Fitch Downgrades Plains End Financing LLC Senior Bonds to ‘BB’ and Sub Notes to ‘B+’

Fitch Ratings has affirmed the 'BBB-' Insurer Financial Strength (IFS) rating of Health Insurance Plan of Greater New York (HIP-NY). The Rating Outlook remains Negative (see also Fitch Ratings).

Fitch's Negative Outlook reflects the uncertainty surrounding significant aspects of the Patient Protection and Affordable Care Act (PPACA) signed into law earlier this year. Many aspects of the law have yet to be defined and may have a material impact on HIP-NY's and the sector's long-term ability to price its products and generate earnings. Fitch continues to monitor these developments carefully.

HIP-NY is a primary operating entity owned by EmblemHealth, Inc. (EmblemHealth), which maintains above average concentration risk within the state of New York. While the geographic concentration risk is modestly offset by the favorable aspects related to the company's large market-share, the company is exposed to the economic conditions of the New York metropolitan area. Further, the company maintains a very large exposure to the City of New York's group health plan. While Fitch believes the company is well entrenched in this account, the signficance of this plan is material to the overall organization.

EmblemHealth is further exposed to New York state sponsored business, including Medicaid, where it is one of the leading players. The state programs have been challenged over the past decade as most insurance participants lose money, though trends have improved and are near break-even underwriting results starting in 2009 through early 2010.

Fitch also recognizes that by holding a large market share, the company may be able to leverage its position in contracting with employers and provider networks.

Capital levels on a consolidated basis have weakened in recent years and year-end 2009 NAIC risk-based capital (RBC) is estimated to be approximately 190%-200% for EmblemHealth. This follows approximately $240 million of asset impairments taken over the 2007-2009 period, which partially reflects a conservative impairment policy used by the company. Operating results have struggled in recent years and if during 2010-2011, the company is unable to produce operating earnings, the ratings could be downgraded given the multi-year trend of weakening operating performance since 2006.

The company plans to ultimately convert from its current not-for-profit status to a for-profit organization, at which time Fitch will review any related changes to the company's financial profile and targets.

Fitch has withdrawn the 'BB+' Issuer Default Rating (IDR) for HIP-NY as IDR ratings are typically maintained when the issuer has outstanding debt security ratings.