CHICAGO--(BUSINESS WIRE)-- Fitch Ratings has assigned an 'A+' Insurer Financial Strength (IFS) rating to Blue Cross and Blue Shield of Florida (BCBSF) and has affirmed the company's Issuer Default Rating (IDR) at 'A'. The Rating Outlooks are Stable.

Today's ratings actions reflect BCBSF's strong market position in Florida, robust capitalization, and high-quality investment portfolio. The actions also consider the impact of BCBSF's concentrated market position, the company's comparatively small size and scale, and generally weaker than rating category profitability metrics.

Fitch believes that BCBSF has a very strong but concentrated market position. The company and subsidiaries have approximately 4.3 million members in Florida, which equates to an approximate 30% market share.

BCBSF maintains very strong capitalization. From 2007-2011 the company's NAIC Risk-Based Capital (RBC) ratio averaged 530% compared to Fitch's 250% median guideline for 'A' rated health insurance and managed care companies. Additionally, the company has comparatively little financial leverage, with an estimated debt-to-annualized EBITDA ratio of 0.4x and a debt-to-capital ratio (based on statutory accounting data) of 3% at March 31, 2012.

Fitch believes that BCBSF's investment portfolio provides solid support for the company's insurance obligations. The portfolio consists primarily of investment-grade fixed maturities investments and while BCBSF's allocation to equity investments is comparatively large and represents a source of surplus volatility, Fitch's ratings concerns about the equity allocation are largely offset by the company's strong capitalization and liquidity.

BCBSF's enrollment and revenues, which Fitch views as key size/scale metrics, total approximately 4.3 million and over $6 billion annually. Fitch views BCBSF's scale benefits, as indicated by these metrics, to be meaningful but materially less than those earned by nationally oriented peers with enrollment and revenue bases that are significantly larger than BCBSF's.

Fitch's estimate of BCBSF's EBITDA-to-revenue margin and medical loss ratios averaged 3.7% and 87.7% respectively from 2007 through 1Q'12, both of which lag Fitch's median guidelines for the 'A' rating category. Fitch believes that this lag is related in part to BCBSF's status as a not-for-profit mutual company. From a ratings perspective, Fitch views this below rating-category guideline performance as partially offset by BCBSF's comparative lack of need to generate earnings to meet interest requirements and Fitch's expectation that the company will be able to grow surplus at rate that is commensurate with growth in premiums, assets, and liabilities.

Fitch's view is that BCBSF's largely single-state operating profile will make it very difficult for the company to obtain an IFS rating higher than the 'A' rating category. Fitch believes that single-state concentrations such as BCBSF's result in exposure to economic and political conditions that limit health insurance and managed care companies' feasible strategic alternatives and expose their capital bases to concentrated risks.

Key Rating Triggers that could Factors that could lead to a rating downgrade includes:

--BCBSF's inability to market itself as a Blue Cross and Blue Shield company could result in a multi-notch downgrade;

--A material decline in BCBSF's enrollment in Florida or a perceived deterioration in the company's competitive position;

--BCBSF choosing to price its products such that premiums, assets, and liabilities grew at materially faster rates than capital for a multi-year period;

--Large losses in capital that reduced its run-rate risk-based capital ratio below 400%.

Fitch has taken the following rating actions:

Blue Cross and Blue Shield of Florida, Inc.

--IFS rating assigned at 'A+', Outlook Stable;

--IDR affirmed at 'A', Outlook Stable.

Additional information is available at 'www.fitchratings.com'. The issuer did not participate in the rating process, or provide additional information, beyond the issuer's available public disclosure. The ratings above were unsolicited and have been provided by Fitch as a service to investors.

Applicable Criteria and Related Research:

--'Insurance Rating Methodology' (Sept. 22, 2011);

--'Health and Managed Care (U.S.) Sector Credit Factors Special Report' (March 28, 2012).

Applicable Criteria and Related Research:

Health Insurance and Managed Care (U.S.) Sector Credit Factors

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=674555

Insurance Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=651018

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Fitch Ratings
Brian Bertsch, +1-212-908-0549
Media Relations, New York
brian.bertsch@fitchratings.com
or
Primary Analyst:
Mark Rouck, +1-312-368-2085
Senior Director
Fitch, Inc.
70 West Madison St.
Chicago, IL 60602
or
Secondary Analyst (Insurance):
Greg Dickerson, +1-212-908-0220
Director
or
Committee Chairperson:
Brian Schneider, +1-312-606-2321
Senior Director

Source: Fitch Ratings