AM Best Downgrades Issuer Credit Ratings of EmblemHealth, Inc.’s Insurance Subsidiaries

OLDWICK, N.J.--(BUSINESS WIRE)--
AM Best has downgraded the Long-Term Issuer Credit Ratings (ICR) to “ccc” (Weak) from “ccc+” (Weak) and affirmed the Financial Strength Rating (FSR) of C (Weak) of Health Insurance Plan of Greater New York (HIP), EmblemHealth Insurance Company (EIC), EmblemHealth Plan, Inc. (EHPI) and ConnectiCare, Inc. (ConnectiCare) (Farmington, CT). All companies are subsidiaries of EmblemHealth, Inc. and are domiciled in New York, NY, unless otherwise specified. The outlook of the FSR has been revised to negative from stable, while the outlook of the ICRs is negative.

The Credit Ratings (ratings) reflect EmblemHealth Group’s (EmblemHealth) balance sheet strength, which AM Best assesses as very weak, as well as its marginal operating performance, neutral business profile and marginal enterprise risk management (ERM).

The driver of the rating downgrades is continued deterioration in EmblemHealth’s capital and surplus, as well as limited financial flexibility. Capital and surplus declined at year-end 2022, driven by unrealized capital losses, and experienced further decline in first-quarter 2023 driven by underwriting and net losses, while the unrealized loss position improved in the first quarter. The organization’s financial flexibility has become constrained driven by several years of underwriting and net losses, predominantly driven by $840 million of COVID-19 claims; higher levels than the national average for the last three years. This has also negatively impacted operating cash flows. The Company entered into a reinsurance agreement in 2022 for a portion of its commercial group insurance business to provide some offsetting capital relief.

EmblemHealth has a very weak level of risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR). There have been continuous efforts by management and actual outcomes from medical and administrative initiatives to improve capital and operating results. However, adverse levels of COVID-19 claims through 2022 outweighed the company’s initiatives and negatively impacted overall operating results, as well as resulting capital. In first-quarter 2023, EmblemHealth reported a higher underwriting and net loss than what is considered typical seasonality of its business that resulted in further deterioration of capital. Operating performance is marginal due to underwriting losses and volatility of results. AM Best assesses EmblemHealth’s business profile as neutral as it has a strong market position in the greater New York City (NYC) market and geographic diversity with an entity offering products in Connecticut. Additionally, the organization operates within a vertically integrated model in its core NYC market through its affiliated provider organizations, AdvantageCare Physicians and BronxDocs. ERM is assessed as marginal. Although EmblemHealth has a developed, mature and fully integrated ERM program, the organization continues to face challenges to improve its risk-adjusted capitalization and overall financial results with the impacts of COVID-19.

The negative outlook on the ratings reflects EmblemHealth’s continued deterioration in risk-adjusted capital. The lead operating company, HIP, has been under a capital restoration plan with the New York State Department of Financial Services since 2016. The restoration plan calls for meeting and complying with a reduced reserve requirement with the expectation of achievement of full compliance. While HIP remains in compliance with the reduced reserve requirement, improvement in its capital position has taken longer than AM Best expected and while the impact from COVID-19 is showing signs of easing, the company continues to face challenges in its operating results. AM Best will continue to monitor the organization’s strategy and results regarding improvement in earnings, as well as the strengthening of its capitalization.

This press release relates to Credit Ratings that have been published on AM 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 see AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best's Credit Ratings. For information on the proper use of Best’s Credit Ratings, Best’s Performance Assessments, Best’s Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best’s Ratings & Assessments.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

Copyright © 2023 by A.M. Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.

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Bridget Maehr
Associate Director

+1 908 882 2080

bridget.maehr@ambest.com

Christopher Sharkey
Associate Director, Public Relations

+1 908 882 2310

christopher.sharkey@ambest.com

Sally Rosen
Senior Director

+1 908 882 2284

sally.rosen@ambest.com

Al Slavin
Senior Public Relations Specialist

+1 908 882 2318

al.slavin@ambest.com

Source: AM Best