A.M. Best Revises Outlooks to Positive for Blue Cross Blue Shield of Michigan Mutual Insurance Company; Affirms Credit Ratings of Members of Accident Fund Group

OLDWICK, N.J.–(BUSINESS WIRE)–A.M. Best has revised the outlooks to positive from stable and
affirmed the Financial Strength Rating (FSR) of A- (Excellent) and the
Long-Term Issuer Credit Rating (Long-Term ICR) of “a-” of Blue Cross
Blue Shield of Michigan Mutual Insurance Company (BCBS MI) (Detroit, MI)
and its subsidiary, Blue Care Network of Michigan (Southfield, MI)
(collectively known as BCBS MI). Concurrently, A.M. Best has affirmed
the FSR of A- (Excellent) and the Long-Term ICR of “a-” of the members
of Accident Fund Group (AF Group). The outlook of these Credit Ratings
(ratings) is positive. (See below for a detailed listing of companies.)

The ratings reflect BCBS MI’s balance sheet strength, which A.M. Best
categorizes as very strong, as well as its marginal operating
performance, neutral business profile and appropriate enterprise risk
management (ERM).

The revised outlooks reflect favorable earnings development in 2017 and
through the first half of 2018 and A.M. Best’s expectation that this
trend will be sustained. The improved underwriting results were driven
by the Medicare Supplement (Medigap), individual and Medicare Advantage
lines of business. In 2017, BCBS MI implemented rate increases and
modernized pricing for its Medigap business after a five-year rate
freeze on this product, which was part of the conversion to a non-profit
mutual insurer. The conversion also ended a direct subsidy program that
had been in effect since 1980. Results in the individual, Affordable
Care Act exchange product line were driven by several factors, including
multiple years of rate increases, and benefit and network modifications.
Increased earnings in Medicare Advantage were driven by growth in
revenue, including risk adjustment payments, as well as improved and
enhanced pharmacy management leading to additional favorable claims
experience.

BCBS MI maintains strongest level of risk-adjusted capitalization as
measured by Best’s Capital Adequacy Ratio (BCAR). Furthermore, BCBS MI
reported an increase in capital and surplus primarily driven by the Tax
Cuts and Jobs Act, which translated to more than $500 million of
additional capital and continued improvement in earnings.

Offsetting rating factors include BCBS MI’s history of statutory
underwriting losses largely driven by the Medigap and individual lines
of business. Furthermore, the group’s higher exposure to risky assets is
driven by its elevated investment to equities and Schedule BA assets, as
well as its high, although declining, statutory operating leverage level
due to its borrowing activity used for arbitrage.

The ratings of AF Group reflect its balance sheet strength, which A.M.
Best categorizes as very strong, as well as its adequate operating
performance, neutral business profile and appropriate ERM.

The FSR of A- (Excellent) and the Long-Term ICRs of “a-” have been
affirmed, each with a positive outlook, for the following members of
Accident Fund Group:

  • Accident Fund Insurance Company of America
  • CompWest Insurance Company
  • Accident Fund General Insurance Company
  • Accident Fund National Insurance Company
  • Third Coast Insurance Company
  • United Wisconsin Insurance Company

The positive outlooks reflect the consolidated AF Group’s improved
operating performance, driven by increasingly profitable underwriting
results and demonstrated expertise within the workers’ compensation
marketplace. The outlooks of the members of AF Group could also be
impacted by potential rating movement of the parent company, Blue Cross
Blue Shield of Michigan Mutual Insurance Company. Furthermore, the
ratings acknowledge the group’s utilization of sophisticated predictive
analytic modeling tools, as well as medical cost containment practices
and initiatives. The improved results also reflect the benefit of
improved frequency and severity trends.

Factors that could lead to positive rating action for the members of AF
Group include sustained improvement in underwriting and operating
results at a level that consistently outperforms other similarly rated
peers while maintaining a strong level of risk-adjusted capitalization.
Factors that could lead to negative rating action include deterioration
in underwriting performance, material loss reserve strengthening actions
or rapid premium growth that weakens risk-adjusted capitalization.
Negative rating actions could occur on the ratings of the members of AF
Group should negative rating movement occur on its parent, Blue Cross
Blue Shield of Michigan Mutual Insurance Company.

This press release relates to Credit Ratings 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 see A.M. 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 A.M. Best press releases, please view
Guide
for Media – Proper Use of Best’s Credit Ratings and A.M. Best Rating
Action Press Releases
.

A.M. 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 © 2018 by A.M. Best Rating Services, Inc. and/or its
affiliates. ALL RIGHTS RESERVED.

Contacts

A.M. Best
Jennifer Asamoah, +1 908-439-2200, ext. 5203
Financial
Analyst

jennifer.asamoah@ambest.com
or
Gordon
McLean, +1 908-439-2200, ext. 5304

Senior Financial Analyst
gordon.mclean@ambest.com
or
Christopher
Sharkey, +1 908-439-2200, ext. 5159

Manager, Public Relations
christopher.sharkey@ambest.com
or
Jim
Peavy, +1 908-439-2200, ext. 5644

Director, Public Relations
james.peavy@ambest.com

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