AM Best Affirms Credit Ratings of Health Care Service Corporation, A Mutual Legal Reserve Company and Its Subsidiaries

AM Best has affirmed the Financial Strength Rating (FSR) of A+ (Superior) and the Long-Term Issuer Credit Ratings (Long-Term ICRs) of “aa-” (Superior) of Health Care Service Corporation, a Mutual Legal Reserve Company (d/b/a Blue Cross and Blue Shield of Illinois/Texas/New Mexico/Oklahoma/Montana) (HCSC) (headquartered in Chicago, IL) and its subsidiaries (see detailed listing below). The outlook of these Credit Ratings (ratings) is stable.

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

The rating affirmations of HCSC reflect its continued favorable balance sheet and operating performance trends. The company’s risk-adjusted capitalization is at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR). Consistent capital and surplus growth, driven by favorable net income accretion, has generally outpaced premium growth, driving increased risk-adjusted capitalization. AM Best expects that HCSC’s capital growth will continue in the near term, although possibly at reduced levels. Furthermore, HCSC has demonstrated strong financial flexibility through its access to Federal Home Loan Bank (FHLB) of Chicago advances, its bank lines of credit and its available cash position. HCSC has ample contingent liquidity through a five-year, $1.0 billion senior unsecured revolving credit facility with a consortium of banks and its borrowing capacity under the FHLB of over $1.7 billion. AM Best notes that HCSC’s financial leverage increased recently to 15%, due to a new debt issuance in 2024, but remains within acceptable ranges for the ratings. In addition, HCSC’s earnings before interest and taxes interest coverage ratio is expected to remain strong as well, at well over 20 times. Further, HCSC has reported strong operating cash flow through mid-2024. Invested assets are held predominantly in investment grade fixed income securities and cash/cash equivalents. There is no material exposure to equities, real estate or Schedule BA assets. The company’s investment portfolio is quite liquid and has relatively low risk.

HCSC’s planned acquisition of The Cigna Group’s Medicare and CareAllies businesses is expected to close in the first quarter of 2025, subject to regulatory approval and customary closing conditions. AM Best expects this transaction to have a limited impact on HCSC’s overall balance sheet strength metrics, and financial leverage is expected to remain within AM Best’s tolerances with interest coverage remaining strong. The transaction is expected to expand HCSC’s geographic diversification footprint, with the addition of business outside of HCSC’s core Blue-branded states. Additionally, the new membership and revenues will provide additional scale and capabilities to HCSC’s Medicare Advantage and related businesses.

HCSC has reported fairly consistent revenue growth and solid operating earnings across most of its business segments. The company reported double-digit revenue growth through the first six months of 2024. Operating revenue growth has been driven by a combination of new business expansion, membership growth and premium rate increases. Significant group commercial and individual and family enrollment gains more than offset attrition in the Medicaid segment through the redetermination process. Overall earnings, although solid, have been impacted by higher-than-expected acuity and a shift in the mix in Medicaid membership base, related to eligibility redetermination and the change in this membership population.

In more-recent years, the organization’s underwriting performance has been driven primarily by strong results in the commercial segment, predominantly in the individual exchange segment, although a higher-than-expected medical cost trend across the majority of its lines of business has tempered results. Further, the Medicaid segment was negatively impacted by members’ acuity as well as members’ behavior driving an increase in utilization following the end of the public health emergency and establishment of eligibility redetermination. In addition, the organization reported an increase in claim utilization for both its group commercial and Medicare lines of business through 2024. AM Best expects challenges in the government programs lines of business and will continue to monitor the impact this has on the Medicare Advantage and Medicaid business leading into 2025.

HCSC’s market leadership position in its core states provides a foundation for further membership growth across multiple lines of business, including its supplemental accident and health lines, and service segments. The organization continues to benefit from the growth of Blue-branded and non-branded ancillary products offered through Dearborn Life Insurance Company and Dearborn National Life Insurance Company of New York, as well as its non-insurance service entities. Additionally, HCSC’s portfolio includes owned and affiliated companies that provide the organization with added diversified capabilities. Through its affiliation with Prime Therapeutics LLC and its noninsurance service entities, HCSC can provide pharmacy benefit management services, as well as a comprehensive suite of solutions for complex and chronic conditions to drive down the cost of care.

AM Best has affirmed the FSR of A+ (Superior) and the Long-Term ICRs of “aa-” (Superior) with stable outlooks for Health Care Service Corporation, a Mutual Legal Reserve Company’s 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
• Health Care Service Corporation-Texas HMO Line of Business
• Health Care Service Corporation-Illinois HMO Line of Business

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. For more information, visit www.ambest.com.

Copyright © 2024 by A.M. Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.

View source version on businesswire.com: https://www.businesswire.com/news/home/20241031770187/en/