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FOR IMMEDIATE RELEASE
OLDWICK - JULY 30, 2015 12:30 PM (EDT)
A.M. Best has affirmed the financial strength rating of B++ (Good) and the issuer credit ratings (ICR) of "bbb" of the core subsidiaries of HealthMarkets, Inc. (HealthMarkets) (headquartered in North Richland Hills, TX), which includes The Chesapeake Life Insurance Company (Chesapeake) (Oklahoma City, OK) and Mid-West National Life Insurance Company of Tennessee (Mid-West) (North Richland Hills, TX). Additionally, A.M. Best has affirmed the ICR of "bb" of HealthMarkets. The outlook for all ratings is stable. Concurrently, A.M. Best has withdrawn the ratings of Mid-West in response to the company's request to no longer participate in A.M. Best's interactive rating process.
The ratings reflect HealthMarkets' more than adequate risk-adjusted capitalization and significant premium growth within Chesapeake. The ratings also reflect the implementation of HealthMarkets' new business strategy. As a result of the implementation of the Patient Protection and Affordable Care Act (PPACA), HealthMarkets stopped writing new health benefit plans underwritten by Chesapeake and Mid-West. The focus of the organization has now shifted to supplemental insurance plans underwritten exclusively by Chesapeake under the SureBridge name. The creation of Insphere, which was launched in 2010, has helped HealthMarkets offset some of the premium revenue lost from its gradual exit from the individual medical market. Furthermore, the growth of the Insphere distribution channel, as well as growth in third-party agency distribution, has enabled Chesapeake to realize significant premium growth in recent years.
Although HealthMarkets remains more than adequately capitalized, A.M. Best remains concerned about the lack of profitability on a consolidated basis. The significant decrease in its premium revenue and net investment income in recent years, as well as the sizeable initial start-up costs and ongoing capital investment into Insphere, has resulted in HealthMarkets generating net losses since 2012. On a consolidated statutory basis, the company continues to report favorable, albeit declining, operating earnings. As the organization completes its transition from being primarily an individual medical insurance underwriter to supplemental insurance underwriting and fee-based distribution, A.M. Best expects the premium income and operating earnings from its insurance subsidiaries to decrease in the near term as it looks to gain scale in its supplemental product lines. Additionally, A.M. Best is concerned about the sizeable financial leverage and the absence of interest coverage on a consolidated basis due to ongoing operating losses. While the organization's adjusted financial leverage ratio improved considerably compared with prior years, A.M. Best notes that HealthMarkets' unadjusted financial leverage of more than 40% remains high relative to other companies of its size.
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 visit A.M. Best's Ratings & Criteria Center.
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