AM Best Removes From Under Review With Developing Implications and Affirms Credit Ratings of Certain Members of Health Care Service Corp Medicare & Supplemental Group Members
The rating actions follow the completion of the acquisition by the parent organization, Health Care Service Corporation, a Mutual Legal Reserve Company (HCSC), of all The Cigna Group's Medicare Advantage, Medicare Part D, Medicare Supplement and Care Allies businesses. The transaction closed earlier this year. As part of the transaction, HCSC is obtaining 30 legal entities, 13 of which are statutory legal insurance companies. These entities will be managed together under HCSC Medicare Holdings, a newly formed intermediate holding company. After discussions with company management regarding the planned operations, capitalization, projections and integration of these businesses, the financials of the rated legal entities in the group were consolidated under one uniform rating unit based on its combined financial strength assessments.
The ratings reflect HCSC Medicare & Supplemental Group's balance sheet strength, which AM Best assesses as very strong, as well as its marginal operating performance, neutral business profile, appropriate enterprise risk management (ERM) and the financial and operational support of its parent, HCSC.
While capitalization had been pressured at a few of the legal entities, capital levels were bolstered as part of the final capitalization at sale, in line with the terms of the transaction. Additionally, HCSC has committed to fund additional capital throughout the course of 2025 as needed to support growth and additional projected acquisition related costs and operating losses. The 2024 Best's Capital Adequacy Ratio (BCAR) is at the strongest level but is expected to decline for a period of time during 2025 based on a combination of premium growth related to novated business at closing and additional incremental growth. Based on discussions with management, AM Best projects that this will be offset by capital contribution from HCSC as needed, and that the BCAR should improve to strongest again by year-end 2025.
The balance sheet strength also reflects the sound consolidated absolute capital position of the group at approximately $2.7 billion, as well as its relatively modest underwriting leverage at 3.5 times and strong liquidity measures. Invested assets are conservatively allocated, held largely in investment grade fixed-income securities, and it is anticipated that the allocation will be similar under management by the parent going forward.
The HCSC Medicare & Supplemental Group will contribute to net premium growth in core target markets for the organization, driven by membership growth across its suite of product offerings. This should help the broader organization offset attrition in its Medicaid line of business, as growth in the Medicare-related business is expected to continue. AM Best notes that consolidated underwriting and net income trends have been very challenged by changes to Medicare reimbursement and higher-than-expected medical cost trend, both of which are expected to continue in 2025. Management is focused on its star ratings and risk payment, as well as cost and expense management and efficiencies across its various Medicare Advantage plans as a part of improving future performance. Investment income has been steady and has meaningfully contributed to net earnings.
The group's core offerings are Medicare Advantage, Medicare Part D and Medicare Supplement products, which are offered across numerous states that are outside of the parent's core market. The group has exhibited consistent historical membership growth in its main markets driven by government business, primarily Medicare Advantage, Medicare supplement and Medicare Part D, and other supplemental accident & health (A&H) offerings, which should complement and bolster its diversification. While competition remains strong in all lines of business, the new entities should help the organization continue to compete well and lift its market position. Given the Blue Cross Blue Shield businesses provide a significant competitive advantage in network relationships and consumer outreach, this should further help the expansion of these business lines.
The ERM program will be integrated and managed at the ultimate parent level at HCSC, and it is well developed with a comprehensive risk identification, monitoring, mitigation and oversight process.
Finally, these entities benefit from rating enhancement as part of the HCSC organization. They will be managed with a consolidated cost structure that management expects to lead to improved profitability and economies of scale and will expand HCSC's geographic presence and diversification with the addition of business. The new membership base and revenues will aid in providing additional scale and capabilities to HCSC's Medicare Advantage and supplemental health segments. The overall organization will grow financially through future revenue and operationally though a broader national footprint with deeper product penetration. These entities will also immediately contribute to HCSC's Medicare Advantage growth and market share, which has been a goal over the past few years.
The FSR of A (Excellent) and the Long-Term ICRs of 'a' (Excellent) have been removed from under review with developing implications and affirmed, with stable outlooks assigned for the following members of HCSC Medicare & Supplemental Group:
HealthSpring Life & Health Insurance Company, Inc.
Bravo Health Mid-Atlantic, Inc.
Bravo Health Pennsylvania, Inc.
HealthSpring of Florida, Inc.
The Long-Term ICRs have removed from under review with developing implications and downgraded to 'a' (Excellent) from 'a+' (Excellent), and the FSR of A (Excellent) removed from under review with developing implications and affirmed, with stable outlooks assigned for the following members of HCSC Medicare & Supplemental Group:
Cigna National Health Insurance Company
Medco Containment Life Insurance Company
Loyal American Life Insurance Company
Provident American Life and Health Insurance Company
American Retirement Life Insurance Company
Medco Containment Insurance Company of New York
Cigna HealthCare of Colorado, Inc.
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.
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