AM Best has commented that the Credit Ratings (ratings) of Anthem, Inc. (Anthem) (Indianapolis, IN) [NYSE: ANTH] and its insurance subsidiaries remain unchanged following the announcement that the group will acquire MMM Holdings, LLC, including its Puerto Rico-based insurance subsidiaries: MMM Healthcare, LLC (MMM Healthcare), a Medicare Advantage (MA) plan; and MMM Multi Health, LLC (MMM Multi Health), a Medicaid plan. The outlook of these ratings is stable.
The acquisition, if consummated, will further enhance Anthem’s business profile by expanding its footprint and geographic diversification, as the group currently does not have any presence in the Puerto Rico market. Furthermore, it would strengthen Anthem’s position in the MA segment, which has been one of the fastest growing and generally profitable for the health insurance industry over the last several years. Anthem historically was more focused on the commercial segment and somewhat lagged its peers in building a strong presence in government programs, including MA. MMM Healthcare is a market leader in the Puerto Rico MA segment with approximately 267,000 MA members and revenue of $2.7 billion in 2019.
MMM Healthcare recorded about 80% premium growth over the past five years, while maintaining a good level of underwriting profitability. MMM Healthcare is the only MA plan in Puerto Rico with 4.5 star rating from Center for Medicare and Medicaid Service (CMS), a factor that enhances profitability. MMM Multi Health generated smaller revenue of about $613 million in 2019; however, the premium has more than tripled since 2015. Profitability of the Medicaid business has been more volatile compared with MA, and the company posted underwriting losses in three of the last five years. Anthem has a good track record of integrating the newly acquired subsidiaries into the group’s operations, achieving the benefits of greater scale.
The financial terms of transaction were not disclosed; however, AM Best expects the financial leverage of Anthem, which was close to 39% at year-end 2020, to remain within the tolerance level for its current rating. Similar to other recent acquisitions, this transaction is likely to increase the level of goodwill at Anthem, which was about 94% at year-end 2020 and is considered high.
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