Fitch Affirms Blue Cross of Idaho’s IFS at ‘A-‘

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has affirmed Blue Cross of Idaho Health Service, Inc.'s (BCID) 'A-' Insurer Financial Strength (IFS) rating. The Rating Outlook is Stable.

Fitch's rating on BCID reflects the company's excellent competitive position in the Idaho health insurance market, strong balance sheet, and good operating performance. The rating also reflects the company's limited geographic diversification, small scale relative to national and multi-state competitors, and uncertainty derived from the evolving regulatory environment.

Fitch's Stable Outlook reflects the Agency's expectation that BCID's earnings, capital, and market position will remain relatively unchanged over the next 12 - 24 months.

BCID's primary business is selling health insurance products and services in the state of Idaho under the Blue Cross trademark. The company has a leading market position in the state of Idaho, providing health insurance coverage to approximately 439,000 medical and 278,000 stand-alone dental members as of March 31, 2012.

Fitch views the company's right to use the Blue Cross trademark, as a significant competitive advantage in the Idaho health care market. Additionally BCID's long-term presence and broad coverage in the Idaho market provides the company with excellent market knowledge and better-than peer provider network access.

BCID has no material debt outstanding and no goodwill on its balance sheet. The company's investment portfolio at March 31, 2012 included an approximate 22% allocation to equities which raises its risk profile somewhat. Fitch views these risks as largely offset by the company's lack of short-term liquidity requirements and overall strong capitalization. At year-end 2011 BCID's NAIC risk-based capital (RBC) ratio improved to a very strong 514% of the company action level compared to 502% at year-end 2010.

Statutory net earnings for 2011 grew by $12 million to $57 million, which was the most profitable year in the company's history. BCID's statutory earnings for 2011 included significant year over year improvement in underwriting income and modestly higher investment income that more than offset lower realized investment gains.

BCID and its health insurance and managed care sector peers anticipate additional challenges related to the Patient Protection and Affordable Care Act (PPACA) of 2010. Fitch believes that the near term effects of the bill on BCID are manageable and include moderate margin compression. However, what effect future requirements will have on ratings is uncertain. Key among these requirements is the implementation of health exchanges by 2014 and what impact they may have on BCID's earnings, capital and market position.

Fitch views BCID's concentrated market position in Idaho and comparatively small size and scale as limiting factors from a rating perspective. The agency views these characteristics as leaving the company more susceptible than more geographically diversified and larger peers to earnings and capital volatility as well as significantly exposed to economic and regulatory conditions in a single state.

Fitch therefore believes that a ratings upgrade is unlikely in the absence of a transformational event that reduces the company's exposure to its single market and enhances the overall size and scale of the company's operations while maintaining the company's balance sheet strength and profitability trends.

Key Ratings triggers that could lead to a downgrade

include a sustained earnings decrease that weakens RBC below 300%, significant enrollment losses that materially erodes the company's current market share, or the loss of the right to use the Blue Cross trademark and brand.

Fitch has affirmed the following rating with a Stable Outlook:

Blue Cross of Idaho Health Service, Inc.

--IFS at 'A-'.

Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

Applicable Criteria and Related Research:

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

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

Applicable Criteria and Related Research:

Insurance Rating Methodology

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

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

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

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Fitch Ratings
Primary AnalystGreg DickersonDirector
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or
Secondary AnalystMark RouckSenior Director
+1-312-364-2085
or
Committee ChairpersonDouglas PawlowskiSenior Director
+1-312-368-2054
or
Media Relations:Brian Bertsch, +1-212-908-0549 (New York)
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Source: Fitch Ratings