AM Best cuts BCBSMN outlook to negative as losses pressure capital

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AM Best cuts BCBSMN outlook

Highlights

AM Best revised BCBSM, Inc. and HMO Minnesota's outlooks to negative from stable, affirming A- ratings due to operating losses and premium deficiency reserves pressuring capital.
Underwriting losses at year-end 2025 are driven by increased claims utilization in government programs, costlier specialty medications, and higher hospital inpatient services, with risk-adjusted capitalization weakening.
Despite losses, AM Best maintains ratings supported by BCBSMN's dominant Minnesota market share, five-year premium growth, and financial flexibility via Federal Home Loan Bank borrowing and Aware Integrated, Inc. capital support.

Rating action reflects capital and underwriting strain

As reported by AM Best, the agency has revised the outlooks to negative from stable and affirmed the Financial Strength Rating of A- and the Long-Term Issuer Credit Ratings of “a-” for BCBSM, Inc., doing business as Blue Cross Blue Shield of Minnesota, and its subsidiary HMO Minnesota, doing business as Blue Plus. Both companies are domiciled in Eagan, Minnesota.

AM Best says the ratings continue to reflect BCBSMN’s strong balance sheet strength, adequate operating performance, neutral business profile and appropriate enterprise risk management. The negative outlooks stem from concern over deterioration in balance sheet strength metrics, driven by operating losses and the establishment of a premium deficiency reserve.

The agency says underwriting performance weakens because of higher claims utilization across government programs. It adds that risk-adjusted capitalization, measured by Best’s Capital Adequacy Ratio, remains adequate but deteriorates after recent losses, raising the risk that further losses beyond expectations could add pressure to current capitalization levels.

AM Best notes that capitalization improves through the second quarter of 2026, helped by materially better earnings and a capital contribution from parent company Aware Integrated, Inc. BCBSMN’s financial leverage stands at 17.4% at year-end 2025, while interest coverage is weak because of operating losses.

Minnesota market position supports ratings

BCBSMN has taken several steps to improve underwriting performance, and AM Best says results improve through the second quarter of 2026 because of strategic pricing and better utilization trends. Even so, underwriting losses at year-end 2025 are primarily linked to rising costs, greater use of specialty medications and increased hospital inpatient services.

The agency also points to growth in Medicare Advantage enrollment, where reimbursement levels have not kept pace with rising costs and higher utilization trends. Medicaid also contributes to losses in 2025, as Minnesota’s prepaid medical assistance program experiences higher cost trends.

Despite those pressures, the ratings continue to be supported by BCBSMN’s dominant position in Minnesota. AM Best says the insurer is the oldest and largest health insurer in the state, with more than one-third of the market, and benefits from strong brand recognition, provider relationships and a diversified product portfolio, although it still operates in a highly competitive market with geographic limits tied to its Blue Cross Blue Shield Association license.

The agency adds that BCBSMN reports premium growth over the past five years and through the second quarter of 2026, mainly driven by expansion in government business. That growth is attributed to membership gains and rate actions, while the group also retains financial flexibility through Federal Home Loan Bank borrowing access, funding facilities and capital support from Aware.

Our earlier coverage of AM Best’s rating upgrade for Dah Sing Insurance Company Limited explained how the insurer’s stronger balance sheet, improved business profile, and sustained profitability supported a higher Financial Strength Rating and a stable outlook. We noted that premium growth and a more balanced underwriting mix helped stabilize results, while risk-adjusted capitalization remained at the strongest level under Best’s Capital Adequacy Ratio.

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