NEWS

WIRES

OTHER

A.M. Best Upgrades Ratings of Priority Health Government Programs

A.M. Best also has affirmed the FSR of A- (Excellent) and ICR of "a-" of Priority Health. The outlook for these ratings is stable. PHGP is a wholly-owned subsidiary of Priority Health. All companies are domiciled in Grand Rapids, MI.

Priority Health is majority owned by Spectrum Health System (Spectrum Health), a financially strong integrated healthcare delivery system, which has implicitly and explicitly supported the health plan over the years. Priority Health has been fully integrated into the system and acts as a significant source of referral to Spectrum Health providing payor mix stability. Priority Health also is a major contributor to the consolidated revenue and earnings of Spectrum Health; as such, it demonstrates the advantages of the insurance and delivery system's integration. In return, Priority Health and PHGP receive meaningful rating enhancement as part of Spectrum Health, which is reflected in their current ratings.

The ratings also consider Priority Health's favorable growth in membership and premium trends for the past several years. However, it is noted that there are numerous offsetting factors A.M. Best will continue to monitor, including Priority Health's 2010 underwriting losses, pricing pressures in its core Michigan markets and its relatively low risk-adjusted capitalization and high premium leverage. At year-end 2010, the group reported significant losses at both Priority Health and its other wholly-owned subsidiary, Priority Health Insurance Company (PHIC), which markets the group's preferred provider organization, stop-loss and Medicare prescription drug products. These losses impacted both Priority Health and PHIC's capital positions. However, management implemented benefit design, underwriting and pricing enhancements to the commercial product offerings; intensified medical trend management programs to reduce the occurrence of unnecessary healthcare costs; and created operational efficiencies to keep administrative costs low. A.M. Best notes that these corrective measures resulted in substantive improvement in earnings at both entities, as reported by Priority Health through May 2011.

Additionally, the rating upgrades of PHGP acknowledge the improvement in its level of both absolute and risk-adjusted capitalization, strong overall performance and positive operating results in each of the last few years, as well as its contributions to the overall group.

Priority Health provides coverage for medical, hospital and other health care services to its members through various commercial lines and Medicare products and provides coverage to Medicaid recipients located in Michigan through PHGP. A.M. Best views PHGP as an integral and growing part of the group, which has contributed favorably to Priority Health's overall membership, revenue and earnings growth. Additionally, the entity has both implicit and explicit support of both Priority Health and Spectrum Health.

The principal methodology used in determining these ratings is Best's Credit Rating Methodology -- Global Life and Non-Life Insurance Edition, which provides a comprehensive explanation of A.M. Best's rating process and highlights the different rating criteria employed. Additional key criteria utilized include: "Risk Management and the Rating Process for Insurance Companies" ; "Understanding BCAR for Life and Health Insurers" ; "Rating Members of Insurance Groups" ; "Rating Health Insurance Companies" ; and "Assessing Country Risk." Methodologies can be found at www.ambest.com/ratings/methodology.

Founded in 1899, A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

Copyright (c) 2011 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.

A.M. Best Co.
Jennifer Afriyie
Financial Analyst
908-439-2200, ext. 5203
jennifer.afriyie@ambest.com
or
Joseph Zazzera, MBA
Managing Senior Financial Analyst
908-439-2200, ext. 5797
joseph.zazzera@ambest.com
or
Carole Lovell
Public Relations Associate
908-439-2200, ext. 5445
carole.lovell@ambest.com
or
Jim Peavy
Assistant Vice President, Public Relations
908-439-2200, ext. 5644
james.peavy@ambest.com