OLDWICK, N.J.--(BUSINESS WIRE)--AM Best has removed from under review with negative implications and downgraded the Financial Strength Rating (FSR) to A- (Excellent) from A (Excellent) and the Long-Term Issuer Credit Ratings (Long-Term ICR) to “a-” from “a” of Vision Service Plan (Rancho Cordova, CA) and its subsidiaries, collectively known as VSP. The outlook assigned to these Credit Ratings (ratings) is stable. (See below for a detailed list of the subsidiaries.)
The ratings reflect VSP’s balance sheet strength, which AM Best categorizes as adequate, as well as its adequate operating performance, favorable business profile and appropriate enterprise risk management (ERM).
The rating downgrades reflect a decline in the group’s balance sheet strength assessment. While VSP reported capital and surplus growth in 2019, the balance sheet strength has become pressured due to the acquisition of Visionworks and its subsidiaries. The acquisition resulted in a material increase in goodwill and intangibles assets, as well as financial leverage. Goodwill and intangibles to capital was 75%, and financial leverage was 42% at year-end 2019.
AM Best categorizes VSP’s business profile as favorable, as the group continues to maintain a leading market share in the vision care benefit marketplace, with a well-established network of providers and strong brand recognition. The addition of Visionworks and its subsidiaries adds a substantial network of retail vision care locations that enhances VSP’s competitive advantage in the integrated vision care space, which is expected to drive meaningful growth in the near to medium term. Visionworks and its subsidiaries comprise the sixth-largest specialty retail optical chain in the United States, with over 700 retail locations across 40 states. The acquisition materially increases the size and geographic reach of VSP’s retail network. Furthermore, Visionworks will provide an additional source of unregulated revenue and earnings for the group. In addition, VSP has above-average operating return on equity and has reported a long history of profitable operating performance over the years. The group’s ERM is considered appropriate given its risk profile.
The FSR has been downgraded to A- (Excellent) from A (Excellent) and the Long-Term ICRs to “a-” from “a” with assigned outlooks of stable for Vision Service Plan and its following subsidiaries:
- Eastern Vision Service Plan, Inc.
- VSP Vision Care, Inc.
- Vision Service Plan Insurance Company (OH)
- Vision Service Plan of Illinois, NFP
- Vision Service Plan Insurance Company (MO)
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