A.M. Best Revises Outlook to Stable for Universal American Corp. and Most of Its Subsidiaries

OLDWICK, N.J.--(BUSINESS WIRE)-- A.M. Best Co. has revised the outlook to stable from negative and affirmed the issuer credit rating (ICR) of “bb” of Universal American Corp. (Universal American) (Rye Brook, NY) (NYSE: UAM).

A.M. Best also has revised the outlook to stable from negative and affirmed the financial strength rating (FSR) of B++ (Good) and ICRs of “bbb” of American Progressive Life & Health Insurance Company of New York (American Progressive) (Rye Brook, NY) and The Pyramid Life Insurance Company(Pyramid Life)(Overland Park, KS).

Additionally, A.M. Best has affirmed the FSR of B+ (Good) and ICRs of “bbb-” of American Pioneer Life Insurance Company(American Pioneer)(Lake Mary, FL), Constitution Life Insurance Company(Constitution Life), Marquette National Life Insurance Company (Marquette National) and Union Bankers Insurance Company(Union Bankers). The outlook for these ratings is stable. At the same time, A.M. Best has revised the outlook to positive from stable and affirmed the FSR of B+ (Good) and ICR of “bbb-” of SelectCare of Texas, LLC.

Concurrently, A.M. Best has affirmed the FSR of B (Fair) and ICR of “bb+” of Today’s Options of Oklahoma, Inc.(Today’s Options) (Oklahoma City, OK). The outlook for both ratings is stable. The above companies are subsidiaries of Universal American and are domiciled in Houston, TX, unless otherwise specified.

The revised outlook and ICR affirmation for Universal American reflects its favorable near-term operating results, low financial leverage and good liquidity. Universal American’s overall operating results and margins have shown improvement through lowered loss ratios and decreased administrative expenses through the first quarter of 2012. The company’s net loss reported in 2011 was primarily associated with discontinued operations from its Medicare Part D business, which was sold during the year. Universal American’s debt-to-capital ratio was 15.3% at March 31, 2012, which is considered low as compared to its peers, and earnings before interest and taxes interest coverage is projected to be very good at over 20 times. Universal American has a good level of liquidity from parent company cash, dividends from subsidiaries and an untapped $75 million revolving credit agreement.

Offsetting rating factors include Universal American’s declining premium revenue and increased business concentration risk. Premiums for Universal American have declined significantly over the last two years due to the sale of its Medicare Part D business and enrollment losses due to the discontinuation of Medicare Private-Fee-for-Service products in geographies deemed to be non-core. Additionally, new sales in its Medicare Advantage business was hindered during the last open enrollment period due to a late release from Centers for Medicare and Medicaid Services (CMS) sanctions. Universal American business is now highly concentrated in Medicare Advantage products. The downward trend in Medicare Advantage funding could pressure margins.

The rating affirmations for American Progressive and Pyramid Life reflect their role as core subsidiaries of Universal American. On a consolidated basis, these entities continue to generate over half of the organization’s revenue and service approximately two-thirds of its Medicare Advantage enrollment. The revised outlook is due to positive near-term operating results and improved capitalization. Operating results for these entities have consistently been positive, and margins are showing improvement through 2011. Operations are expected to remain profitable for 2012. American Progressive and Pyramid Life’s favorable operating results, along with the decline in business risk, have resulted in a strengthening of their risk-adjusted capitalization.

The rating affirmations for American Pioneer, Constitution Life, Marquette National and Union Bankers recognize their contributions to the overall business profile of the organization through product and rate flexibility.

The revised outlook and rating affirmations for SelectCare of Texas acknowledge its strong operating results and high level of risk-adjusted capital. The rating affirmations for Today’s Options reflects its strategic role in Universal American’s core Medicare Advantage operations and continued support by Universal American.

Positive rating actions could occur if Universal American records significant premium growth while maintaining strong capitalization in its insurance subsidiaries and if these entities’ businesses become more diversified through product, market segment or geographic expansion. Negative rating actions could occur if Universal American reports significant operating losses in its core Medicare Advantage business, experiences a drastic decline in risk-adjusted capital at its insurance subsidiaries or is unable to resume enrollment and premium growth.

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.
Bridget Maehr, 908-439-2200, ext. 5321
Senior Financial Analyst
bridget.maehr@ambest.com
or
Sally Rosen, 908-439-2200, ext. 5280
Managing Senior Financial Analyst
sally.rosen@ambest.com
or
Rachelle Morrow, 908-439-2200, ext. 5378
Senior Manager, Public Relations
rachelle.morrow@ambest.com
or
Jim Peavy, 908-439-2200, ext. 5644
Assistant Vice President, Public Relations
james.peavy@ambest.com

Source: A.M. Best Co.