L/H Affirmations Rise, Upgrades Outnumber Downgrades for 2020 · Segment Rating Trends AM Best...

US Life/Health

Positive rating trends continue through 2020 despite COVID-19 pandemic

Ratings ReviewMarch 11, 2021

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2021-019

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L/H Affirmations Rise, Upgrades Outnumber Downgrades for 2020 Despite the uncertainties and challenges generated by the COVID-19 pandemic, the percentage of rating affirmations for the life/annuity and health segments increased in 2020 compared to 2019, while the “under review” and “downgrade” categories saw a decrease (Exhibits 1a and 1b). Generally, the positive movement was driven by improved levels of risk-adjusted capitalization for both life/annuity and health carriers. Rating upgrades in 2020 continued the trend from the year prior, outnumbering downgrades for the US life/health industry overall, but by a greater margin than in 2019.

Segment Rating Trends AM Best upgraded 28 ratings and downgraded 10 in aggregate for L/A and health carriers in 2020 (Exhibit 2). This compares to 29 upgrades and 19 downgrades in 2019. Downgrades were more concentrated in the L/A segment, which reported eight, while the health segment reported two. Upgrades were evenly distributed between the two segments; the L/A segment had 15 upgrades while the health segment had 13 upgrades. The reinsurance segment had no rating changes during 2020.

AM Best assigned five initial ratings in 2020, constituting 1.5% of total rating actions, compared with six, or 1.7%, in 2019. Three of these initial ratings were in the health segment, while two were in the L/A segment.

Additionally, nine rating units (five in the L/A segment and

Under Review2.8% Upgrades

8.6% Downgrades3.1%

Initial Ratings1.5%

Total Affirmations84.0%

Exhibit 1aUS Life/Health – Issuer Credit Rating Activity% of all Rating Actions 2020

Source: AM Best data and research

Under Review6.7% Upgrades

8.1%

Downgrades5.3%

Initial Ratings1.7%

Total Affirmations78.2%

Exhibit 1bUS Life/Health – Issuer Credit Rating Activity% of all Rating Actions 2019


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Ratings Review US Life/Health

four in the health segment) were placed under review in 2020, compared to a total of 24 in 2019. The decrease in the number of rating units placed under review last year primarily reflected lower M&A activity as pandemic-related uncertainties shifted both the L/A and health industries’ focus to operations through this period.

Life/AnnuityPositive rating development for carriers in the L/A segment was driven primarily by increased strategic value to parent companies, strong risk-adjusted capitalization, and more robust enterprise risk management practices. While the COVID-19 pandemic has impacted life, annuity, and health insurers’ sales, earnings, and business profiles, the companies have been able to manage through the pandemic and produce better-than-expected results.

HealthHealth insurance ratings development was generally positive as most insurers have seen growth in capital and surplus over the past couple of years, supported by strong operating earnings across the major lines of business. Earnings growth continued in 2020, driven by favorable medical cost trends combined with lower utilization from delays in care. Prior to 2020, stable performance of the commercial group market, profitable growth in government programs, sustained improvement in the commercial individual segment, and increased strategic value contributed to favorable earnings. However, during 2020, strong operating results for the health segment were mainly driven by the deferral of routine care and elective procedures owing to the COVID-19 outbreak.

Rating UnitRather than assessing the rating actions on each legal operating entity in the US life/health insurance market, this section summarizes rating trends on a rating unit basis. “Rating unit” describes either an individual insurer or a consolidation of companies and is the financial basis on which AM Best conducts its rating evaluations. See the appendices for detailed lists of AM Best’s rating actions.

Exhibit 2US Life/Health – Issuer Credit Rating Activity 2016-2020

Rating Units %

Rating Units %

Rating Units %

Rating Units %

Rating Units %

Upgrades 16 4.1 31 8.2 39 9.8 29 8.1 28 8.6

Downgrades 23 6.0 15 3.9 18 4.5 19 5.3 10 3.1

Initial Ratings 9 2.3 8 2.1 8 2.0 6 1.7 5 1.5

Total Rating Changes 48 12.4 54 14.2 65 16.4 54 15.1 43 13.2

Total Affirmations 316 81.9 294 77.4 305 77.0 279 78.2 274 84.0

Under Review 22 5.7 32 8.4 26 6.6 24 6.7 9 2.8

Total Rating Actions 386 100.0 380 100.0 396 100.0 357 100.0 326 100.0


20202016 2017 2018 2019

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Under ReviewAM Best typically places a rating under review after a material event, such as the signing of a definitive agreement to acquire or sell a company; a corporate restructuring; significant management changes; or an abrupt change in financial condition as seen by a decline in policyholders’ surplus or risk-adjusted capitalization.

