Pittsburgh, Pa.-based health insurer Highmark says it remains “financially strong,” in light of A.M. Best shifting its outlook to “negative” for the parent company and two of its health subsidiaries.

The ratings outlook affects Highmark and subsidiaries Keystone Health Plan West and Highmark West Virginia, which does business as Mountain Sate Blue Cross Blue Shield. A.M. Best did affirm a financial strength rating of A (Excellent) and issuer credit rating of “a” for all three companies.

The revised outlook reflects large underwriting losses and realized losses on Highmark’s investment portfolio that impacted earnings, A.M. Best said, as well as a large decline in the insurer’s capital.  The ratings service also noted Highmark’s strong revenue development last year and the “highly competitive environment” in Pittsburgh, which initiated a prospective lag in earnings, requiring the insurer to increase reserves for future claims.

That move, A.M. Best said, added significant downward pressure on the company’s underwriting performance, resulting in a $77 million underwriting loss on a statutory basis after multiple years of gains. Adding more pressure to earnings, it noted, was Highmark’s well below trend investment performance and the application of realized losses.

Highmark’s capital was also unfavorably affected by unrealized losses due to the “tumult in financial markets” as well as a significant increase in the company’s non-admitted assets, mainly from the one-time change in the accounting for deferred tax assets, A.M. Best also said. These changes lowered the insurer’s capital by more than 10%.

Highmark spokesman Michael Weinstein told IFAwebnews.com that the insurer remains “a financially strong company with adequate capital to continue to carry out important strategic programs and continue to fulfill its corporate mission.”

Weinstein noted that Highmark continues to retain the vast majority of its membership, although it has seen a “small decline,” reflecting the impact of the recession on employee-based health care coverage.” The insurer’s investment portfolio has also been affected by the “turbulent economic markets,” he said.

“However, our overall solid financial status is the result of a prudent investment strategy that has limited the company’s exposure to higher-risk assets and stock market volatility,” Weinstein said.

A.M. Best did recognize that Highmark’s continued business development aspirations are moving forward with high membership retention rates, and broad provider and distribution networks. The rating service also noted the insurer’s investment in technological infrastructure and the streamlining of its subsidiaries to prepare for changes on the local and national scale.

A.M. Best did affirm the financial strength ratings of A- (Excellent) and issuer credit ratings of “a-” of Highmark’s life and dental subsidiaries, including HM Life Insurance Co. of New York and United Concordia Dental Plans of Pennsylvania, as well as Highmark Casualty Insurance Company. The outlook for these companies is stable, the ratings service said.