OREANDA-NEWS. S&P: Health Care Service Corp. and Subsidiaries Ratings Affirmed; Outlook Remains Stable S&P Global Ratings said today it affirmed its 'A+' long-term counterparty credit and financial strength ratings on Health Care Service Corp. (d/b/a Blue Cross Blue Shield of Illinois, New Mexico, Oklahoma, Texas, and Montana; HCSC). We also affirmed our 'A' long-term counterparty credit and financial strength ratings on HCSC's strategically important subsidiaries, Dearborn National Life Insurance Co. and Dearborn National Life Insurance Co. of New York (collectively Dearborn) to 'A' from 'A+'. The outlook is stable.

"The affirmation reflects HCSC's continued marginal to weak operating performance," said S&P Global Ratings credit analyst Neal Freedman. On a GAAP basis we expect year-end 2016 adjusted EBIT (which excludes realized gains and losses and one-time special charges) of about $175 million (about a 0.5% return on revenue (ROR)) compared with a loss of $768 million in 2015 (-2.2% ROR) and a $72 million gain in 2014 (0.2% ROR). While our 2016 expectation is a significant improvement over 2015, resulting from corrective actions the company has taken to reduce its underwriting losses on its Affordable Care Act (ACA) exchange business, and is consistent with our current expectations, it was below our prior expectations of an ROR in the 1.0% to 1.5% range. For 2017 and 2018 we expect HCSC to expand its margin to about a 1% ROR as the company continues to take corrective actions such as rate increases, product redesigns, and smaller networks on its ACA business.

HCSC is one of the largest health insurers in the U. S. based on revenues and membership, and has the leading market share in each of its five Blue Cross Blue Shield licensed states. The company has one of the strongest balance sheets in the industry based on size and quality of statutory capital, significant 'AAA' capital redundancy, and modest leverage. We revised our view of HCSC's liquidity to strong from exceptional because of a decline in the company's liquidity ratio to 197% at year-end 2015 from 225% in 2014 driven by a moderate reduction in the size of its investment portfolio. We similarly revised our view of Dearborn's liquidity because its ratio declined to 218% in 2015 from 222% in 2014 falling below our 220% threshold for exceptional liquidity. The company has access to additional liquidity through a $400 million revolving credit facility and access to the Federal Home Loan Bank.

We affirmed our 'a-' stand-alone credit profile on Dearborn. Based on the companies' strategic importance, per our group rating methodology, the resulting counterparty credit and financial strength ratings on the companies is 'A'.

The stable outlook reflects our expectation that HCSC will continue to show a profit on an adjusted EBIT basis and maintain its strong business risk profile and significant 'AAA' capital redundancy over the next 18 to 24 months.

Although unlikely, we may lower the ratings by one notch if over the next 18 to 24 months it becomes apparent that marginal to weak operating performance will persist through 2018 and beyond. However, even in a downside scenario, we would not expect HCSC's capital adequacy to fall below 'AAA' given current levels.

Also unlikely, we may raise the rating if over the next 18 to 24 months it becomes apparent that HCSC will restore the company's profitability to at least a 2% return on revenue on a consistent basis.