BCBS of Nebraska recovers financial strength, credit rating

Underwriting discipline and an improved cost structure have led to an increased credit rating for Blue Cross Blue Shield of Nebraska.

The Oldwick, N.J.-based credit rating firm A.M. Best has affirmed a financial strength rating of A, indicating "excellent," as well as a credit rating of "A" for the Omaha, Neb.-based insurer.

BCBSNE insures 717,000 customers and businesses in Nebraska.

Best's analysis notes that the revised outlook on BCBSNE, which had been negative, reflects the insurer's "significant improvement" in underwriting results in 2009 and during the first nine month of 2010. Higher earnings followed increased underwriting discipline, lower use and an improved provider cost structure.

BCBSNE's current level of capitalization provides sufficient financial flexibility and competitive advantage, Best said, although BCBSNE remains committed to cost controls and operational efficiencies.

In the past year, the Nebraska insurer has increased its strategic focus on cost controls and operational efficiency. The insurer has historically maintained a very high level of capital and surplus, supported by both underwriting gains and stable investment income. Best said that, while BCBSNE's level of capitalization has been declining over the last five years, current risk-based capital remains very strong.

The insurer experienced a sizeable net loss in 2009 and increased business transformation expenses. The loss was mainly driven by a $66 million charge related to system conversion costs.

The A.M. Best analysis expressed concern about BCBSNE's 2009 results, and noted that increased business transformation expenses – including costs for construction of the company's new home office building – may  pressure future earnings.