A.M. Best Downgrades Ratings of Allegian Insurance Company; Places Ratings Under Review With Negative Implications

A.M. Best has downgraded the financial strength rating to B (Fair) from B+ (Good) and the issuer credit rating to “bb+” from “bbb-” for Allegian Insurance Company (AIC) (San Antonio, TX), and placed these ratings under review with negative implications. AIC – formerly known as Valley Baptist Insurance Company – does business as Allegian Health Plan. The parent company of AIC was acquired by Tenet Healthcare Corporation (Tenet) [NYSE: THC] on Oct. 1, 2013.

The rating actions primarily reflect A.M. Best’s concern regarding AIC’s material weakness in internal control over financial reporting identified during the 2013 year-end audit. As disclosed in the company’s statutory financials, material errors resulted in the company having to amend its 2013 annual statement. Additionally, AIC increased its incurred but not reported (IBNR) and premium deficiency reserve (PDR) due to higher-than-expected claims experience. A.M. Best notes that Tenet infused $9 million of capital into AIC in the third quarter 2014 and is committed to supporting AIC going forward.

A.M. Best acknowledges that AIC’s operating results improved during the first six months of 2014 and that growth initiatives are being pursued in select counties in Texas. Moreover, the organization has been proactive in establishing and implementing a corrective action plan to resolve the internal control issues that followed the transition of the financial reporting function from a third party vendor.

The under review with negative implications status reflects A.M. Best’s concern that until the material weakness is fully remediated, the potential exists for additional reserve increases and/or material adjustments to AIC’s financial statements. As AIC’s operating performance improves and its balance sheet strengthens due to the company’s efforts to remediate the internal control deficiencies, A.M. Best will reassess the ratings.

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:

• Risk Management and the Rating Process for Insurance Companies
• Understanding BCAR for U.S. and Canadian Life/Health Insurers
• Rating Members of Insurance Groups
• Evaluating Non-Insurance Ultimate Parents

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