AM Best has revised the outlooks for Blue Cross Blue Shield of Michigan Mutual Insurance Company (BCBS MI) and its subsidiary, Blue Care Network of Michigan, to negative from stable. Despite the outlook revision, AM Best has affirmed the Financial Strength Rating (FSR) of A (Excellent) and the Long-Term Issuer Credit Rating (ICR) of “a” (Excellent) for both entities.
Additionally, AM Best affirmed the FSR of A (Excellent) and Long-Term ICRs of “a” (Excellent) for members of AF Group, maintaining stable outlooks for these entities (listed below).
BCBS MI: Challenges and Strategic Adjustments
The ratings of BCBS MI reflect its very strong balance sheet, adequate operating performance, neutral business profile, and appropriate enterprise risk management (ERM). However, the negative outlook highlights significant challenges in underwriting income and net operating income that have deteriorated over the past few years, worsening notably in 2024.
Key Factors Impacting BCBS MI:
- Increased Claims Utilization: Post-pandemic demand for surgeries, health care services, GLP-1 medications, and autoimmune therapies has driven claims utilization beyond pre-pandemic levels.
- Government Program Losses: Persistent losses in Medicare Advantage due to risk-adjustment shortfalls and increased benefit costs, combined with challenges in Medicaid stemming from redeterminations, have negatively impacted performance.
- Rate Adjustment Lag: Rising medical and pharmaceutical costs have led to inadequate rate increases, which are expected to affect results through 2025.
In response, BCBS MI has implemented initiatives to enhance underwriting performance, including investments in systems, workforce optimization to reduce administrative costs, and adjustments to benefit structures. Despite these efforts, recent operating losses have weakened its risk-adjusted capital as measured by Best’s Capital Adequacy Ratio (BCAR). AM Best has expressed concerns about further unexpected losses potentially straining capitalization levels.
Competitive Position:
BCBS MI remains a dominant player in Michigan’s health insurance market, leveraging strong brand recognition and strategic provider relationships. The company has experienced premium growth across multiple business lines, bolstered by a comprehensive range of products and services. Additionally, BCBS MI benefits from solid investment income and improved earnings in 2024.
AF Group: Stable Ratings and Strong Performance
For AF Group, AM Best affirmed the FSR of A (Excellent) and Long-Term ICRs of “a” (Excellent), maintaining a stable outlook. The ratings reflect the group’s very strong balance sheet, strong operating performance, neutral business profile, and appropriate ERM.
Key Strengths of AF Group:
- Robust Capitalization: AF Group maintains the strongest level of risk-adjusted capitalization, supported by consistent underwriting gains and solid investment income.
- Organic Growth: The group has achieved surplus growth through earnings, partially offset by modest dividends to its parent company.
AF Group continues to demonstrate operational stability, driven by its ability to generate reliable underwriting gains and investment returns.
Entities with Affirmed Ratings:
The following AF Group members have been affirmed with FSR of A (Excellent) and Long-Term ICRs of “a” (Excellent), all retaining stable outlooks:
- United Wisconsin Insurance Company
- CompWest Insurance Company
- Accident Fund Insurance Company of America
- Third Coast Insurance Company
- Accident Fund National Insurance Company
- Accident Fund General Insurance Company
