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FOR IMMEDIATE RELEASE
OLDWICK - NOVEMBER 07, 2014 04:07 PM (EST)
A.M. Best has revised the outlook to stable from positive and affirmed the financial strength rating (FSR) of B++ (Good) and the issuer credit ratings (ICR) of "bbb+" for Triple-S Salud Inc. (TSS) and its affiliate, Triple-S Vida Inc. (TSV). A.M. Best has also revised the outlook to stable from positive and affirmed the ICR of "bb+" for Triple-S Management Corporation (TSM) [NYSE: GTS], the ultimate parent of TSS and TSV. In addition, A.M. Best has affirmed the FSR of B++ (Good) and the ICR of "bbb" of Triple-S Blue (TSB) (formerly known as Atlantic Southern Insurance Company), and the FSR of A- (Excellent) and the ICR of "a-" of Triple-S Propiedad, Inc. (TSP). The outlook for these ratings is stable. TSB is a subsidiary of TSV, and TSP is a subsidiary of TSM. All companies are domiciled in San Juan, PR.
The revised outlook to stable reflects a lower statutory earnings trend at TSS, the lead operating entity, combined with an expectation of lower risk-adjusted capitalization in 2015. Currently, TSS administers the Medicaid Reform contract for the entire Commonwealth of Puerto Rico. Beginning in April 2015, the Medicaid contract reverts to a fully insured at-risk agreement and TSS was awarded two regions. The return to a fully insured contract will unfavorably impact TSS' level of risk-adjusted capitalization. A.M. Best expects that the level of capitalization will remain adequate for the current rating.
The rating affirmations of TSS and TSV reflect strong brand recognition, significant market penetration and capital preservation. The managed care segment of the organization reports 2.2 million members, most of whom are Medcaid Reform Administrative Service Only (ASO) policyholders. TSS has had to make corrections in its pricing programs for generic drugs, successfully participated in the new request for proposal (RFP) for the Medicaid Reform program and has made plans to consolidate its Medicare business in an operating subsidiary, Triple-S Advantage, formerly known as American Health, Inc. TSV, the life and ancillary insurance subsidiary, continues to exhibit improved balance sheet strength and has made steps toward geographic diversification. Sustained profitability and the reduction of internal surplus notes were noted improvements, and the company has been opportunistic in adding strength to its substantial home service distribution force. Triple-S Blue is providing the Triple-S organization entrance into the Central American insurance marketplace, giving the organization and the Blue Cross and Blue Shield Association opportunities to leverage their strong brands in support of a much-needed geographic expansion strategy.
Offsetting rating factors are the organization's group commercial membership attrition, higher capital requirements for increased at-risk government sponsored programs, higher taxes and the weakened economic environment. The company has retained a high percentage of commercial group contracts despite continuing member attrition rates, due to downsizing and employer exits from the Puerto Rico market. Overall, the organization has made shifts in its administrative and service expenses in order to right-size operating expenses and has absorbed domestic taxes levied at the commercial business sector and an Health Insurance Premiums Fee tied to the Patient Protection and Affordable Care Act. The enactment of these changes substantially lowered net earnings at TSS in 2014 and may have a long-term impact on the overall performance of Triple-S Management Corp.
The ratings of TSP reflect its excellent capitalization, sound operating profitability, driven by investment income, and strong market presence within Puerto Rico. Partially offsetting these positive rating factors are the company's geographic risk concentration, competitive operating environment and above average underwriting expense ratio relative to the commercial casualty composite. While the underwriting expense ratio reflects high commission costs, the ratio remains in line with its local market peers. With all business written in Puerto Rico, the company remains exposed to the potential for frequent and severe weather-related events, as well as judicial and regulatory concerns. Despite these concerns and ongoing competitive market pressures, the outlook reflects expectations for continued strong capitalization and profitable operating results over the near term, although at reduced levels relative to prior years.
Factors that could result in a positive rating action for TSS and TSV include a trend of strengthened risk-adjusted capital, an improving trend in underwriting results and enhanced profitability.
Factors that could result in a negative rating action include further deterioration in the Puerto Rico economy, a significant decline in earnings or a weakening in risk-adjusted capital beyond A.M. Best's expectations.
Factors that could result in a positive rating action for TSP include an improvement in operating earnings and resulting return on revenue measures that can be sustained over a period of time. Accordingly, this would enhance the company's ability to generate additional organic surplus growth while further strengthening overall capitalization. However, factors that could result in a negative rating action over the near term include weakened operating earnings due to deteriorating underwriting performance, or a material increase in catastrophe losses that weakens overall capitalization.
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 Company is the world's oldest and most authoritative insurance rating and information source.