The under review modifier may have positive, negative, or developing rating implications, depending on the nature of the event and the potential effect on the rated entity. After placing a rating under review, AM Best interacts with company management teams to fully review the impact of an event on the rating. Generally, ratings remain under review for fewer than six months.

Rating ChangesLife/Annuity In 2020, there were 15 rating upgrades and 8 downgrades in the L/A segment, compared to 18 upgrades and 15 downgrades in 2019 (Exhibit 3). In general, the rating upgrades related to entities that have increased their strategic importance to their organizations and were, therefore, given further rating enhancement through lift from a parent/affiliate. These upgrades were supported by strong capital and improved liquidity, a more manageable regulatory/legislative environment, and a measured increase in investment risk. This was during a time of continued low interest rates and a large quantity of liquidity supplied by the Federal Reserve Bank to help sustain the US economy during the pandemic.

10

4

13

2

18

15 15

8

1 0 0 0

0

2

4

6

8

10

12

14

16

18

20

2019 Upgrades 2019 Downgrades 2020 Upgrades 2020 Downgrades

(#)

Health Life/Annuity Life/Reinsurance

Exhibit 3US Life/Health – Issuer Credit Rating Upgrades & Downgrades by Segment, 2019-2020


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The main drivers for L/A ratings downgrades include loss of strategic value relative to the group, relatively low levels of risk-adjusted capitalization, and lack of a business plan to support growth.

Life ReinsuranceThe life/reinsurance segment had one rating upgrade in 2019 and no ratings changes in 2020. The impact of COVID-19 was felt more on the asset side than with respect to excess mortality. As a result, life reinsurers that rely less on asset portfolios were less impacted.

Health In 2020, there were 13 rating upgrades and 2 downgrades in the health segment, compared with 10 upgrades and 4 downgrades in 2019. Ratings activity overall reflected favorable earnings over the past few years, which resulted in health insurers’ strengthening of risk-adjusted capitalization. Profitable commercial, governmental, and individual products, coupled with lower utilization, supported favorable operating results in all lines of business.

