A.M. Best has downgraded the Financial Strength Rating toC++ (Marginal) from B (Fair) and the Long-Term Issuer Credit Ratings to “b+”from “bb+” of Colorado ChoiceHealth Plans (Colorado Choice) (Alamosa, CO). These Credit Ratings(ratings) remain under review with the implication revised to developing fromnegative.
The rating actions reflect a significant deterioration inColorado Choice’s absolute and risk-adjusted capital at year-end 2016. Thecompany reported a $4.8 million net loss for the year driven by sizeablepremium growth and its persistently high loss ratio. At year-end 2016, thecapital and surplus was $1.6 million, while annual premium exceeded $92 millionresulting in risk-based capital falling below 50% company action level.Furthermore, a substantial portion of Colorado Choice’s capital at year-end2016 was comprised of subordinated debentures. The company entered into anagreement to merge with Melody Health Insurance (Melody Health) in November2016; however, the approval and closing of the transaction is not expecteduntil second quarter 2017.
While Colorado Choice anticipates a capital contributionfrom Melody Health to bring the risk-based capital above 200% upon closing ofthe transaction, A.M. Best is concerned that Colorado Choice may not be able tomeet its financial obligations to policyholders should the closing of thetransaction be delayed or if the terms of the anticipated capital contributionare changed. If the capital contribution is not received as currently planned,an additional rating downgrade is likely. Conversely, if the transaction closesand the capital contribution as specified above is provided, A.M. Best mayconsider an upgrade for the ratings.