13 March 2023Analysis

AM Best affirms ratings of WISI

AM Best has affirmed the financial strength rating of A- and a long-term issuer credit rating of “a-” of WellPoint Insurance Services (WISI). The outlook for these credit ratings is stable.

AM Best said that the ratings reflect WISI’s balance sheet strength, which the rating agency assesses as adequate, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management. In addition, the ratings take into account the support provided by WISI’s parent, Elevance Health.

WISI’s risk-adjusted capitalisation, as measured by Best Capital Adequacy Ratio (BCAR), improved to the very strong level at year-end 2021. However, AM Best expects WISI’s BCAR to decline for 2022, driven mainly by capital contraction due to reserve strengthening for its core lines of business as well as sizeable unrealised loss on the fixed income portfolio. WISI plans the near-term capital growth to be supported through positive earnings and no dividends to the parent company.

AM Best said that it: “acknowledges the company's considerable financial flexibility through a parent company supported by its commercial paper program, parent company cash and a revolving credit facility. Furthermore, Elevance Health has more-than-sufficient financial strength to provide additional support to WISI if needed. Elevance Health has demonstrated explicit and implicit support of WISI in past years. WISI’s importance to the parent has increased in recent years as the volume of business in the core and the cell has expanded. WISI benefits from the parent’s operational resources and expertise.”

AM Best added that WISI’s core operations in the protected cell – Federal Employees Health Benefits Program (FEP) premiums assumed from Elevance Health’s health insurance affiliates – continue to drive revenue and earnings for the company. The core corporate insurance lines of business – workers’ compensation and excess managed care errors and omission (E&O) – have posted fluctuating operating results, including losses in the past three years. These results have been driven in part by fluctuations in claims severity and increases in coverage limits, which resulted in the need for reserve strengthening in recent years, including sizeable reserve increases through 2022. WISI expects the consolidated financial performance of the company to be stable in the current year.

WISI is a Hawaii-domiciled captive and a wholly owned subsidiary of Elevance Health. WISI was established close to two decades ago primarily for the purpose of formalised self-insurance and an instrument of corporate risk management. In the past several years, Elevance Health expanded the volume of E&O coverage placed with WISI as the market for this line of business has hardened considerably. In addition, five years ago, WISI established a segregated cell to assume FEP health care premium from Elevance Health affiliates to optimise capital at statutory entities. Furthermore, the cell structure provides a formal separation of FEP from other WISI business, provides transparency for Hawaii’s regulators and allows for potential future WISI expansion into assuming other health lines.