Exhibit 4US Life/Health – Issuer Credit Ratings DistributionAs of Year-End

Category Rating LevelRating

Units %Rating

Units %Rating

Units %Rating

Units %Rating

Units %Exceptional aaa 4 1.1 4 1.1 4 1.2 4 1.3 4 1.3

Sub-Total 4 1.1 4 1.1 4 1.2 4 1.3 4 1.3

aa+ 8 2.1 8 2.3 6 1.8 6 1.9 7 2.3

Superior aa 2 0.5 5 1.4 9 2.7 10 3.2 10 3.2

aa- 50 13.3 47 13.4 40 12.2 37 11.9 37 12.0

Sub-Total 60 15.9 60 17.0 55 16.7 53 17.1 54 17.5

a+ 34 9.0 31 8.8 34 10.3 33 10.6 28 9.1

Excellent a 48 12.7 51 14.5 47 14.3 44 14.2 53 17.2

a- 111 29.4 101 28.7 87 26.4 86 27.7 86 27.9

Sub-Total 193 51.2 183 52.0 168 51.1 163 52.6 167 54.2

bbb+ 30 8.0 33 9.4 34 10.3 30 9.7 29 9.4

Good bbb 28 7.4 23 6.5 20 6.1 24 7.7 23 7.5

bbb- 33 8.8 24 6.8 24 7.3 19 6.1 17 5.5

Sub-Total 91 24.1 80 22.7 78 23.7 73 23.5 69 22.4

348 92.3 327 92.9 305 92.7 293 94.5 294 95.5

Fair bb+,bb,bb- 25 6.6 21 6.0 17 5.2 11 3.5 7 2.3

Marginal b+,b,b- 2 0.5 2 0.6 3 0.9 4 1.3 4 1.3

Weak/Very Weak ccc+,ccc,ccc-,cc 2 0.5 2 0.6 4 1.2 2 0.6 3 1.0

Poor c 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0

Sub-Total 29 7.7 25 7.1 24 7.3 17 5.5 14 4.5

Total Issuer Credit Ratings 377 100.0 352 100.0 329 100.0 310 100.0 308 100.0


202020192016 2017 2018

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Key drivers for rating upgrades for most health rating units in 2020 include the strategic value of business diversification of a subsidiary relative to the group, improvements in capitalization and earnings, as well as enhancements in enterprise risk management (ERM) programs. Weakened capitalization was the primary reason for rating downgrades on health rating units. Please see Appendices A-H for additional details on ratings activity.

Ratings DistributionThe proportion of L/A and health carriers with “Good” to “Exceptional” ratings increased to 95.5% as of December 31, 2020, from 94.5% as of December 31, 2019 (Exhibit 4). The percentage of “Excellent” and “Superior” ratings increased as well, while “Good” ratings declined. The prevailing issuer credit rating (ICR) on the L/A and health carriers in these rating categories was “a-” (Excellent), at 27.9%, followed by “a” (Excellent), at 17.2%, and “aa-” (Superior), at 12.0%.

Rating OutlooksThe proportion of total L/A and health carriers with Stable rating outlooks increased to 84.7% from 82.9% in 2019, and the percentage of ratings under review decreased to 1.3% from 3.5% at the end of 2019. Proportions of Positive rating outlooks increased while Negative outlooks stayed the same. The rating outlooks for 86.3% of the L/A segment and for 81.1% of the health segment were Stable (Exhibit 5). The health segment had a higher percentage of Positive and Negative outlooks than did the L/A segment. Furthermore, for the life reinsurance segment, which is small in comparison, the rating outlooks for 85.7% of the ratings were Stable with only one Negative outlook reported. The predominant Stable rating outlooks across all covered segments reflect steady operating performance; the lack of material credit losses in investment portfolios; and the generally enhanced capitalization, as reported through late 2020, for the vast majority of the L/A and health insurance industries.

COVID-19 ImpactLife/AnnuityIn December 2020, AM Best maintained its Negative outlook on the broader US life/annuity segment, due mainly to the impact of the COVID-19 pandemic. Interest rates are expected to remain lower for longer, which will impact credit spreads. Lower interest rates also likely will lead to lower long-term interest rate assumptions, which in turn could lead to reserve increases and/or asset adequacy reserve charges. The current economic and business environment could lead to credit rating downgrades, followed by asset impairments. Lastly, companies will be challenged to grow their top lines, as face-to-face meetings may not be practical in the current pandemic climate.

Exhibit 5US Life/Health – Issuer Credit Rating Outlooks & Ratings Under ReviewRating Units - By Segment as of Year-End

Life/Annuity % Health % Life Re % Total L/H % Total L/H %Stable 182 86.3 73 81.1 6 85.7 261 84.7 257 82.9

Positive 13 6.2 10 11.1 0 0.0 23 7.5 22 7.1

Negative 13 6.2 6 6.7 1 14.3 20 6.5 20 6.5

Under Review 3 1.4 1 1.1 0 0.0 4 1.3 11 3.5

Grand Total 211 100.0 90 100.0 7 100.0 308 100.0 310 100.0


2020 2019

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Partially mitigating factors include strong absolute and risk-adjusted capitalization, good liquidity resources, more rapid evolution of technology to reach customers and enhance remote work capabilities, and prudent repricing of product lines in response to ongoing spread compression. In addition, ERM programs are more robust, supported by better-developed stress and scenario testing capabilities.

Despite the financial market volatility at the onset of the pandemic, there have been relatively few defaults and/or impairments of bonds held by companies in the life/annuity segment. The Fed’s rapid intervention substantially mitigated this impact. The commercial mortgage sector also has survived better than expected, although life/annuity carriers have received more requests for loan modifications. While fixed income and commercial mortgage sectors have held up, AM Best is concerned that holdings in higher risk sectors such as retail, hospitality, airlines, and energy could be exposed to write-downs.

