A.M. Best Affirms Ratings of Highmark Inc. and Its Subsidiaries

OLDWICK, N.J.--(BUSINESS WIRE)-- A.M. Besthas affirmed the financial strength ratings (FSR) of A- (Excellent) and the issuer credit ratings (ICR) of “a-” of Highmark Inc. (Highmark), Keystone Health Plan West, Inc., HM Health Insurance Company and Highmark West Virginia Inc. (Parkersburg, WV). Concurrently, A.M. Best has affirmed the debt ratings of “bbb+” on Highmark’s existing senior notes.

Additionally, A.M. Best has affirmed the FSRs of A- (Excellent) and the ICRs of “a-” of Highmark’s life/health and property/casualty subsidiaries, which include HM Life Insurance Company (HM Life), HM Life Insurance Company of New York(HM Life New York) (New York, NY), Highmark Casualty Insurance Company (Highmark Casualty) and HM Casualty Insurance Company (HM Casualty), as well as Highmark’s dental subsidiaries, which operate under the United Concordia brand name. The outlook for all ratings is stable.

The above companies are domiciled in Pennsylvania, unless otherwise specified. (See below for a detailed listing of the debt and dental companies’ ratings).

The ratings of Highmark reflect its sound capitalization, diversified sources of earnings from regulated and unregulated subsidiaries and solid market share. A.M. Best believes the organization’s level of risk-adjusted capitalization is favorable, a trend which has persisted for some time. Highmark’s underwriting performance has historically been driven by earnings from the health business; however, near-term underwriting losses have been offset by earnings from its diversified dental, stop-loss and vision subsidiaries. Furthermore, the earnings from its vision business are non-regulated, and therefore, do not require regulatory approval for dividends. Highmark continues to have an excellent profile in its core markets, which include Pennsylvania, West Virginia and Delaware.

Offsetting factors include competitive pressure and disruption from a large provider contract termination, challenging near-term operating results and operational and balance sheet risk associated with the organization’s integrated delivery system strategy. Highmark competes directly with another Blue Cross plan in central Pennsylvania and an integrated delivery system in western Pennsylvania, as well as other national and local carriers throughout its markets. The western Pennsylvania region has been disrupted by the termination of a provider contract with a large competing integrated delivery system that offers health insurance through its own subsidiaries. Recent net losses are not indicative of the contract termination; however, the western Pennsylvania revenue and earnings are projected to decline over the near-term and reflect the challenges of the disruption. Losses in 2014 are largely due to the non-admittance of the risk corridor receivable. Highmark also has a significant commitment to its sister company, Allegheny Health Network, the provider system resulting from the 2013 affiliation that has the same ultimate parent as Highmark, Highmark Health. If earnings underperform at any of the Allegheny Health Network entities, it could place financial pressure on Highmark, which currently offers some financial guarantees on debt at some of these entities.

The affirmation of the ratings for HM Life and HM Life New York reflect their improved risk-adjusted capital, premium growth and favorable operating performance. The Highmark life companies add earnings diversity to Highmark Inc. and enable the organization to offer a comprehensive portfolio of products. HM Life’s earnings are mainly driven by its stop-loss business. While earnings have trended down slightly, due mostly to a combination of pricing pressure and higher claim incidence in the stop-loss market, income has remained favorable.

The ratings for Highmark Casualty and HM Casualty acknowledge their combined solid overall operating performance, adequate capitalization and sound business strategy that focuses on aggressive claims management and prudent reserving practices. The ratings also recognize the inherent benefits these companies derive as operating subsidiaries of their parent, Highmark.

The affirmation of the ratings of Highmark’s United Concordia subsidiaries reflects their strong risk-adjusted capital, favorable operating earnings and broad provider network. While earnings have remained favorable, operating margins have compressed as commercial business pricing has become more competitive, and larger contracts may be less profitable when renewed.

Factors that may lead to positive rating actions on Highmark include continued growth in premium, maintenance of favorable risk-adjusted capitalization and improved operating margins. Factors that may lead to negative rating actions on Highmark include declining trends in operating performance or risk-adjusted capitalization, as well as the failure of the organization to execute its integrated healthcare delivery system strategy.

The FSR of A- (Excellent) and the ICRs of “a-” have been affirmed for the following dental subsidiaries of Highmark Inc.:

• United Concordia Companies Inc.
• United Concordia Insurance Company
• United Concordia Life and Health Insurance Company
• United Concordia Insurance Company of New York
• United Concordia Dental Plans of California, Inc.
• United Concordia Dental Plans of Pennsylvania, Inc.
• United Concordia Dental Plans, Inc.

The following debt ratings have been affirmed:

Highmark Inc.—
-- “bbb+” on $350 million 4.75% senior unsecured notes, due 2021
-- “bbb+” on $250 million 6.125% senior unsecured notes, due 2041

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.

Key insurance criteria reports utilized:

• A.M. Best’s Perspective on Operating Leverage Evaluating U.S. Surplus Notes
• Insurance Holding Company and Debt Ratings
• Rating Members of Insurance Groups
• Risk Management and the Rating Process for Insurance Companies
• The Treatment of Terrorism Risk in the Rating Evaluation
• Understanding BCAR for Property/Casualty Insurers
• Understanding BCAR for U.S. and Canadian Life/Health Insurers

This press release relates to rating(s) that have been published on A.M. 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 visit A.M. Best’s Ratings & Criteria Center.

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 © 2015 by A.M. Best Company, Inc.ALL RIGHTS RESERVED.

A.M. Best Company

Wayne Kaminski, 908-439-2200, ext. 5061

Senior Financial Analyst—L/H

[email protected]

or

W. Dolson Smith, CFA, 908-439-2200, ext. 5379

Senior Financial Analyst—P/C

[email protected]

or

Christopher Sharkey, 908-439-2200, ext. 5159

Manager, Public Relations

[email protected]

or

Jim Peavy, 908-439-2200, ext. 5644

Assistant Vice President, Public Relations

[email protected]

Source: A.M. Best Company