OLDWICK, N.J.–(BUSINESS WIRE)–#insurance—AM Best has upgraded the Financial Strength Rating to B (Fair) from C++ (Marginal) and the Long-Term Issuer Credit Rating (Long-Term ICR) to “bb” (Fair) from “b+” (Marginal) of AvMed, Inc. (AvMed) (Miami, FL). The outlook of the FSR has been revised to stable from positive while the outlook for the Long-Term ICR is positive.
These Credit Ratings (ratings) reflect AvMed, Inc.’s balance sheet strength, which AM Best assesses as adequate, as well as its marginal operating performance, limited business profile and appropriate enterprise risk management.
The rating upgrades reflect the improvement in AvMed’s risk-adjusted capitalization to the strong level from adequate, as measured by Best’s Capital Adequacy Ratio (BCAR). The improvement in AM Best’s assessment was primarily driven by AvMed’s solid underwriting and net earnings results over the past three years, leading to increased absolute capital and surplus levels. In addition, total premium has declined, reflecting AvMed’s focus on individual and small group commercial profitability, which has further contributed to the strengthening of the BCAR. Coupled with AvMed’s growing levels of absolute capital and surplus, this has resulted in the strong level of risk-adjusted capitalization in 2020, and capital growth has continued its trend through the first half of 2021. Furthermore, AvMed’s balance sheet strength continues to be supported by its conservative, high quality investment portfolio, providing additional sources of liquidity, with favorable liquidity metrics reported over the past few years. However, this is offset by AM Best’s concern about the financial stability of the holding company, SantaFe HealthCare, Inc., which results in a negative impact on AvMed’s balance sheet strength assessment. The holding company has high financial leverage and low interest coverage, which limits its financial flexibility in the event that AvMed needed support from the parent.
While operating performance remains assessed at marginal, the positive Long-Term ICR outlook reflects AvMed’s reported solid operating results with net income over $14 million accompanied by a double-digit return-on-equity ratio and other favorable profitability metrics in each of the past three years. This trend was driven by lower claims experience reflecting improvements in underwriting practices, as well as an improvement in its medical loss ratio driven by lower utilization during 2020 due to the deferral of elective care as a result of the COVID-19 pandemic, which contributed to stronger underwriting results. Furthermore, AvMed reported positive operating results over the past three years while implementing various performance improvement measures, which included rate increases, enhanced medical management and changes to its benefit plan offerings structure. The organization has also recently outsourced various functions, spanning from its information technology infrastructure and support to claims adjudication, in addition to converting all of its core operating systems to state-of-the-art technologies, with the intention of reducing its operating expense structure while driving greater efficiencies and improved performance. AvMed expects earnings to moderate, but still to be positive as the company will benefit from newly created efficiencies from changes in its infrastructure. AM Best will continue to monitor the impact of potential higher utilization on its commercial and Medicare business caused by the deferral of medical services during the COVID-19 pandemic, the impact of its management’s performance improvement plans and the impact of operating results at SantaFe HealthCare, Inc. over the near-to-medium term.
AM Best notes that AvMed operates in a limited geographic area with a high level of competition and pricing pressures leading to a limited business profile.
The company’s ERM program is appropriate. AvMed has a formalized risk management program with an established governance structure, risk tolerances and operational controls. Risk culture is embedded at every level of the organization. AvMed and its Board of Directors work to identify and address risks with the appropriate amount of oversight by senior management. Further refinements to operational controls are ongoing and support net operating results.
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