A.M. Best Comments on Priority Health's Announcement to Transition Physicians Health Plan of South Michigan to Priority Health.
OLDWICK, N.J. -- A.M. Best Co. has commented that the financial strength rating of A- (Excellent) and issuer credit rating (ICR) of "a-" of Priority Health (PH) (Grand Rapids, MI) remain unchanged, following its announced agreement to transition Physicians Health Plan of South Michigan's (PHPSM) (Jackson, MI) membership to PH. The outlook on PH's ratings remains stable.
A.M. Best views this transaction favorably. The transaction provides two key benefits to PH, a subsidiary of Spectrum Health System: a long-term network contract with Foote Health System (PHPSM's parent), which provides PH entry into PHPSM's seven-county Jackson market; and the opportunity to bid on PHPSM's entire book of business, which consists of 23,000 members and 650 employer groups. There is no surplus transfer in the transaction, and the latter will be paid entirely from operating cash flows. All necessary regulatory approvals are expected on or about September 1, 2007.
The transaction complements PH's continued geographic expansion into eastern Michigan, following its Care Choices HMO acquisition in southeast Michigan that closed on April 1, 2007. PH is the health care insurance market leader in Grand Rapids, MI, benefiting considerably from its ownership by and integration with Spectrum Health System, a financially strong integrated delivery system.
PH's potential incremental revenue and cash flow from the transaction is not substantial. PHPSM's book generated $80 million of net premiums in 2006, following five consecutive years of net income with an average 2.5% net operating gain. Comparatively, PH's book generated $1.1 billion of net premiums in 2006 with a similar margin and earnings history.
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