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Highmark Inc. financials bolstered by affiliation, debt rating drops

By - Last modified: April 10, 2013 at 10:30 AM

Locally prominent Pittsburgh-based insurer Highmark Inc. announced today that its 2012 net income was $432.3 million or 2.9 percent of operating revenues, close to last year's figures of $444.7 million and 3 percent.

The 2012 figures include the affiliation with Highmark Delaware, which has market value assets totaling $186 million. Without that, Highmark's net income would have been $246.5 million, or 1.7 percent of operating revenues, reflecting claims, operating and income tax expenses that rose faster than operating revenues did.

Highmark also reported increased net investment income, up to $302.4 million from $148.1 million in 2011.

In a news release, the insurer characterized the report as indicating sound operational and financial performance in an uncertain industry environment, driven by consistent performance in all lines of business — health, vision, dental and reinsurance.

"The current and future marketplace changes, combined with health care reform, are affecting every aspect of our business," said Nanette DeTurk, Highmark's executive vice president and chief financial officer. "Highmark has the financial resources to compete in all of our markets, support investments in our emerging integrated delivery network and develop new products and services to meet changing customer needs."

Highmark reported retaining more than 95 percent of its customers in the large and mid-size group markets and growing its national membership base by approximately 75,000 members. With its affiliated companies, it totaled 5.3 million health care members at year's end in 2012, of which 1.1 million were in Central Pennsylvania and the Lehigh Valley; served more than 33 million individuals; and paid $159.9 million in non-payroll federal, state and local taxes, including $5 million in Pennsylvania property taxes.

On Tuesday, A.M. Best Co. announced that it downgraded Highmark's financial strength and debt ratings on about $975 million in senior unsecured notes from A to A- and A- to BBB+, respectively, "due to an anticipated decline to its earnings and the financial impact of its proposed affiliation with West Penn Allegheny Health System, as well as the overall effect of Highmark's broader integrated delivery system development strategy."

The announcement also mentioned increasing pricing pressures. DeTurk said A- is still considered a strong debt rating and under these circumstances Highmark is not concerned about "this slight downgrade."

Questioned about newly released consultant reports in the WPAHS affiliation that assess the costs to Highmark at $1.8 to $2.4 billion, DeTurk said Highmark still views $1 billion as a good estimate of the cost over the next three to five years, as the insurer considers its assumption of $600 million to $700 million in WPAHS bonds short-term financing that it plans to refinance and remove from the books within six months to three years.

Heather Stauffer

Heather Stauffer

Heather Stauffer covers Lancaster County, nonprofits, education and health care. Have a tip or question for her? Email her at heathers@cpbj.com. Follow her on Twitter, @StaufferCPBJ.

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