Top-line growth will continue to be challenged by low interest rates and limited person-to-person interaction in distribution. Low interest rates complicate pricing and contribute to spread compression. Examples of product management actions in the face of continued low interest rates include lower cap rates on indexed products, scaling back pricing on variable annuity living benefits, as well as lower crediting rates and dividend scales. Companies have substantially improved their distribution models via improved remote sales capabilities and fluidless underwriting, and benefited from heightened consumer awareness of life insurance during the pandemic.

Health AM Best maintained its Stable outlook for the US health insurance segment for 2021, despite the widespread impact of COVID-19. Health insurers earnings for 2020 were significantly higher than expected, due partly to deferrals in elective procedures and routine care, which led to lower utilization. Furthermore, the cost of COVID-19 treatments for most individuals has been relatively modest, and the flu season was mild, likely related to the widespread use of personal protective equipment (PPE) and social distancing. COVID-19 symptoms are relatively mild for the majority of infected individuals, who are asked to isolate at home without specific treatment or medications. Individuals with severe cases are hospitalized, many receiving oxygen and other forms of treatment, but the use of ventilators that was prevalent in the spring of 2020 has declined, as doctors are able to achieve better outcomes without their use. The majority of rated companies maintain strong risk-adjusted capitalization and good-to-improving liquidity metrics. Many health insurers have accumulated cash in 2020 and have access to contingent sources such as lines of credit and Federal Home Loan Bank borrowings, should it be needed.

However, there are a number of counterbalancing factors, starting with an anticipated increase in frequency and severity of claims resulting from deferred care during 2020 leading to morbidity deterioration. Postponing medical treatment could worsen already existing conditions, while missed or delayed initial diagnoses could lead to more intensive, complex, and expensive care. Furthermore, when COVID-19 cases are rising, many individuals avoid interaction with medical providers and facilities due to concerns over the virus, resulting in further delays in treatment.

Many health providers, both doctors and hospitals, saw their revenues and income decline substantially in 2020, driven by the deferral of medical care. As such, medical providers may be pressured to increase contract rates with insurers given the financial pressures that the providers faced in 2020. The pandemic’s impact on the economy may stress the commercial


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segment as employers may be forced to reduce staff and face liquidity shortfalls, and may push back on rate increases or modify benefits to lower premiums.

The health insurance industry recorded significantly higher than expected earnings through 2020, growing substantially from the same period in 2019, driven largely by lower utilization due to the pandemic. Prior to 2020, the industry had already posted years of record earnings, leading to higher absolute and risk-adjusted capitalization levels. These trends are likely to continue for the full-year reported results. In addition, amid a significant level of economic uncertainty, the industry accumulated substantial cash balances and bolstered liquidity through borrowings, leading to stronger liquidity metrics. These factors have prepared the industry well to withstand the anticipated challenges and further uncertainties of 2021.

The 2021 health industry financial results will depend on how many uncertainties will be resolved, as the pandemic, economic recovery, and a new administration’s policies will have the largest impact on the industry. Over the past five years, the health insurance carriers have strengthened their resilience and bolstered their ability to adjust to a rapidly changing market and regulatory environment, which, coupled with better financial wherewithal, puts the industry in a good position to navigate the potential complexities and challenges of 2021.

.

About ICRsAM Best assigns an issuer credit rating (ICR), which is an independent opinion of an issuer/entity’s ability to meet its ongoing senior financial obligations, to all rated insurance companies. The ICR scale comprises 21 individual ratings, grouped into nine categories: four categories with descriptors of “Exceptional,” “Superior,” “Excellent,” and “Good,” and five categories with descriptors of “Fair,” “Marginal,” “Weak,” “Very Weak,” and “Poor.” The total number of ICR ratings will equal the total number of financial strength ratings (FSR); however, the ICR allows for greater detail at the upper and lower ranges of certain FSR categories. For example, at the A+ (Superior) FSR level, there are two ICR levels: “aa” and “aa-“(Exhibit 6)

Exhibit 6Rating Translation Table

FSRLong-Term

ICR FSRLong-Term

ICRA++ aaa B bb+

aa+ bb

A+ aa B- bb-

aa- C++ b+

A a+ b

a C+ b-

A- a- C ccc+

B++ bbb+ ccc

bbb C- ccc-

B+ bbb- cc

D c


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Appendix A2020 L/H Rating Upgrades

