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A.M. Best Affirms Ratings Of Valley Baptist Insurance Company

Stocks in this article: VHS

A.M. Best Co. has affirmed the financial strength rating of B+ (Good) and issuer credit rating of “bbb-” of Valley Baptist Insurance Company (VBIC) (Harlingen, TX). The outlook for both ratings is stable.

The rating affirmations reflect VBIC’s strategic role and the support it receives through a capital guarantee by its parent, Vanguard Health Systems, Inc. (Vanguard Health) (NYSE: VHS), an integrated health care delivery system. The ratings also consider VBIC's ongoing implementation of comprehensive business strategies, its adequate risk-adjusted capital levels and high-quality liquid asset portfolio.

Partially offsetting these positive rating factors are VBIC’s recent unfavorable earnings trends and its narrow product focus. The deterioration in operating results through mid-2013 was driven partially by the timing of receivables and payables, as well as a major accounting adjustment in the same time period. Although, A.M. Best expects margin compression to continue, it anticipates that VBIC will report improved operating results, as well as a material increase in its capital position, in the second half of 2013. Additionally, VBIC operates in a highly competitive environment in Texas, which also has limited its growth.

A.M. Best notes that Vanguard Health is in the process of being purchased by Tenet Healthcare Corporation (Tenet) [NYSE: THC]. A.M. Best anticipates that the transaction will close by the end of September 2013. As currently structured, Vanguard Health would become a wholly-owned subsidiary of Tenet. The acquisition is expected to provide an opportunity for VBIC to enhance its business profile through expansion into other service areas and potential product diversification.

As part of the acquisition, Tenet has structured a similar capital guarantee with VBIC and is proceeding to put into place strategic initiatives to grow premium, earnings and capital. A.M. Best believes that the pending acquisition could create opportunities for product and market expansions due to Tenet and Vanguard Health’s vast health care network. Going forward, A.M. Best anticipates that VBIC’s management will continue to focus on improving operational efficiencies along with its alignment with Tenet. A.M. Best will continue to assess the ultimate impact of the transaction on VBIC’s overall financial trends, through continued discussions with management regarding its operational, capitalization and strategic plans.

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