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Best’s News & Research Service - October 12, 2022 09:35 AM (EDT)

AM Best Affirms Credit Ratings of Health Care Service Corporation and Its Subsidiaries

  • October 12, 2022 09:35 AM (EDT)
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Oldwick //BestWire// - AM Best has affirmed the Financial Strength Rating (FSR) of A (Excellent) and the Long-Term Issuer Credit Ratings (Long-Term ICR) of “a+” (Excellent) 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. The outlook of these Credit Ratings (ratings) is stable.

The ratings of HCSC reflect its balance sheet strength, which AM Best assesses as strongest, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management. The stable outlooks reflects HCSC’s favorable capitalization, operating performance trends and ability to execute on the strategic plan under its new management team.

The rating affirmations are based on HCSC’s maintenance of the strongest level of risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR). The group has reported strong capital and surplus growth over the past few years, as a result of profitable operating performance, as well as favorable claims experience related to the deferral of care due to COVID-19 and several other one-time items. The boost to capital and surplus has been allocated to certain investments in the overall business. Furthermore, the organization maintains favorable financial flexibility through access to Federal Home Loan Bank (FHLB) of Chicago advances, bank lines of credit and available cash. HCSC recently issued $2 billion of privately placed notes and has a five-year, $1 billion senior unsecured revolving credit facility with a consortium of banks. Also, through the FHLB, the company has additional borrowing capacity of $1.7 billion. HCSC is expected to make additional draws against the FHLB during the second half of the year for general corporate purposes, including working capital needs. Therefore, HCSC’s debt-to-capital ratio is expected to slightly increase, but financial leverage is expected to remain within an acceptable range. In addition, HCSC’s earnings before interest and taxes (EBIT) interest coverage ratio is expected to remain strong as well, at over 10 times.

HCSC’s premium revenue has shown good growth over the past several years and through the later part of 2022. The growth is attributed to a combination of rate increases and premium expansion from related membership growth across its various core segments. AM Best notes that profitability did decrease from the prior year’s results, as 2020 operating income was impacted by the receipt of risk corridor payments owed through the Affordable Care Act for prior years. During the first half of 2022, HCSC experienced lower-than-expected COVID-19-related health care utilization for testing, treatment and hospitalization costs. These favorable operating trends, along with the benefit from favorable prior-year claims reserve runout, were offset by higher pharmacy claims, and these trends are expected to continue through the second half of the year. HCSC’s operating performance, which is currently evaluated as adequate, has exhibited positive trends in recent years.

AM Best also notes that HCSC operates in very competitive markets, but maintains a leading market position in all of its core territories, which has been maintained through brand recognition, strategic relationships with providers and a diversified product portfolio. The company’s business is fairly diversified geographically, but operations in Illinois and Texas are a main driver of revenue, earnings and overall results for the group. HCSC offers a comprehensive portfolio of core health and complementary products and operates in numerous market segments, including on and off the health insurance exchanges. Additionally, commercial group business remains an important market segment for HCSC, driving a large portion of premiums and enrollment volume. Government business, including Medicare Advantage and related senior products and Medicaid offerings, have exhibited solid growth over the last year and the segments make up a growing portion of the overall enrollment and premiums for the group.

The FSR of A (Excellent) and the Long-Term ICRs of “a+” (Excellent) have been affirmed with stable outlooks for Health Care Service Corporation, a Mutual Legal Reserve Company and its following subsidiaries:

  • Dearborn Life Insurance Company

  • Dearborn National Life Insurance Company of New York

  • GHS Health Maintenance Organization, Inc.

  • GHS Insurance Company

  • HCSC Insurance Services Company

This press release relates to Credit Ratings that have been published on AM 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 AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best’s Credit Ratings. For information on the proper use of Best’s Credit Ratings, Best’s Performance Assessments, Best’s Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best’s Ratings & Assessments.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City.

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