NEW YORK, Dec. 7 /PRNewswire/ -- Standard & Poor's today affirmed its
double-'A'-minus counterparty credit and financial strength ratings on Trigon
Insurance Co. (d/b/a Trigon Blue Cross Blue Shield; Trigon Insurance), a
wholly owned subsidiary of Trigon Healthcare Inc. (Trigon). At the same time,
Standard & Poor's affirmed its long-term single-'A'-minus and short-term 'A-1'
counterparty credit ratings on Trigon and its 'A-1' rating on Trigon's $300
million commercial paper program. The outlook is stable.
Major Rating Factors:
-- Strong business position. Trigon Insurance is the main operating
subsidiary of Trigon, which currently provides health insurance and
related services to more than 2.0 million members in its core Virginia
market. This translates into about a 37% market share (based on
premiums earned in year 2000 in Virginia). Trigon's good managed care
capabilities are also evident in its stable medical loss ratios, which
have been 81%-84% in its commercial line of business in the last five
years.
-- Extremely strong capital adequacy. Trigon's capital adequacy ratio was
extremely strong at 271% as of year-end 2000, as measured by Standard &
Poor's model. However, Trigon Insurance continues to dividend money
upstream to its parent company, which is expected to diminish statutory
capital in 2001. Despite the reduction, the company's consolidated
capital adequacy ratio is expected to remain extremely strong.
-- Extremely strong earnings adequacy. Core market operating earnings
generally have been stable and extremely strong in the last five years.
Trigon's earnings adequacy ratio exceeded 450% at year-end 2000, as
measured by Standard & Poor's model. Consolidated GAAP pre-tax earnings
before minority interest were $165.7 million at year-end 2000, compared
with $31.5 for 1999 (including a $79.9 million charge associated with
the divestiture of health operations external to the Virginia market).
Looking forward, consolidated pre-tax interest coverage ratios are
expected to remain strong through 2002 if earnings objectives are
attained.
-- High-quality balance sheet. Debt leverage was about 21% and the pre-tax
interest coverage ratio was 11.5x (based on consolidated earnings) at
year-end 2000. Trigon's existing debt leverage is moderate at less than
25%, which is consistent with its current rating category. The
company's investment policies are designed to provide liquidity to meet
anticipated payment obligations and to preserve capital. The fixed-
income portfolio includes government and corporate securities, both
domestic and international, with an average quality rating of single-
'A'-plus as of June 30, 2001. The portfolio had an average contractual
maturity of 6.2 years as of June 30, 2001. As of June 30, 2001, the
company's equity exposure, comprised of direct equity as well as
equity-indexed investments, was 16% of the total portfolio, compared
with 14% as of December 31, 2000.
-- Geographic concentration and competitive operating environment. Trigon
has significant geographic market concentration, operating in Virginia
only. Although the state has proven historically to be a relatively
favorable operating environment, Standard & Poor's believes this
concentration exposes the company to the risk of adverse developments
on the legislative, regulatory, and economic fronts. These events may
include, but are not limited to, provider contracting restrictions,
pricing constraints, and the deterioration of general business
conditions. Furthermore, the health care environment remains
competitive in Virginia, as well as in other states in the southeastern
and mid-Atlantic U.S., which Trigon has targeted for expansion.
Trigon Insurance Co. is a Security Circle insurer, which means that it
voluntarily underwent Standard & Poor's most comprehensive analysis and was
assigned a rating in one of the top four categories for financial security.
OUTLOOK: STABLE
In the near term, Standard & Poor's expects same-store member growth to be
sustained at a moderate pace for 2001 and for earnings and risk-adjusted
capitalization to remain extremely strong. Standard & Poor's also notes Trigon
remains committed to developing its position as a regional leader in the
southeast and mid-Atlantic marketplace and accordingly believes Trigon is
likely to achieve this objective in the intermediate term by means of a large
acquisition, which could materially increase the company's debt leverage
position. Aside from posing various integration challenges, a large
acquisition, if made, would likely cause downward rating pressure because of
higher financial leverage and diminished risk-adjusted capitalization,
liquidity, and tangible net equity.
SOURCE Standard & Poor's
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Related links:
http://www.standardandpoors.com/ratings
CONTACT:
Joseph Marinucci, +1-212-438-2012, or Jack
Reichman, +1-212-438-7235, both of Standard & Poor's
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