Financial News

AM Best Downgrades Issuer Credit Rating of Western Health Advantage

AM Best has downgraded the Long-Term Issuer Credit Rating (Long-Term ICR) to “bb” (Fair) from “bb+” (Fair) and affirmed the Financial Strength Rating (FSR) of B (Fair) of Western Health Advantage (WHA) (Sacramento, CA). The outlook of the FSR has been revised to negative from stable, while the outlook of the Long-Term ICR is negative.

The Credit Ratings (ratings) reflect WHA’s balance sheet strength, which AM Best assesses as very weak as well as its adequate operating performance, limited business profile and appropriate enterprise risk management. The ratings also reflect the support of the two long-term health care delivery system sponsors, Dignity Health and NorthBay Healthcare System.

The rating actions reflect the low absolute and risk-adjusted capitalization levels. WHA’s capitalization remains pressured, as the company historically has managed the low absolute and risk-adjusted capitalization levels, based on state minimum requirements. Additionally, capital contributions from its sponsors have not been in the form of cash contributions, but rather have come as promissory notes, with interest servicing requirements. The notes are allowed to be included in California’s minimum tangible net equity calculation; however, AM Best remains concerned as this is significantly lower than NAIC risk-adjusted capitalization and Best’s Capital Adequacy Ratio (BCAR) required levels for WHA’s ratings. Despite WHA’s tangible net equity being maintained above the California level, AM Best does not expect the balance sheet strength assessment to improve materially in the near term, and the sponsors are not anticipated to make any substantive cash contributions. WHA plays a strategic role as the health plan for the sponsors, directing members to the sponsors’ facilities. However, the amount of rating enhancement provided from its sponsors has been reduced partially based on the lack of capital support given its disproportionate premium to capitalization ratios.

AM Best notes that WHA operates under global capitation agreements that limit its potential losses, and this has been factored into its BCAR scores, with substantial credit given for its premium risk. Additionally, AM Best notes the organization’s return to profitability at fiscal year-end June 30, 2023. The company’s ratings are supported somewhat by its relatively lower-risk business profile, supported by the global capitation by its sponsors for most of its business and establishing its medical loss ratio for its core lines of business at less than 92%. These capitation arrangements did not prevent the recent operating losses reported at fiscal year-end June 30, 2022, due partially to uncovered pharmacy and out-of-network claims. And AM Best notes that pharmacy trends across the industry have risen and are expected to increase leading into 2024.

Additionally, AM Best considers WHA’s financial leverage to be high, which impacts its quality of capital, due to its promissory note borrowings. The potential for volatility in the company’s operating performance further impacting capitalization also supports the continuation of the negative outlooks. AM Best also notes that the company remains concentrated geographically, operating in nine California counties due to its focus on its sponsors’ footprint. Furthermore, WHA operates in the concentrated and very competitive and price sensitive group employer market, and there are also challenges ahead in the government lines of business.

This press release relates to Credit Ratings that have been published on AM Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best's Credit Ratings. For information on the proper use of Best’s Credit Ratings, Best’s Performance Assessments, Best’s Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best’s Ratings & Assessments.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit

Copyright © 2023 by A.M. Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.


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