AM Best Revises Issuer Credit Outlook to Negative for Blue Cross and Blue Shield of Vermont and Its Subsidiary

OLDWICK, N.J.–(BUSINESS WIRE)–AM Best has revised the outlook to negative from stable for the
Long-Term Issuer Credit Rating (Long-Term ICR) and affirmed the
Financial Strength Rating (FSR) of B++ (Good) and the Long-Term ICR of
“bbb+” of Blue Cross and Blue Shield of Vermont and its wholly owned
subsidiary, The Vermont Health Plan, LLC. The outlook of the FSR remains
stable. These companies are collectively known as BCBSVT Group. Both
companies are domiciled in Berlin, VT.

The Credit Ratings (ratings) reflect BCBSVT Group’s balance sheet
strength, which AM Best categorizes as strong, as well as its marginal
operating performance, neutral business profile and appropriate
enterprise risk management.

The revision of the Long-Term ICR outlook to negative from stable
reflects AM Best’s expectation that BCBSVT Group’s risk-adjusted capital
will remain under pressure in the medium to long term. The company’s
risk-adjusted capitalization deteriorated sequentially over the past
four years, as evidenced by the declining NAIC RBC score over company
action level.

From an operating performance perspective, the company has exhibited
earnings fluctuation as it has reported sharp losses in underwriting
results, where in some cases the organization’s investment income did
not provide a sufficient hedge to stabilize pre-tax operating
performance. The unfavorable underwriting results over the past four
years have been caused primarily by BCBSVT being unable to receive
adequate rate increases approved through the state’s rate review
process. Realized capital gains were positive over the past five years,
and over the same period, accumulated unrealized gains were largely
positive. However, balance sheet contraction occurred as a result of
unfavorable non-operating adjustments to capital and surplus. The
organization’s financial flexibility remains good. Its improved cash
position is a result of the availability of a renewable banking facility
that offers reasonable rates. Overall liquidity scores over the past
five years were strong, along with reduced but still strong working
capital ratios over the period.

With the highest market share in Vermont, BCBSVT Group is transitioning
toward becoming mainly a health and wellness organization, which is
expected to enhance its well-established, high-touch service
credentials. New product designs are in line with the organization’s
long-term imperative, which include market sustainability of individual
and small group lines of business, as well as higher penetration in the
Medicare segment.

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 Understanding
Best’s Credit Ratings. For information on the proper media
use of Best’s Credit Ratings and AM Best press releases, please view Guide
for Media – Proper Use of Best’s Credit Ratings and AM Best Rating
Action Press Releases.

AM Best is a global rating agency and information provider with a
unique focus on the insurance industry. Visit www.ambest.com
for more information.

Copyright © 2019 by A.M. Best Rating Services, Inc. and/or its
affiliates. ALL RIGHTS RESERVED.

Contacts

David Mitchell
Senior Financial Analyst
+1
908 439 2200, 5556
david.mitchell@ambest.com

Bridget Maehr
Associate Director
+1 908 439
2200, ext. 5321
bridget.maehr@ambest.com

Christopher Sharkey
Manager, Public Relations
+1
908 439 2200, ext. 5159
christopher.sharkey@ambest.com

Jim Peavy
Director, Public Relations
+1 908
439 2200, ext. 5644
james.peavy@ambest.com