AMB # Company/Rating UnitRevised

ICR Prior ICRRating Effective

DateICR Outlook / Implication

007447 Multinational Life Ins Company bbb+ bbb 1/22/2020 Stable

006568 Cincinnati Life Insurance Co aa- a+ 1/30/2020 Stable

020516 Principal Financial Group Inc. aa aa- 2/11/2020 Stable

006837 GPM Health and Life Ins Co a- bbb+ 2/19/2020 Stable

060399 Popular Life Re bbb+ bbb 2/26/2020 Stable

070102 Medco Containment Group a a- 2/26/2020 Stable

070799 Cigna HealthSpring Companies a a- 2/26/2020 Stable

006627 Lincoln Life Assur of Boston aa- a+ 3/3/2020 Stable

025000 Crown Global Ins Group LLC a- bbb+ 3/4/2020 Stable

006799 Liberty Union Life Assurance bb+ bb 6/9/2020 Stable

007285 Hartford Life & Accident Ins aa- a+ 6/19/2020 Stable

006757 Cincinnati Equitable Life Ins a bbb+ 6/30/2020 Stable

064074 AvMed, Inc. b+ b 7/8/2020 Positive

070917 Health Alliance Med Plans Grp a- bbb+ 7/17/2020 Stable

006703 Merit Life Insurance Co. a- bbb- 8/12/2020 Stable

011437 Moda Health Plan, Inc. bbb bb 8/28/2020 Stable

070995 ODS Group bbb+ bb 8/28/2020 Stable

010086 Highmark Casualty Insurance Co a a- 9/3/2020 Stable

006236 United National Life Ins. Co. of America bbb+ bbb 9/23/2020 Stable

007408 Standard Life and Casualty Ins bb+ bb 9/25/2020 Stable

069545 Great American Life Group aa- a+ 10/28/2020 Stable

069825 Reliance Standard Life Group aa+ aa 11/11/2020 Stable

006861 American Life & Security Corp. bbb+ bbb 12/2/2020 Stable

007010 Royal Neighbors of America a a- 12/15/2020 Stable

006305 Delaware American Life Ins Co aa- a+ 12/17/2020 Stable

070831 SafeGuard Health Group* aa- a+ 12/17/2020 Stable

006215 Chesapeake Life Ins Co a a- 12/18/2020 Stable

069975 USHEALTH Group a a- 12/18/2020 Stable* Rating Unit is now a part of AMB #69609, Metropolitan Life Ins. GroupSource: AM Best data and research

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Appendix B2020 L/H Rating Downgrades

AMB # Company/Rating UnitRevised

ICR Prior ICRRating Effective

DateICR Outlook/ Implication

069578 Jackson National Group a+ aa- 3/19/2020 Negative

070966 Vision Service Plan Group a- a 5/20/2020 Stable

009606 SPJST* bb- bb 5/21/2020 Stable

006135 Triple-S Blue, Inc., I.I. bbb- bbb 6/3/2020 Negative

069181 Assurant Life & Health Group bbb bbb+ 7/8/2020 Stable

006413 Foresters Life Ins and Annuity** bbb- a- 7/17/2020 Negative

070443 Globe Life Group a+ aa- 7/17/2020 Stable

069578 Jackson National Group a a+ 8/13/2020 Stable

070342 AIG Life & Retirement Group a a+ 8/19/2020 Stable

069961 Columbian Financial Group bbb bbb+ 9/1/2020 Negative* Company was subsequently moved to "NR"** Rating was withdrawn following its merger into Nassau Life Insurance CompanySource: AM Best data and research

