A.M. Best Downgrades Ratings of GHS Property and Casualty Insurance Company [Health & Beauty Close – Up]

A.M. Best Co. has downgraded the financial strength rating to B++ (Good) from A- (Excellent) and issuer credit rating to "bbb+" from "a-" of GHS Property and Casualty Insurance Company (GHS) (Oklahoma City, OK).

The outlook for both ratings is negative.

The rating downgrades reflect GHS' trend of underwriting losses that has continued into 2011 and resulted in significant decline in its surplus. The company's five-year average combined ratio is significantly worse than the private passenger automobile composite. GHS' management has implemented risk management strategies, increased rates and began exiting the Oklahoma property market where frequent and severe catastrophic events were the primary cause of the company's underwriting losses.

In addition, although GHS' surplus benefited from approximately $20 million of capital contributions from its parent, Health Care Service Corp., a Mutual Legal Reserve Company (HCSC) (which operates Blue Cross and Blue Shield plans in Illinois, Texas, New Mexico and Oklahoma); severe storms throughout the past five years eroded much of this capital. The ratings of GHS also reflect HCSC's financial support, brand name recognition and regional market presence.

Key drivers that could result in a further downgrading of GHS' ratings include a continued deterioration in underwriting performance, further erosion of its capital base or lack of financial support from HCSC. Key rating triggers that could result in the removal of the negative outlook include sustained improvement in GHS' underwriting performance, while maintaining strong risk- adjusted capitalization.

The principal methodology used in determining these ratings is Best's Credit Rating Methodology -- Global Life and Non-Life Insurance Edition, which provides a comprehensive explanation of A.M. Best's rating process and highlights the different rating criteria employed. Additional key criteria utilized include: "Risk Management and the Rating Process for Insurance Companies"; "Understanding BCAR for Property/Casualty Insurers"; and "Catastrophe Analysis in A.M. Best Ratings." Methodologies can be found at ambest.com/ratings/methodology

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