OLDWICK: AM Best has affirmed the Financial Strength Rating (FSR) of A (Excellent) and the Long-Term Issuer Credit Ratings (Long-Term ICR) of “a+” of the core Blue Cross Blue Shield-branded insurance subsidiaries of Anthem, Inc.. The outlook of these Credit Ratings is stable.
Concurrently, AM Best has affirmed the Long-Term ICR of “bbb+”, the Long- and Short-Term Issue Credit Ratings (Long-Term IR; Short-Term IR) of Anthem and the Long-Term IR on the existing surplus notes of Anthem Insurance Companies, Inc. (Indianapolis, IN). The outlook of these ratings is stable.
Furthermore, AM Best has affirmed the FSR of A- (Excellent) and the Long-Term ICRs of “a-” of the UNICARE Life & Health Group (UNICARE) and AMERIGROUP Health Companies (AMERIGROUP). The outlook of these ratings is stable. (See link below for a detailed listing of the companies and ratings.) Lastly, AM Best has made the decision to withdraw the FSR of A- (Excellent) and Long-Term ICR of “a-” of the members of the CareMore Health Plan Group (CareMore).
The Blue Cross Blue Shield-branded entities, also referred to as Anthem Health Group (Anthem Health), are part of the core subsidiaries of Anthem. The ratings of Anthem Health reflect the balance sheet strength, which AM Best categorizes as very strong, as well as its strong operating performance, favorable business profile and appropriate enterprise risk management (ERM).
Anthem Health’s risk-adjusted capitalization is viewed as strongest, as measured by Best’s Capital Adequacy Ratio (BCAR). The Anthem Health entities comprise the main source of earnings for the parent organization, Anthem, with dividends in the $2 billion range in each of the past several years, and projected to grow in 2019.
Anthem Health has been able to grow capital organically, even after dividend payments driven by retained earnings. Anthem Health has reported consistent underwriting and net income in aggregate despite some fluctuations at the product/entity level, and produced very favorable results across its diverse set of business lines and in its various core markets. The group has good geographic diversity, as Anthem operates Blue Cross Blue Shield plans in 14 states with very good brand name recognition and leading market share in the majority of these states.
Additionally, the Anthem companies have a solid presence in the national account and BlueCard market segment. Nevertheless, there is geographic limitation to its business based on the Blue Cross/Blue Shield licenses.
Anthem Health’s ERM is managed at the ultimate parent level (Anthem), but it has local functionality as well. Anthem has a well-established, developed ERM program that is coordinated at the corporate level and is considered appropriate for its risk profile.
Risk identification and reporting are completed on a regular basis, and ERM is incorporated into the corporate strategic planning. There is established oversight and monitoring of the ERM program.
Anthem has strong diversified earnings and revenues through its Blue Cross Blue Shield-branded entities in 14 states, as well as its non-Blue branded with AMERIGROUP and UNICARE entities. Financial leverage at Anthem declined to approximately 39%, including its September 2019 issuances, and AM Best expects it to moderate slightly through a combination of eliminating existing debt and increases in equity driven by retained earnings.
Earnings before interest and taxes interest coverage was adequate at 8 times for 2018, and has increased from prior years, but remains lower than some of its peers. Additionally, the holding company maintains good liquidity with access to a $2.5 billion revolving-credit facility, a $1 billion 364 day senior revolving credit facility, a $3.5 billion commercial paper program, and certain of its insurance subsidiaries are members of the Federal Home Loan Bank of Indianapolis with the ability to borrow funds if needed.
AM Best considers Anthem’s goodwill plus intangibles to equity high at approximately 95% through September 2019, but it is similar to some of its peers. Furthermore, AM Best acknowledges that a portion of the intangibles is the Blue Cross/Blue Shield trademarks, which are required to operate as a Blue Cross Blue Shield-branded entity.
The ratings of Anthem Life Insurance Group reflect the balance sheet strength, which AM Best categorizes strongest, as well as its strong operating performance, neutral business profile and appropriate ERM. Anthem Life has adequate levels of capital with all members adequately capitalized. Risk-adjusted capital is adequate for rating recommendation, with the strongest BCAR at 99.6 VaR level. The lead company has been used historically as a source of dividends to the parent, which has slowed capital expansion. While Anthem has taken dividends, capital expansion overall has not been hindered significantly by these dividends. Anthem Life Insurance Group has produced favorable operating results, although there has been material fluctuations in operating margins. The business written by this group is not a main focus for the overall organization and its product offerings complement those offered by Anthem Health Group, specifically in the employer group market.
The ratings of AMERIGROUP reflect the balance sheet strength, which AM Best categorizes weak, as well as its strong operating performance, favorable business profile and appropriate ERM. On a consolidated basis, capitalization for the AMERIGROUP operating entities has increased to over $2 billion through mid-2019. Risk-adjusted capital as measured by BCAR remained negative. Capital measures improved slightly, mainly due to strong retained earnings despite dividends to the parent and increased net premiums written. However, these companies still have a weak level of risk-adjusted capital in support of their current business and investment risk. However, Anthem has a good capital position for the size of its operations, and its financial flexibility and has supported AMERIGROUP as needed. The group has produced very favorable operating results historically and is a material source of earnings for its parent. Furthermore, the group produces positive net cash flow and have good liquidity measures. The group has excellent brand awareness and has solid enrollment in its core markets, and allows Anthem access to Medicaid markets outside of its core Blue Cross and/or Blue Shield states.
The ratings of UNICARE reflect the balance sheet strength, which AM Best categorizes adequate, as well as its adequate operating performance, limited business profile and appropriate ERM. On a consolidated basis, capital for the UNICARE operating entities has increased slightly mainly due to positive underwriting and investment income, which outpaced its dividend to the parent. These companies have a weak level of risk-adjusted capital in support of their current business and investment risk. However, they have an adequate overall balance sheet for the size of the operations, and AM Best considers its financial flexibility to be good. Investments are conservative and provide sufficient liquidity to the group. The group has produced good operating results historically, although premiums and earnings have fluctuated. Earnings increased modestly through year-end 2018 after declining the year prior, as a result of a new Medicaid contract in West Virginia. The growth has continued both via direct and assumed business. UNICARE is a known one of Anthem’s brands in the Medicaid market, and has a limited scope of business, writing primarily Medicaid and dual business. Through UNICARE Anthem has licenses in all 50 states, Washington DC and Puerto Rico, nevertheless, premiums are mainly generated from 10 states.
The ratings of CareMore have been withdrawn, as the premiums written in these entities were moved to other Anthem entities at the end of 2018, and these entities are no longer writing any premium. The CareMore entities are not currently selling insurance, but rather provide services to other Anthem regulated entities to manage the medical costs for Medicare Advantage members. As a result, it was decided that a final rating was not able to be completed.