A.M. Best Affirms Ratings of Universal American Corp. and Most of Its Subsidiaries

OLDWICK, N.J.--(BUSINESS WIRE)--

A.M. Best Co. has affirmed the issuer credit rating (ICR) of “bb” of Universal American Corp. (Universal American) (White Plains, NY) UAM.

Concurrently, A.M. Best has affirmed the financial strength rating (FSR) of B++ (Good) and ICRs of “bbb” of American Progressive Life & Health Insurance Company of New York (American Progressive) (White Plains, NY) and The Pyramid Life Insurance Company (Pyramid Life) (Overland Park, KS).

A.M. Best has also affirmed the FSR of B+ (Good) and ICRs of “bbb-” of American Pioneer Life Insurance Company (American Pioneer) (Lake Mary, FL), Constitution Life Insurance Company (Constitution Life), Marquette National Life Insurance Company (Marquette National), Union Bankers Insurance Company (Union Bankers) and SelectCare of Texas, Inc. (SelectCare). The outlook for SelectCare's ratings has been revised to stable from positive.

Additionally, A.M. Best has upgraded the FSR to B+ (Good) from B (Fair) and ICR to “bbb-” from “bb+” of Today's Options of Oklahoma, Inc. (Today's Options) (Oklahoma City, OK). Unless otherwise specified, the outlook for all ratings is stable. The insurance companies mentioned above are subsidiaries of Universal American and are domiciled in Houston, TX, unless otherwise specified.

The affirmation for Universal American and its subsidiaries on a consolidated basis reflects recent stabilization of premium revenue levels, generally favorable underwriting results, low financial leverage and good liquidity. Although Universal American's premium revenue level is materially lower than historic levels due to multiple factors (the company is now focused on Medicare Advantage business in core markets), moderate growth in these markets is being seen. Overall underwriting results for the company have remained favorable over the last three years, although margins have declined. Net losses through June 30, 2013 were mainly driven by a goodwill impairment related to the acquisition of APS Healthcare. Additionally, Universal American's debt-to-capital ratio was 15.9% at June 30, 2013, which is considered low as compared to its peers. Universal American has a good level of liquidity from parent company cash, dividends from subsidiaries as well as an untapped $75 million revolving credit agreement.

Offsetting rating factors include Universal American's reduced level of premium revenue, increased business concentration risk and significant dividends taken from insurance subsidiaries. The company's premium revenue has declined significantly over the last two years mainly due to the sale of its Medicare Part D business, a decline in Medicare Advantage new sales and retention in 2012, as well as the company's discontinuation of marketing of its Medicare supplement products. Universal American's insurance business is now heavily concentrated in Medicare Advantage in specific core markets. Additionally, Universal American has upstreamed extraordinary dividends, which could pressure the risk-adjusted capitalization of its insurance entities as dividends are the primary source of parent company cash flows.

The rating affirmations for American Progressive and Pyramid Life reflect their role as core subsidiaries of Universal American. On a consolidated basis, these entities continue to generate over half of the organization's revenue and service almost three-fifths of its Medicare Advantage enrollment. Operating results for these entities have consistently been positive, and margins have shown improvement. Risk-adjusted capitalization for these companies has moderated somewhat due to dividends to the parent, but they have been mostly offset by favorable net income and a decline in business and insurance risk. These entities are anticipated to continue to contribute favorably to the overall operating earnings of Universal American.

The rating affirmations for American Pioneer, Constitution Life, Marquette National, Union Bankers and SelectCare recognize their contribution to the overall business profile of the organization through product and rate flexibility as well as overall favorable operating earnings and good levels of risk-adjusted capitalization. A.M. Best notes that these entities are not currently marketing new Medicare supplement policies; however, SelectCare is actively marketing Medicare Advantage products.

The upgrading of the ratings for Today's Options reflects the company's improved operating results, increased level of risk-adjusted capital and continued support by Universal American.

Going forward, positive rating actions could occur if Universal American generates profitable premium growth while maintaining strong capitalization in its insurance subsidiaries and diversification of product, market segment or geography. Negative rating actions could occur if Universal American reports significant operating losses in its core Medicare Advantage business, experiences a drastic decline in risk-adjusted capitalization at its insurance subsidiaries or is unable to maintain enrollment and premium growth in Medicare Advantage business in its core markets.

The methodology used in determining these ratings is Best's Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best's rating process and contains the different rating criteria employed in the rating process. Best's Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.

A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

Copyright © 2013 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.