AM Best Affirms Credit Ratings of Health Care Service Corporation and Its Subsidiaries; Maintains Positive Outlooks

OLDWICK, N.J.--()--AM Best has affirmed the Financial Strength Rating (FSR) of A (Excellent) and the Long-Term Issuer Credit Ratings 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. The outlook of these Credit Ratings (ratings) remains positive. These companies collectively are known as Health Care Service Corporation Group (HCSC Group). See below for a detailed list of the subsidiaries.

The ratings reflect HCSC Group’s balance sheet strength, which AM Best categorizes as strongest, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management.

HCSC Group achieved a substantial strengthening of its operating performance over the past two years. The organization’s improved underwriting performance was driven primarily by much stronger results in the individual exchange segment due to turnaround measures implemented in response to material losses incurred from 2014 to 2016. In addition, all lines of business benefited from a lower-than-expected medical cost trend, while enrollment growth and broader participation in government programs contributed to higher premium. Net income in 2018 was enhanced further by a $1.7 billion refund of Alternative Minimum Tax (AMT) credits that resulted from the Tax Cuts and Job Act of 2017. HCSC Group’s earnings are projected to remain very strong.

However, the earnings will moderate as the company is pricing closer to trend, investing in the business, and returning part of the AMT credits back to its members. Robust earnings and AMT elimination led to more than 70% growth of capital and surplus over the past two years, bringing risk-adjusted capitalization to the highest level in more than five years. HCSC’s market leadership position in all states it operates provides foundation for further membership growth in multiple lines of business. In addition, the organization has begun multi-year operational transformation to gain greater efficiencies and improve value proposition for members.

Offsetting factors include continuous underwriting losses in the Medicaid Managed Care (Medicaid) and Medicare Advantage lines of business. HCSC continues to invest in the capabilities needed to manage, support and provide appropriate cost-efficient care to the higher risk population. The company’s Medicaid medical loss ratio has shown an improvement, as the average length of enrollment with HCSC grows and more members are placed in care management programs. Increased underwriting losses in the Medicare Advantage segment are tied to low Star ratings and enrollment fluctuations. HCSC is investing in better capabilities to improve Star ratings and develop more appropriate products. An additional offsetting factor is the recent unanticipated management change with the CEO and chief financial officer leaving the organization. While AM Best is concerned that an unexpected leadership transition may compromise the organization’s strategic direction in the near term, the positive outlooks reflect AM Best’s expectation that a timely transition to new management and strategy will allow the organization to maintain its long-term profitability and capital strength.

The FSR of A (Excellent) and the Long-Term ICRs of “a+” have been affirmed with positive 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 Understanding Best’s Credit Ratings. For information on the proper media use of Best’s Credit Ratings and AM Best press releases, please view Guide for Media - Proper Use of Best’s Credit Ratings and AM Best Rating Action Press Releases.

AM Best is a global rating agency and information provider with a unique focus on the insurance industry. Visit www.ambest.com for more information.

Copyright © 2019 by A.M. Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.

Contacts

Doniella Pliss
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

Contacts

Doniella Pliss
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