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
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
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
--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
--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).
Health Insurance and Managed Care (U.S.) Sector Credit Factors
Insurance Rating Methodology
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Fitch RatingsBrian Bertsch, +1-212-908-0549Media Relations,
Analyst:Mark Rouck, +1-312-368-2085Senior DirectorFitch,
Inc.70 West Madison St.Chicago, IL 60602orSecondary
Analyst (Insurance):Greg Dickerson, +1-212-908-0220DirectororCommittee
Chairperson:Brian Schneider, +1-312-606-2321Senior Director
Source: Fitch Ratings