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5 年前
TEXT-S&P affirms Health Care Service Corp ratings
2012年10月4日 / 下午4点47分 / 5 年前

TEXT-S&P affirms Health Care Service Corp ratings

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Overview
     -- Health Care Service Corp. has a very strong financial risk profile 
underpinned by excellent balance sheet strength and very strong business risk 
profile.
     -- We are affirming our 'AA-' financial strength on Health Care Service 
Corp. and our 'AA-' issue rating on its $500 million senior notes.
     -- The outlook is stable reflecting our view that, although operating 
performance may decline slightly from the past few years, the financial 
profile will remain supportive of the current ratings.

Rating Action
On Oct. 4, 2012, Standard & Poor's Ratings Services affirmed its 'AA-' 
financial strength rating on Health Care Service Corp. (HCSC). At the same, we 
also affirmed our 'AA-' issue rating on the company's $500 million senior 
notes. The outlook is stable.

Rationale
The insurer financial strength rating on HCSC--which does business as Blue 
Cross Blue Shield of Illinois, Texas, Oklahoma, and New Mexico--reflects the 
company's excellent balance sheet, very strong liquidity profile, and leading 
market position in its core markets. These strengths are somewhat offset by 
its more limited geographic and product breadth than its publicly held 
for-profit peers.

We consider HCSC's capitalization to be excellent and relatively stronger than 
that of all health insurance companies that we rate. Its quality of capital, 
with low debt leverage and high tangible net worth, adds to this balance sheet 
strength. According to Standard & Poor's risk-based insurance capital model, 
HCSC's capital remains very well redundant at the 'AAA' level. It has a strong 
and growing capital base--as of the end of second-quarter 2012, total adjusted 
capital was $9.5 billion, an increase of more than 50% over the past five 
years. As a mutual company, HCSC does not face pressure from public 
shareholders (as its for-profit peers do) to pay dividends from earnings. 
Consequently, it has accumulated a significant capital base from its retained 
earnings. We believe the amount of surplus available gives the company very 
strong financial flexibility, allowing it to comfortably absorb any short-term 
earnings volatility or fund potential acquisitions without imperiling its 
ability to pay policyholder claims.

We view HCSC's competitive position to be very strong. It maintains a leading 
market position in its four core states, underpinned by strong brand equity, 
well-developed distribution channels, long-standing provider relationships, 
and competitive servicing capabilities. As of June 30, 2012, HCSC provided 
health insurance and related services to about 13 million members, making it 
the fourth-largest insurer in the U.S. in terms of membership. We view its 
business profile as relatively stronger than other privately owned not-for 
profit companies. However, it is relatively weaker than public for-profit 
insures, since HCSC has limited product and geographic diversity. Although it 
has national presence through the Blue card program and national self-insured 
group accounts, the majority of its membership and earnings come from its four 
Blue branded states. About 90% of its members are commercially insured; some 
of its public peers have wider geographic presence and more diverse product 
portfolios that include commercial as well as Medicare and Medicaid lines of 
business.

A key development in 2012 was the company's announcement that it had formed an 
alliance with Blue Cross Blue Shield of Montana (BCBSMT). The full extent of 
this alliance is not clear right now, but we don't expect this to have a 
material impact on HCSC given BCBSMT's comparatively smaller membership and 
capital base. But it does provide some additional geographic diversity to 
HCSC's business profile.

We view the company's liquidity profile as being very strong and supportive of 
the rating. As per our liquidity model, HCSC has a liquidity ratio of about 
240% as of year-end 2011, which we consider to be very strong. The company's 
liquidity profile is also supported by its investment portfolio that comprises 
low risk, good quality, and highly liquid assets.

We consider HCSC's operating performance to be strong, but relatively weaker 
compared with public for-profit insurers we rate. Since 2010, the company has 
been performing above our expectations. HCSC reported statutory pretax return 
on revenue (ROR), excluding investment related realized gains and losses, of 
7% or higher in 2010 and 2011. This positive earnings trend has continued 
through the first six months of 2012. The higher-than-expected results stem 
from favorable market conditions, such as lower-than-expect medical cost 
trends, that have had a positive affect on the health insurance industry in 
general. HCSC recently lowered its premium rates on certain product lines to 
intentionally increase its medical loss ratios (MLR) in order to be compliant 
with the regulatory MLR requirements. In our view, HCSC's more sustainable 
level of profitability is probably around 5%-6% ROR, which we would still 
consider to be strong and in the top quartile of our rated not-for-profit 
insurers, but at the lower end of the profitability range of our rated 
for-profit publicly held insurance companies. We don't consider this expected 
dip in profitability to be a threat to the current ratings since HCSC's 
capitalization and liquidity measures offset any relative downside risk to its 
earnings profile.

Outlook
The stable outlook reflects our expectation that there will not be any ratings 
movement for HCSC over of the next two years. We expect the company to 
maintain its excellent capitalization, leading competitive positions in key 
markets, and strong operating performance, with ROR around 5%-6% for 2012 and 
2013. Although there is limited downside risk at this time, we could consider 
lowering the ratings if HCSC's ROR were to decline to less than 4% on a 
sustained basis or capitalization fell below the 'AA' level as per our 
risk-based insurance capital model. On the other hand, we could raise the 
rating (beyond the 24 month horizon) if HCSC successfully expands its business 
profile by profitably (maintaining at least 5% ROR) diversifying into new 
regions and related product lines.

Related Criteria And Research
     -- Methodology for Assessing U.S. Insurers' Capital Adequacy Beyond The 
Financial Crisis, May 31, 2011
     -- Evaluating Insurers' Competitive Position, April 22, 2009

Ratings List
Ratings Affirmed

Health Care Service Corp. d/b/a Blue Cross Blue Shield of Illinois, New 
Mexico, Oklahoma, and Texas
 Counterparty Credit Rating
  Local Currency                        AA-/Stable/--      
 Financial Strength Rating
  Local Currency                        AA-/Stable/--      

Fort Dearborn Life Insurance Co.
Fort Dearborn Life Insurance Co. of New York
 Counterparty Credit Rating
  Local Currency                        A+/Stable/--       
 Financial Strength Rating
  Local Currency                        A+/Stable/--       

Health Care Service Corp. d/b/a Blue Cross Blue Shield of Illinois, New 
Mexico, Oklahoma, and Texas
 $500 mil sr unsec notes                AA-

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