A.M. Best Affirms Ratings of Health Care Service Corporation and Its Affiliates

OLDWICK, N.J.--(BUSINESS WIRE)--

A.M. Best Co. has affirmed the financial strength ratings (FSR) of A+ (Superior) and issuer credit ratings (ICR) of “aa-” of Health Care Service Corporation, a Mutual Legal Reserve Company (d/b/a Blue Cross Blue Shield of Illinois/Texas/New Mexico/Oklahoma) (HCSC) (Chicago, IL), its lines of businesses, Health Care Service Corporation – Texas HMO Line of Business (Chicago. IL), Health Care Service Corporation – Illinois HMO Line of Business (Chicago, IL) and HCSC’s affiliate, HCSC Insurance Services Company (Chicago, IL). Additionally, A.M. Best has upgraded the FSR to A+ (Superior) from A (Excellent) and the ICR to “aa-” from “a+” of GHS Health Maintenance Organization (GHS HMO) (Tulsa, OK). Concurrently, A.M. Best has affirmed the debt rating of “a+” on $400 million 7.75% senior unsecured notes, due 2011 of HCSC. The outlook for these ratings is stable.

A.M. Best also has revised the outlook to negative from stable and affirmed the FSRs of A+ (Superior) and A (Excellent) and the ICRs of “aa-” and “a+” of Fort Dearborn Life Insurance Company (FDL) (Downers Grove, IL) and its subsidiary, Fort Dearborn Life Insurance Company of New York (FDLNY) (Pittsford, NY), respectively. At the same time, A.M. Best has revised the outlook to negative from stable and affirmed the FSR of A (Excellent) and ICR of “a” of Colorado Bankers Life Insurance Company (CBL) (Greenwood Village, CO).

In addition, A.M. Best has affirmed the FSR of A- (Excellent) and ICR of “a-” of GHS Property and Casualty Insurance Company (Oklahoma City, OK), a stand-alone subsidiary of HCSC. The outlook for both ratings is stable.

The revised outlook for FDL and FDLNY reflect operating losses, largely due to impairments on their investment portfolios, which support their annuity businesses. This was the second year of significant net losses for FDL and FDLNY. A.M. Best is concerned that there could be further impairments should the valuation of the portfolios deteriorate further. The ratings of FDL and FDLNY are based on the strength and support of HCSC, which made a capital contribution to FDL in late 2009.

CBL’s revised outlook recognizes its sustained period of underwriting losses, which have grown in 2008 and 2009. The underwriting losses are the result of increased sales, which have resulted in statutory strain. A.M. Best acknowledges that this trend may continue through 2010. The ratings of CBL are reflective of the strength and support of HCSC, CBL’s ultimate parent, which made a capital contribution to CBL in late 2009. A.M. Best expects that HCSC and FDL (CBL’s intermediate parent) would provide capital support to CBL, if necessary.

The ratings of HCSC and its affiliates show an established market presence in their respective markets. Regional diversity minimized geographic and regulatory risk as they operate in four states. HCSC is well capitalized, and its historically strong earnings have contributed significantly to consistent surplus growth and to favorable capital adequacy on a risk-adjusted basis.

The external economic conditions in each of the operating markets may challenge HCSC to grow its businesses. Employer groups have been downsizing or consolidating, which may negatively affect enrollment. HCSC’s underwriting earnings have been steadily declining for more than five years, as part of a strategic plan to level off capital growth through margin compression. The underwriting earnings decline is expected to continue in the near term, partially from the impact of the recession, higher COBRA utilization, flu season and enrollment growth lower than expected due to rising unemployment. HCSC’s near-term earnings are mainly concentrated in Illinois and are less diversified than similarly rated companies. However, A.M. Best recognizes HCSC’s ability to expand operations into new markets through mergers and strategic acquisitions.

The upgrading of GHS HMO’s ratings acknowledges the support HCSC provides to GHS HMO through its 100% reinsurance agreement.

For Best’s Credit Ratings, an overview of the rating process and rating methodologies, please visit www.ambest.com/ratings.

The principal methodologies used in determining these ratings, including any additional methodologies and factors that may have been considered, can be found at www.ambest.com/ratings/methodology.

Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers. For more information, visit www.ambest.com.