A.M. Best Co. has affirmed the issuer credit rating (ICR) of “bb” and debt rating of “bb” on $425 million 5.75% senior unsecured notes, due 2017 of Centene Corporation (Centene) (Delaware) [NYSE: CNC]. Concurrently, A.M. Best has affirmed the financial strength rating (FSR) of B++ (Good) and ICRs of “bbb” of Absolute Total Care, Inc. (Columbia, SC), Buckeye Community Health Plan, Inc. (Columbus, OH), Coordinated Care Corporation (Indianapolis, IN), Managed Health Services Insurance Corporation, Bankers Reserve Life Insurance Company of Wisconsin (both domiciled in Milwaukee, WI), Peach State Health Plan, Inc. (Smyrna, GA), Sunshine State Health Plan, Inc. (Sunrise, FL) and Superior HealthPlan, Inc. (Austin, TX). The outlook for all the above ratings is stable.
Additionally, A.M. Best has revised the outlook to negative from stable and affirmed the ICR of “bbb+” as well as affirmed the FSR of B++ (Good) of Celtic Insurance Company, Inc. (Celtic) (Chicago, IL). The outlook for the FSR is stable. All the above companies are subsidiaries of Centene.
The ratings for Centene and its subsidiaries reflect their strong expansion into new markets over the past few years through contract awards. More recently, Centene has commenced operations in multiple states as well as a renewal and expansion of the Medicaid programs in three existing states. Each of the insurance entities favorably contributes to the consolidated organization’s geographic and scalability needs. The administrative cost ratio has decreased into high single digits, which was driven by significant revenue growth over the past two years. A.M. Best expects the revenue base to continue to expand over the medium term driven by confirmed program awards and opportunities in the Medicaid market from the Patient Protection and Affordable Care Act (PPACA).
Centene’s subsidiaries aggregate risk-based capital levels declined in 2012. This poses some risk for plans where premium growth has been substantial; however, Centene has committed to support its subsidiaries with addition capital over the near term where needed. A.M. Best expects capital at the subsidiary level to improve and the overall level of risk-based capital to be managed to a range of or near to 350% of an authorized control level. Furthermore, Centene has a history of providing capital support when needed. The consolidated Centene organization is weighted heavily towards primarily servicing a Medicaid-dependent population. Health reform may present medium-term competitive challenges for Centene where some provisions in PPACA have called for an expansion of Medicaid coverages and it is expected that competition from all participating carriers will be intense.
Celtic’s revised outlook reflects its operational losses as well as the uncertain impact to its business in a health insurance exchange environment in the near to medium term.
Centene is adequately positioned at its present rating level. Key rating drivers that could lead to negative rating actions include a material decline in earnings or a trend of losses, non-renewal of Medicaid contracts, which are not fully offset by new Medicaid contracts in terms of membership and revenue or a reduction in risk-adjusted capitalization.
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.
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Wayne Kaminski, Senior Financial Analyst, 908-439-2200, ext. 5061
Sally Rosen, Assistant Vice President, 908-439-2200, ext. 5280
Rachelle Morrow, Senior Manager, Public Relations, 908-439-2200, ext. 5378
Jim Peavy, Assistant Vice President, Public Relations, 908-439-2200, ext. 5644