Appendix C2020 L/H Initial Ratings

AMB # Company/Rating Unit ICRRating Effective

DateICR Outlook/ Implication

008549 Symphonix Health Ins, Inc. a+ 1/21/2020 Positive

008094 Upstream Life Insurance Co bbb+ 6/16/2020 Stable

006441 Coefficient Insurance Company a- 10/23/2020 Stable

062408 ITA International Insurer a- 12/3/2020 Stable

060681 Accendo Insurance Company a 12/17/2020 StableSource: AM Best data and research

Appendix D2020 L/H Under ReviewAMB # Rating Unit / Company Revised ICR*

Rating Effective Date ICR Implication

020434 EmblemHealth Group** b- 3/26/2020 Negative

060097 Universal Life Insurance Co** bbb- 4/15/2020 Negative

011437 Moda Health Plan, Inc. bb 5/20/2020 Positive

070995 ODS Group bb 5/20/2020 Positive

060097 Universal Life Insurance Co** bbb- 6/25/2020 Negative

007408 Standard Life and Casualty Ins bb 6/26/2020 Positive

006942 American Memorial Life Ins Co a- 10/30/2020 Developing

069181 Assurant Life & Health Group bbb 10/30/2020 Developing

020434 EmblemHealth Group** b- 12/22/2020 Negative* Current rating may differ** Two rating actions during 2020.Source: A.M. Best data and research

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Appendix E2020 Life/Annuity UpgradesThe Principal Financial Group’s ratings were upgraded due to continued strengthening of its enterprise risk management (ERM) program. Principal’s formalized risk appetite statement has been enhanced to focus on risk tolerances supporting its business strategy. In addition, there has been increased coordination across business units in terms of risk management functions, stress testing, and modeling capabilities, all of which have been improved and expanded.The ratings for Cincinnati Life Insurance Company (CLIC) were upgraded, reflecting its role within the Cincinnati Financial enterprise, offering life and annuity products to its parent’s property/casualty base. CLIC also benefits from common management, shared distribution, and recognition in the group.The ratings for Hartford Life and Accident Insurance Company were upgraded, driven by its growing contribution to consolidated revenue and earnings, as well as the overall diversification it provides.Upgrades to the ratings for Cincinnati Equitable Life Insurance Company (CELIC) reflected its strategic integration into Michigan Farm Bureau Life through its shared management and board of directors, along with the continued consolidation of investment, financial, and actuarial services. In addition the ultimate parent, Farm Bureau Life Insurance Company of Michigan, will meet CELIC’s liabilities through an unconditional and absolute guarantee agreement.Reliance Standard Life Group had its ratings upgraded due to higher integration with and strategic importance to its ultimate parent, Tokio Marine. AM Best upgraded American Life & Security Corporation due to the company’s successful execution of its business plan in achieving various targets, including repositioning the company to address a market need for an administrative and operationally focused carrier. The ratings of Royal Neighbors of America were upgraded due to improved operating performance trends, including premium growth and overall profitable earnings for the past three years, largely due to less new business strain.


Appendix F2020 Life/Annuity DowngradesThe ratings for the Columbian Group were downgraded, reflecting a declining trend in its capitalization over the past two years, exacerbated by complications brought on by the COVID-19 pandemic. Prior year capital declines were due to the impact of low interest rates on the valuation of the group’s pension plan liability and a deferred tax income adjustment from the implementation of the 2017 Tax Cuts and Jobs Act. AIG Life & Retirement Group had its credit ratings downgraded due to a change in operating performance. The group’s more recent and prospective returns will be more in line with its strongly rated peers, driven by intense competition in the annuity segment and continued low interest rates, which will pressure spread and fee income.

The ratings for the Globe Life Group were downgraded due to its relatively low level of risk-adjusted capitalization as measured by the Best Capital Adequacy Ratio (BCAR) for its previous balance sheet assessment. Globe Life’s risk-adjusted capitalization has trended down in recent years and is substantially below that of similarly rated peers. In addition, statutory capital has remained relatively flat in recent years, as organic earnings were mostly offset by dividends to its parent and stock repurchases. Lastly, while the overall credit quality of invested assets is good, allocations to NAIC-2 bonds has increased in recent years.Foresters Life Insurance and Annuity Company (FLIAC) had its ratings downgraded upon announcement of the completion of its sale from Independent Order of Foresters to Nassau Financial Group, L.P. While FLIAC is fundamentally sound in risk-adjusted capitalization and earnings, the ratings downgrade reflects the drag from Nassau’s insurance operating entities. Subsequent to the acquisition, FLIAC was merged into Nassau Life Insurance Company and the ratings were withdrawn.Ratings for Union Security Insurance Company and the Union Security Insurance Company of New York, subsidiaries of the Assurant Life & Health Group, were downgraded, reflecting the lack of forward progress toward a growth plan. While profitable, the majority of the business is in runoff and the company lacks a tangible long-term growth plan.

