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The Honolulu Advertiser

Updated at 11:19 a.m., Tuesday, November 20, 2007

HMSA financial strength ratings lowered to 'A' by S&P

Advertiser Staff

Hawaii Medical Service Association's financial strength and counterparty credit ratings have been lowered to "A" from "A+" by Standard & Poor's Ratings Services because of declining profitability at the state's largest health insurer.

The ratings agency also said it had a negative outlook for HMSA, saying it could lower the ratings another notch if insurer's downward profit trend persists and puts additional pressure on its capitalization.

"This downgrade stems from HMSA's diminishing profitability and operating performance for 2007 and 2008, which should be materially lower than previously expected," said Standard & Poor's Credit Analyst Hema Singh in a press statement.

HMSA last week reported a $10.9 million loss in the third quarter, bringing its year-to-date losses to about $16 million. Standard & Poor's said insurer's profitability problems could be traced primarily to rising medical costs, "which continue to surpass expectations." It said that trend should continue into next year as HMSA continues to fund a major information technology enhancements and continues its $50 million program to help hospitals improve patient care and physicians to acquire electronic medical records systems.

The ratings agency projected HMSA's membership will remain at about 707,000 through the end of the year and that it should experience modest growth next year of 1 percent. That should result in HMSA claiming membership of 710,000 to 720,000.