A.M. Best has removed from under review with developing implications and affirmed the financial strength rating of B++ (Good) and the issuer credit rating of "bbb" of Sterling Life Insurance Company (Sterling) (Chicago, IL). The outlook assigned to both ratings is stable. The ratings were placed under review following the announcement that the former ultimate parent of Sterling, Munich Reinsurance Company (Munich Re) (Germany), agreed to sell Sterling to WellCare Health Plans, Inc. (WellCare) [NYSE:WCG]. The transaction was completed earlier in 2014. Sterling provides WellCare with an opportunity to further diversify the senior market offerings by adding Medicare supplement and expanding Medicare Part D products in various geographies.
The affirmation of the ratings reflects Sterling’s improved financial results and good level of risk-adjusted capitalization. Sterling posted strong earnings in 2013 following its exit from the Medicare Advantage Private Fee-For-Service (PFFS) segment that generated significant losses in 2011 and 2012. Underwriting gains were supported by a PFFS reserve release, as well as by improved results in the company’s Medicare supplement and Medicare Part D lines of business. Despite a sizeable dividend to the former parent, Munich Re, at year-end 2013, Sterling’s level of risk-adjusted capitalization improved substantially as premium experienced nearly a 50% decline following the PFFS exit. A.M. Best is concerned that Sterling might be pressured by high administrative expenses in the near term as the company adjusts to being a smaller scale of operation. In addition, the limited profitability of its growing Medicare supplement product might be insufficient to ensure the future growth of capital and surplus. However, the new parent, WellCare, has the ability to provide capital support, if needed.
Future positive rating actions may result from premium growth as well as sustained strong earnings and risk-adjusted capitalization. Weakened operating performance, significant additional premium decline or deterioration of risk-adjusted capitalization levels could lead to negative rating actions.
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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Source: Copyright Business Wire
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