Press Release - AUGUST 31, 2017

A.M. Best Affirms Credit Ratings of Health Care Service Corp. and Its Subsidiaries; Upgrades Credit Ratings of GHS Insurance Co.


CONTACTS:
 Doniella Pliss
Associate Director
+1 908 439 2200, ext. 5104
doniella.pliss@ambest.com

Sally Rosen
Senior Director
+1 908 439 2200, ext. 5280
sally.rosen@ambest.com

Christopher Sharkey
Manager, Public Relations
+1 908 439 2200, ext. 5159
christopher.sharkey@ambest.com

Jim Peavy
Director, Public Relations
+1 908 439 2200, ext. 5644
james.peavy@ambest.com

FOR IMMEDIATE RELEASE

OLDWICK - AUGUST 31, 2017
A.M. Best has affirmed the Financial Strength Rating (FSR) of A (Excellent) and the Long-Term Issuer Credit Ratings (Long-Term ICR) of “a+” of Health Care Service Corporation, a Mutual Legal Reserve Company (d/b/a Blue Cross Blue Shield of Illinois/Texas/New Mexico/Oklahoma/Montana) (HCSC) (headquartered in Chicago, IL) and its subsidiaries, HCSC Insurance Services Company (Chicago, IL) and GHS Health Maintenance Organization, Inc. (Tulsa, OK). Concurrently, A.M. Best affirmed the Long-Term Issue Credit Rating of “a” on HCSC’s existing $500 million 4.7% senior unsecured notes, due 2021 ( $306 million outstanding as of June 30, 2017). The outlook of these Credit Ratings (ratings) is stable.

A.M. Best also has affirmed the FSR of A (Excellent) and the Long-Term ICRs of “a+” of Dearborn National Life Insurance Company (headquartered in Downers Grove, IL) and its subsidiary, Dearborn National Life Insurance Company of New York (Pittsford, NY), which operate as Dearborn National. The outlook of these ratings is stable.

In addition, A.M. Best has upgraded the FSR to A (Excellent) from A- (Excellent) and the Long-Term ICR to “a+” from “a-” for GHS Insurance Company (Oklahoma City, OK). The outlook of these ratings is stable.

The rating affirmations of HCSC and its subsidiaries reflect a well-established market presence in their respective markets and leading overall market shares in each of the five states in which it operates. Furthermore, HCSC has reported consistent enrollment gains in both its group market and in its government sector of business. HCSC has a strong level of risk-adjusted capitalization in support of its business and investment risks: however, absolute and risk-adjusted capital experienced decline in 2014 and 2015, driven by net losses. Capital growth resumed in 2016, as the organization achieved significant earnings strengthening mainly due to improved results in its individual segment through pricing actions, product changes and operating expense reduction. A.M. Best expects HCSC’s underwriting and operating results to improve further in 2017, as medical cost trends continue to moderate, and the company implements additional enhancements to its business model and product portfolio. Additionally, the organization continues to benefit from the growth of Blue-branded and non-branded ancillary products offered through Dearborn National. The Dearborn National companies contribute favorably to the overall organization, reporting positive operating results for the past three years.

Offsetting rating factors include recent material underwriting and net losses mostly driven by the individual business and expansion of government business. While the individual segment results posted substantial improvement in 2016 and are expected to strengthen further, earnings in government segments are not expected to turn favorable in the near term. The organization’s low Star ratings and lack of operational efficiency for Medicare Advantage and Medicaid products are anticipated to continue to pressure earnings. HCSC is working toward strengthening its capabilities for government business, as the organization remains committed to expanding this segment in its core geographies. In addition, the overall fully insured premium for HCSC declined during the past year partially owing to intentional reduction of individual enrollment, continued strong competition in the group market, and the continued trend of employer group to transition from fully insured to self-funded arrangements.

The rating upgrades of GHS Insurance Company reflect its established strategic role in HCSC’s growth strategy in government segments by providing Blue-branded Medicare Advantage products in Texas, and increased consideration for operational and business synergies with the HCSC organization.

This press release relates to Credit Ratings that have been published on A.M. Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see A.M. Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Understanding Best’s Credit Ratings. For information on the proper media use of Best’s Credit Ratings and A.M. Best press releases, please view Guide for Media - Proper Use of Best’s Credit Ratings and A.M. Best Rating Action Press Releases.

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