The revised outlook reflects Heartland Fidelity’s continued profitable underwriting results, premium growth and increased business diversification. Heartland Fidelity has been able to successfully control claims costs through careful formulary management and underwriting discipline based on proprietary rating models. In addition, over the past two years, Heartland Fidelity benefited from a lower loss ratio in its prescription line of business as the share of generic drugs was higher than projected. Premium growth, which has slowed down over the past three years as regulatory uncertainties prevented employer groups from making changes to their benefits, is expected to increase significantly in 2014 and 2015 following the transfer of vision premiums from an affiliate. Growth in the vision block of business should reduce Heartland Fidelity’s reliance on its large book of
Offsetting rating factors are business concentration and the expected decline in Heartland Fidelity’s profitability as its product mix changes. Heartland Fidelity expects profitability to moderate in the near to medium term following the expansion of the vision block of business where the loss ratio is higher. While Heartland Fidelity’s business diversification has increased considerably compared with prior years of operation,
Factors that may lead to positive rating actions include further reduction in Heartland Fidelity’s business concentration, sustainability of earnings and capitalization and premium growth. Factors that may lead to negative rating actions include deterioration in the company’s operating performance, a substantial decline in capitalization or significant changes in its relationships with affiliates.
The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
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Senior Financial Analyst
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