all of its markets. A.M. Best notes that while Insphere also will be
used to complement the sales of Chesapeake’s supplemental insurance
products, the profitability of the distributor will be limited in the
near term due to its sizeable initial start-up costs.
Additionally, the ICR of HealthMarkets reflects its reduced regulatory
and legal issues, including the recent completion of its multi-state
re-examination and pay-down of its maturing debt. During the first
quarter of 2012, HealthMarkets paid off a $362.5 million term note.
Sizeable dividends were upstreamed from the life subsidiaries over the
past 18 months, primarily MEGA and Mid-West, to help fund the debt.
However, despite the significant pay-down, A.M. Best believes
HealthMarkets and its subsidiaries remain adequately capitalized. While
the organization’s debt-to-capital ratio improved considerably, A.M.
Best notes that its financial leverage at over 40% remains high relative
to a company of its size. Furthermore, A.M. Best remains cautious that
the interest coverage within the group, at roughly three times, will be
maintained due to lower earnings going forward.
Although HealthMarkets remains profitable, A.M. Best remains concerned
about the significant decrease in its premium revenue. As the
organization transitions from being primarily an individual medical
organization to more of a fee-based organization, A.M. Best expects its
premium income level and operating earnings within its insurance
subsidiaries to decrease in the coming years as it looks to gain scale
in its non-medical product lines. Additionally, A.M. Best believes it
will take some time for the profitability of Insphere and the success of
its new and modified insurance products to offset the organization’s
lost premium revenue and investment income.
A.M. Best believes that HealthMarkets and its subsidiaries are well
positioned at their current ratings. Factors that could lead to negative
rating actions include a decline in net premiums within Chesapeake’s
core lines of business, a lack of profitability within the subsidiaries
or a material deterioration of risk-adjusted capital. HealthMarkets is a
privately owned holding company, whose major shareholders are affiliates
of The Blackstone Group, Goldman Sachs Capital Partners and DLJ Merchant
Banking Partners.
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.
Founded in 1899, A.M. Best Company is the world’s oldest and most
authoritative insurance rating and information source. For more
information, visit www.ambest.com.
Copyright © 2012 by A.M. Best Company, Inc.ALL RIGHTS
RESERVED.
A.M. Best Co.
Tom Zitelli
Senior Financial
Analyst
(908) 439-2200, ext. 5412
tom.zitelli@ambest.com
or
Carl
Austin
Assistant Vice President
(908) 439-2200,
ext. 5500
carl.austin@ambest.com
or
Rachelle
Morrow
Senior Manager, Public Relations
(908)
439-2200, ext. 5378
rachelle.morrow@ambest.com
or
Jim
Peavy
Assistant Vice President, Public Relations
(908)
439-2200, ext. 5644
james.peavy@ambest.com
Source: A.M. Best Co.
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