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A.M. Best Affirms Ratings for Universal American Corp. and Its Subsidiaries
[December 11, 2014]

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


A.M. Best has affirmed the financial strength rating (FSR) of B++ (Good) and the issuer credit ratings (ICR) of "bbb" for the key insurance subsidiaries of Universal American Corp. (Universal American) (White Plains, NY) [NYSE: UAM]. A.M. Best has also affirmed the ICR of "bb" of Universal American. The rating outlook is stable.

Concurrently, A.M. Best has affirmed the FSR of B+ (Good) and ICR of "bbb-" and revised the outlook to negative from stable for American Pioneer Life Insurance Company (American Pioneer) (Lake Mary, FL) and SelectCare of Texas, Inc. (SelectCare) (Houston, TX). [See link below for a detailed listing of the companies and ratings.]

Universal American's ratings reflect improved operating results, low financial leverage and good liquidity. Universal American is narrowing its business focus to encompass mainly Medicare Advantage (MA) offerings in its core markets in Texas and the Northeast for which they have predominantly reported favorable operating results. These are growing markets for the organization in which Universal American's plans have high star ratings from the Centers for Medicare & Medicaid Services (CMS) and strong provider relationships. The company has also reported favorable but declining operating results for its traditional insurance business that is being run off. Consolidated net losses over the past two years have mostly been driven by non-insurance operations, including the goodwill impairment in 2013 and expenses related to the acquisition of APS Healthcare, as well as expenses for the company's Accountable Care Organizations. A.M. Best notes that Universal American has a manageable debt-to-capital ratio of about 19% as of Sept. 30, 2014, which is low compared to its peers. Additionally, Universal American has a good level of liquidity from parent company cash, dividends from subsidiaries as well as an undrawn $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. Consolidated premium revenues are lower than historic levels due to multiple factors including Universal American's sale of its Medicare Part D business in 2011, discontinued marketing of Medicare supplement products in 2012, as well as product and market contraction for the company's MA offerings. Premium revenue is anticipated to decline further due to material changes in the company's MA product and geographic offerings in 2015. The company's insurance business is now heavily concentrated in MA in its core markets in Texas and the Northeast. Moreover, Universal American periodically takes extraordinary dividends from its subsidiaries. This recently caused a material reduction in operating company risk-adjusted capitalization as the dividends have mostly outpaced net income and the decline in business risk. Continued dividends could further pressure the risk-adjusted capital level of the insurance subsidiaries.



The revised outlook for American Pioneer reflects operating losses and a decline in risk-adjusted capital due to reserve strengthening on the company's closed block of long term care (LTC) business. The company's LTC block is small, but the increase to reserves in 2013 materially reduced the company's level of risk-adjusted capital. Near term operating results have been modestly favorable. The outlook could be revised to stable if operating results remain favorable and there are no further reserve increases for the LTC business.

The revised outlook for SelectCare primarily reflects the company's decline in risk-adjusted capital. Operating earnings for the company have remained favorable, but are significantly reduced due to margin compression. Future margin improvement could result from a company-wide initiative to reduce administrative expenses for MA business. The company's capital level has declined substantially due to dividends to the parent outpacing net income. This is of concern since this is the organization's core operating entity in Texas, for which enrollment has been growing. The outlook could be revised to stable if SelectCare shows material improvement in its risk-adjusted capital level.


A.M. Best believes that upward rating movement for Universal American is unlikely in the near to medium term. Negative rating actions could occur if Universal American reports significant operating losses in its core MA business, experiences a decline in risk-adjusted capitalization at its insurance subsidiaries or is unable to maintain enrollment and premium growth in MA business in its core markets.

For a complete listing of Universal American Corp. and its subsidiaries' FSRs, ICRs and debt ratings, please visit Universal American Corp.

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.

Key insurance criteria reports utilized:

• Analyzing Insurance Holding Company Liquidity

• Insurance Holding Company and Debt Ratings

• Rating Members of Insurance Groups

• Risk Management and the Rating Process for Insurance Companies

• Understanding BCAR for U.S. and Canadian Life/Health Insurers

• Understanding Universal BCAR

This press release relates to rating(s) 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 visit A.M. Best's Ratings & Criteria Center.

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 © 2014 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.


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