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A.M. Best Downgrades Ratings of Health Care Service Corporation and Its Subsidiaries
[July 29, 2016]

A.M. Best Downgrades Ratings of Health Care Service Corporation and Its Subsidiaries


A.M. Best has downgraded the financial strength rating (FSR) to A (Excellent) from A+ (Superior) and the issuer credit ratings (ICR) to "a+" from "aa-" 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 (Tulsa, OK). Concurrently, A.M. Best has downgraded the issue rating to "a" from "a+" on HCSC's existing $500 million 4.7% senior unsecured notes, due 2021 (approximately $345 million outstanding). The outlook for each of these ratings is stable.

A.M. Best also has downgraded the FSR to A (Excellent) from A+ (Superior) and the ICRs to "a+" from "aa-" of Dearborn National Life Insurance Company (Downers Grove, IL) and its subsidiary, Dearborn National Life Insurance Company of New York (Pittsford, NY), which operate as Dearborn National. The outlook for each of these ratings is stable.

In addition, A.M. Best has removed the ratings of GHS Insurance Company (Oklahoma City, OK) from under review with developing implications and upgraded the FSR to A- (Excellent) from B++ (Good) and the ICR to "a-" from "bbb+". The outlook assigned to each of these ratings is stable.

The rating downgrades of HCSC and its subsidiaries reflect material operating losses in the organization's core health insurance business. Over the past two years, HCSC has reported material net losses driven by its individual business and its expansion in government business. The individual business was impacted by numerous factors, which included greater utilization and a larger number of highe-risk individuals than expected under The Patient Protection and Affordable Care Act; the severe reduction in risk corridor payments; and the impact of grandmothering in 2014. Furthermore, HCSC reported losses in the Medicare Advantage product resulting from an expansion strategy in its core states as the company tries to gain scale in this business segment. Additionally, losses are being generated by new Medicaid enrollment under a managed Medicaid contract with Illinois as part of the state's Medicaid expansion. While the overall losses have moderated considerably in these segments, they are not expected to turn favorable in 2016.



HCSC continues to have a leading position in its core markets and brand strength from its Blue Cross Blue Shield licenses. The company has reported a trend of organic enrollment and premium growth and continues to have a strong level of risk-adjusted capital. HCSC has a history of capital growth through retained earnings. The company's risk-adjusted capital was on an upward growth trend in preparation for enrollment gains with the introduction of health insurance exchanges and the expansion of its Medicare and Medicaid businesses. Due to enrollment growth and recent statutory losses, risk-adjusted capital has declined; however, it remains strong. The company's business is diversified geographically and by business segment. HCSC offers a comprehensive portfolio of core health and complementary products and operates in numerous market segments. Additionally, growth is evident in Blue-branded and non-branded ancillary products offered through Dearborn National. The Dearborn National companies contribute favorably to the overall organization, reporting strong operating results for the past three years.

The rating actions taken on GHS Insurance Company reflect its established strategic role in HCSC's growth strategy in government business by providing Blue-branded Medicare Advantage products in Texas.


This press release relates to rating(s) 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.

A.M. Best is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

Copyright © 2016 by A.M. Best Rating Services, Inc. ALL RIGHTS RESERVED.


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