AM Best Downgrades Credit Ratings for EmblemHealth, Inc.’s Insurance Subsidiaries
OLDWICK, N.J.–(BUSINESS WIRE)–AM Best has downgraded the Financial Strength Rating (FSR) to C (Weak) from C+ (Marginal) and the Long-Term Issuer Credit Ratings (Long-Term ICR) to “ccc+” (Weak) from “b-” (Marginal) of Health Insurance Plan of Greater New York (HIP), EmblemHealth Insurance Company, EmblemHealth Plan, Inc. (EHPI) and ConnectiCare, Inc. (ConnectiCare) (Farmington, CT). All companies are subsidiaries of EmblemHealth, Inc. and domiciled in New York, NY, unless otherwise specified. In addition, AM Best has revised the outlook of the FSR to stable from negative while the outlook of the Long-Term ICRs is negative.
The Credit Ratings (ratings) of EmblemHealth Group (EmblemHealth) reflect its 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 primary driver of the rating downgrades is additional deterioration in EmblemHealth’s capital and surplus, as well as limited financial flexibility. Capital and surplus in first-quarter 2022 declined, largely driven by underwriting losses from elevated claims related to COVID-19. The company entered into a reinsurance agreement for a portion of its commercial group insurance business to provide some capital relief; however, to date, underwriting losses have partially negated the favorable impact of the agreement on risk-adjusted capital. Financial flexibility has become more constrained and operating cash flow has been impacted negatively by the COVID-19-related underwriting losses.
EmblemHealth has a very weak level of risk-adjusted capital, as measured by Best’s Capital Adequacy Ratio (BCAR), driven by underwriting losses. There have been continuous efforts by management and actual outcomes from medical and administrative cost initiatives to improve the level of absolute capital and other actions to de-risk its business to drive better risk-adjusted capital. However, adverse levels of claims related to COVID-19 have significantly overshadowed these initiatives. Operating performance is marginal due to underwriting losses and the volatility of results. AM Best assesses EmblemHealth’s business profile as neutral as the group has a strong market position in New York City (NYC) and geographic diversity through its ConnectiCare product offerings 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’s ERM program is developed and mature, the organization continues to face challenges to improve overall financial results and risk-adjusted capital with the ongoing impacts of COVID-19.
The negative Long-Term ICR outlook reflects the lack of improvement in risk-adjusted capital and underwriting losses. 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. The improvement in HIP’s capital position has taken longer than AM Best’s expectations, in light of the negative impact of COVID-19 on financial results. AM Best will continue to monitor the organization’s strategy and results regarding improvement in earnings and the strengthening of 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.
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