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FOR IMMEDIATE RELEASE
OLDWICK - AUGUST 18, 2016 10:43 AM (EDT)
A.M. Best has affirmed the financial strength rating (FSR) of A- (Excellent) and the issuer credit ratings (ICR) of “a-” of Premera Blue Cross (Premera) and its subsidiaries, LifeWise Assurance Company and LifeWise Health Plan of Washington (all companies are domiciled in Mountlake Terrace, WA). The outlook for each rating is stable.
A.M. Best also has downgraded the FSR to B++ (Good) from A- (Excellent) and the ICR to “bbb” from “a-” for LifeWise Health Plan of Oregon, Inc. (LifeWise OR) (Portland, OR), a subsidiary of Premera. The outlook for each rating has been revised to negative from stable.
The rating affirmations reflect Premera’s leading market positon, premium and revenue growth and strong level of risk-adjusted capitalization. Premera has solid market positions in its primary markets, operating as Premera Blue Cross statewide in Washington and Premera Blue Cross and Blue Shield in Eastern Washington and Alaska. The company has reported robust premium and revenue growth over the past two years driven by increased individual enrollment from health insurance exchanges, expansion into the Medicare Advantage market, and enrollment gains in local and national account employer group business. Capital and surplus declined modestly over the past year but remains more than adequate to support the company’s business and investment risk. The company’s level of risk-adjusted capital is due to retained earnings from historically favorable operating results.
Offsetting rating factors are Premera’s operating losses over the past year and geographic market contraction. Premera’s consolidated operating results have declined materially due to losses in its individual, Medicare Advantage and Oregon group businesses. Individual business losses are mostly due to the significant reduction in risk corridor payments and high utilization. The company is relatively new to Medicare Advantage, and losses are mainly the result of start-up cost and investments to build the operational infrastructure for this business. The company has not been able to reach a level of group enrollment in Oregon to achieve economies of scale to price more competitively in the market. Premera has announced they will be exiting the Oregon individual and group market beginning in 2017. Oregon had been an expansion state for the organization outside of its core markets of Washington and Alaska.
The rating downgrades of LifeWise OR reflect deterioration in its operating results, a low level of risk-adjusted capital and Premera’s announcement to discontinue product offerings in Oregon. LifeWise OR is Premera’s primary operating entity in Oregon, offering commercial group and individual health products. Previously, the majority of the company’s business was derived from small and mid-market employer groups, but that shifted significantly due to a high level of enrollment gains in individual business over the past two years with the introduction of health insurance exchanges. LifeWise OR has reported material operating and net losses over the past two years driven by multiple factors including the significant reduction in risk corridor payments, high utilization for individual enrollment and competitive pricing pressure on group business. Capital and surplus declined materially due to net losses, and Premera has made capital contributions in order to maintain the level of risk-adjusted capital over regulatory requirements.
This press release relates to rating(s) that have been published on A.M. 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 A.M. Best’s Recent Rating Activity web page.
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