Credit ratings for Jackson National Life Insurance Company were downgraded following the announcement by Prudential plc that it intended to proceed with a minority initial public offering of Jackson National Group (JNG), which benefited from ratings enhancement from its parent’s financial strength and financial flexibility. Although Prudential plc intends to maintain an appropriate level of capitalization at JNG, AM Best opines that JNG is less strategically important to Prudential plc following the announcement of the planned IPO. Note that Prudential plc has subsequently revised its plans, and now intends to pursue a demerger of Jackson National Group in 2Q21, further accelerating the separation.The rating for SPJST was downgraded, reflecting the challenges in re-establishing positive trends for premiums and earnings, a narrow business profile, and a trend of declining risk-adjusted capitalization. The ratings were subsequently withdrawn.


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Appendix GHealth UpgradesThe ratings upgrades for Cigna HealthSpring Companies reflected the strategic position it plays as a core part of Cigna’s Medicare Advantage (MA) offerings. Cigna HealthSpring also receives implicit support from its intermediate holding company, NewQuest, LLC, and its ultimate parent, Cigna; should the entities encounter cash-flow uncertainty, they would be supported with capital infusions. Also, the Cigna HealthSpring products provide strategic business diversification to Cigna’s commercial group and specialty products.The upgrades of Health Alliance Medical Plans Group reflected favorable operating performance over the past few years. The company reported underwriting gains, primarily driven by improving margins on its individual and state lines of business. Competitively priced products to grow membership coupled with a change in business mix further supported operating gains. The upgrades on Medco Containment Group reflected the strategic position Medco plays as a core part of Cigna’s Medicare Part D offerings. Medco Containment Group has maintained the strongest level of risk-adjusted capital despite making dividend payments. The group also has sustained solid overall liquidity and strong premium leverage. USHEALTH Group’s rating upgrades were driven primarily by strengthening of its risk-adjusted capitalization through retained earnings. In addition, the ratings are enhanced by UnitedHealth Group, the ultimate parent, as USHEALTH Group provides specialty business growth strategy. The rating upgrades for Oregon Dental Service (ODS) reflected the improvement in its estimated BCAR, as well as the improvement in the financial flexibility and fungibility of capital within the ODS organization, driven by the sizable payment from the federal government to Moda Health. ODS maintains a 50.5% ownership in Moda Health.Moda Health Plan’s ratings were upgraded based on improvements in absolute capital and surplus levels, which reflected the recovery of risk corridors damages awarded by the US Supreme Court that were paid in August. With the increased level of capital, AM Best expects Moda Health Plan’s debt leverage and financial flexibility to substantially improve. The ratings upgrades and positive outlook for AvMed, Inc., was based on the improvement to its ERM program, which was aided by an overall improvement in operational and financial controls. The company has made progress from prior years in its underwriting practices and refinements, evidenced by higher operating results and improving capital position. Highmark Casualty Insurance Company’s upgrades reflected rating enhancement received based on its strategic importance and dependence on its affiliate, Highmark Life Insurance Company, from which it derives the majority of its premium through a quota share arrangement from medical stop loss business.

The rating upgrades of Chesapeake Life Insurance Company reflected improvements in its ERM assessment. The company integrated the ERM program of its ultimate parent, UnitedHealth Group, which has a very mature and high-functioning ERM program. In addition, the ratings of Chesapeake Life Insurance Company were enhanced by UnitedHealth Group as they provide sales, product, and technologies, which encompass the company’s specialty business growth strategy.

The upgrade of Liberty Union Life Assurance Company reflected strengthened risk-adjusted capitalization over the past two years, driven by a sizable release of excess reserves, materially increasing absolute capital and surplus, as well as its BCAR score.

The ratings upgrades for GPM Health and Life Insurance Group Company primarily reflected the increasing importance of GPM Health and Life’s operations to the overall group, as well as explicit support from Government Personnel Mutual Life Insurance Company. GPM Health and Life is fully integrated into the group’s operations and management, is easily identifiable in the group, and is necessary for rate flexibility, all of which are viewed favorably.


