Today's affirmation completes a periodic review of BSC's rating and recent financial performance. Key factors considered in the review include expectations for comparatively rapid growth in BSC's membership due to the company's participation on the
KEY RATING DRIVERS
Industry Profile and Operating Environment: BSC's membership consists primarily of employer group and, to a lesser extent, individual insurance membership. The company's membership from the
Market Position and Size/Scale: Fitch views BSC as maintaining 'medium'-sized market profile and size/scale characteristics indicating a probable IFS ratings range from 'A' to 'BBB'. Key factors underlying BSC's market position include the comparatively high concentration of the company's membership by product type and geography, and large market share in
Capitalization, Leverage and Financial Flexibility: Fitch views BSC's capitalization and leverage metrics to be consistent with those expected at the 'AAA' IFS rating category. Key factors underlying Fitch's view are the company's very strong risk-based capital ratio (RBC), low operating leverage ratio and lack of financial leverage. Fitch anticipates pressure on BSC's capitalization metrics over the next several years as the company plans to partially fund strategic initiatives such as large scale information technology projects, and potential acquisitions, with existing capital.
Fitch believes that BSC maintains adequate financial flexibility which is supported by the company's strong competitive position in
Financial Performance: Fitch considers BSC's financial performance to be consistent with that expected at the 'BBB' IFS rating category. BSC's 2009-2013 average medical benefit, EBITDA-to-revenues and annualized net return on average capital ratios were 86.1%, 3.2%, and 5.2% respectively and are generally consistent with Fitch's 'BBB' median rating category guidelines. Fitch's view is that BSC's nonprofit status and pledge to policyholders that it will limit its net income to 2% of revenues is likely to suppress the company's financial performance metrics at the 'BBB' rating category.
Fitch believes that the financial results of policies BSC sources from the
Fitch believes that BSC's single-state profile makes it very difficult for the company to obtain an IFS rating higher than the 'A' rating category. Fitch's view is that single-state concentrations result in exposure to economic and political conditions that limit feasible strategic alternatives and expose companies' capital bases to concentrated risks.
Rating triggers that could lead to a rating upgrade within the 'A' rating category include:
--Profitable market share gains within the company's core
--Growth in the size and scale of BSC's revenue and earnings base while maintaining the company's 2% of revenues run-rate net earnings target;
--Run-rate EBITDA/revenue and net income/average capital ratios that more closely approximate Fitch's 'A' rating category guidelines of 7% while maintaining risk-based capital ratios (company action level basis) greater than 350%.
Rating triggers that could lead to a rating downgrade:
--BSC losing the ability to market itself as a
--Run-rate risk-based capital ratios (company action level basis) below 350%;
--Run-rate ratios of premiums to stabilization fund (i.e. net worth) that exceed 5.0x;
--Membership growth that causes Fitch to question BSC's ability to generate run-rate net earnings consistent with the company's 2% of revenue-target.
Additional information is available at 'www.fitchratings.com'.
--'Insurance Rating Methodology' (
--'Health and Managed Care (U.S.) Sector Credit Factors Special Report' (
Insurance Rating Methodology
Mark Rouck CPA, CFA
Source: Fitch Ratings
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