|[September 24, 2013]
Fitch Affirms Health Care Service Corporation Ratings
CHICAGO --(Business Wire)--
Fitch Ratings has affirmed Health Care Service Corporation's (HCSC)
Insurer Financial Strength Rating (IFS) at 'A+', its long-term Issuer
Default Rating (IDR) at 'A', and the 'A' rating on the company's $500
million issue of 4.70% senior unsecured notes due Jan. 15, 2021. The
Rating Outlooks are Stable
KEY RATING DRIVERS
HCSC's strong competitive position, conservatively structured balance
sheet strength and solid earnings profile all support the current
ratings. Balanced against these strengths is HCSC's concentration in its
two key markets of Illinois and Texas.
On July 31, 2013, HCSC completed its acquisition of Blue Cross & Blue
Shield of Montana's insurance assets and operations. BCBS Montana will
become one of HCSC's five BCBS operating divisions. BCBS Montana has
HCSC is a leading provider of health insurance and managed care services
in Illinois, Texas, New Mexico, and Oklahoma. It is the nation's largest
nonpublic health insurer with greater than 13.5 million members.
A key competitive advantage is the company's exclusive right to use Blue
Cross and Blue Shield (Blues) trademarks in HCSC's four core states. In
addition, access to Blue Card, the Blue Cross Blue Shield Association's
(BCBSA) national account platform, has helped establish and grow HCSC's
leading market position.
HCSC has a conservative balance sheet measured by strong statutory
capitalization, modest financial leverage and a high quality, liquid
investment portfolio. HCSC's NAIC RBC ratio was 620% of the company
action level (CAL) at year-end 2012. Surplus increased by nearly 7% or
$656 million to $10.2 billion through the first half of 2013.
Debt to total capital as of June 30, 2013 was 4.8%, which Fitch
considers very modest for both the current rating category and the
entire market sector. The company has $500 million in senior unsecured
debt with 4.7% coupon maturing in January 2021.
HCSC's annualized return on capital was considered strong at 11.8%
through the first six months of 2013, especially in light of its
conservative capital position. HCSC's EBITDA margin was 8.2% through
June 30, 2013, which is consistent with Fitch's median guideline for the
current rating category.
HCSC's revenue continues to be concentrated in the two significantly
larger states of Illinois and Texas, amounting to 87% of total revenue
through the first half of 2013. The addiion of BCBS Montana will
represent less than 3% of revenue. The lack of geographic diversity is a
factor in limiting HCSC's upward ratings movement.
The key rating triggers that could result in an upgrade include:
--Measured and profitable revenue diversification that reduces the
company's reliance on key markets of Illinois and Texas.
--Improvement in EBITDA margin to 9% or better.
The key rating triggers that could result in a downgrade include:
--An RBC ratio decline below 350% or a significant increase in financial
leverage above 15%.
--Sustained operating losses or a consistently lower level of
profitability measured by return on surplus below 5%.
--HCSC losing the ability to market itself as a Blues plan could result
in a multi-notch downgrade.
Fitch affirmed the following ratings:
Health Care Service Corporation
--Insurer Financial Strength at 'A+' Stable Outlook;
--Issuer Default Rating at 'A' Stable Outlook;
--$500 million 4.7% senior notes due January 2021 at 'A'.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Insurance Rating Methodology' (Aug. 19, 2013);
--'Health Insurance and Managed Care (U.S.) Sector Credit Factors' (Aug.
Applicable Criteria and Related Research:
Insurance Rating Methodology
Health Insurance and Managed Care (U.S.) Sector Credit Factors
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND
DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING
THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS.
AVAILABLE ON (News - Alert) THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'.
PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS
SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS
OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES
AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF
THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE
RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR
RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY
CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH
[ InfoTech Spotlight's Homepage ]