Appendix H2020 Health DowngradesThe downgrades of Vision Service Plan (VSP) Group reflected a decline in the group’s balance sheet strength assessment. While VSP reported capital and surplus growth in 2019, the balance sheet strength has become pressured due to the acquisition of Visionworks and its subsidiaries. The acquisition resulted in a material increase in goodwill and intangible assets, as well as financial leverage. Goodwill and intangibles-to-capital was 75%, and financial leverage was 42% at year-end 2019.The downgrades of Triple-S Blue, Inc. I.I, reflected its unfavorable operating results, which led to the decline in risk-adjusted capitalization. Furthermore, Triple-S Blue, Inc. I.I’s outlook revision to Negative was attributed to the deterioration in the company’s operating results, as well as a sustained decline in capitalization to a level that no longer supported the rating.



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12 Arthur Street, 6th Floor, London, UK EC4R 9ABPhone: +44 20 7626 6264

AMSTERDAMA.M. Best (EU) Rating Services B.V.

NoMA House, Gustav Mahlerlaan 1212, 1081 LA Amsterdam, NetherlandsPhone: +31 20 308 5420

DUBAI*A.M. Best - MENA, South & Central Asia*

Office 102, Tower 2, Currency House, DIFCP.O. Box 506617, Dubai, UAE

Phone: +971 4375 2780*Regulated by the DFSA as a Representative Office

ASIA-PACIFICHONG KONG

A.M. Best Asia-Pacific LtdUnit 4004 Central Plaza, 18 Harbour Road, Wanchai, Hong Kong

Phone: +852 2827 3400

SINGAPOREA.M. Best Asia-Pacific (Singapore) Pte. Ltd

6 Battery Road, #39-04, SingaporePhone: +65 6303 5000

Best’s Financial Strength Rating (FSR): an independent opinion of an insurer’s financial strength and ability to meet its ongoing insurance policy and contract obligations. An FSR is not assigned to specific insurance policies or contracts.

Best’s Issuer Credit Rating (ICR): an independent opinion of an entity’s ability to meet its ongoing financial obligations and can be issued on either a long- or short-term basis.

Best’s Issue Credit Rating (IR): an independent opinion of credit quality assigned to issues that gauges the ability to meet the terms of the obligation and can be issued on a long- or short-term basis (obligations with original maturities generally less than one year).

Rating Disclosure: Use and LimitationsA Best’s Credit Rating (BCR) is a forward-looking independent and objective opinion regarding an insurer’s, issuer’s or financial obligation’s relative creditworthiness. The opinion represents a comprehensive analysis consisting of a quantitative and qualitative evaluation of balance sheet strength, operating performance, business profile, and enterprise risk management or, where appropriate, the specific nature and details of a security. Because a BCR is a forward-looking opinion as of the date it is released, it cannot be considered as a fact or guarantee of future credit quality and therefore cannot be described as accurate or inaccurate. A BCR is a relative measure of risk that implies credit quality and is assigned using a scale with a defined population of categories and notches. Entities or obligations assigned the same BCR symbol developed using the same scale, should not be viewed as completely identical in terms of credit quality. Alternatively, they are alike in category (or notches within a category), but given there is a prescribed progression of categories (and notches) used in assigning the ratings of a much larger population of entities or obligations, the categories (notches) cannot mirror the precise subtleties of risk that are inherent within similarly rated entities or obligations. While a BCR reflects the opinion of A.M. Best Rating Services, Inc. (AM Best) of relative creditworthiness, it is not an indicator or predictor of defined impairment or default probability with respect to any specific insurer, issuer or financial obligation. A BCR is not investment advice, nor should it be construed as a consulting or advisory service, as such; it is not intended to be utilized as a recommendation to purchase, hold or terminate any insurance policy, contract, security or any other financial obligation, nor does it address the suitability of any particular policy or contract for a specific purpose or purchaser. Users of a BCR should not rely on it in making any investment decision; however, if used, the BCR must be considered as only one factor. Users must make their own evaluation of each investment decision. A BCR opinion is provided on an “as is” basis without any expressed or implied warranty. In addition, a BCR may be changed, suspended or withdrawn at any time for any reason at the sole discretion of AM Best.

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