KEY RATING DRIVERS
Fitch's rating on BCID reflects the company's excellent competitive position in the
BCID's primary business is selling health insurance products and services in the state of
Fitch views the company's right to use the
Based on Fitch's sector credit factors for the
Fitch views BCID's historical financial performance and profitability, as measured by EBITDA margins and net returns on average capital, to be consistent with an IFS rating of 'A'. However, over the next 2-3 years, Fitch believes that BCID's financial performance is more likely to be reflective of an IFS rating of 'BBB'.
In the case of BCID, Fitch believes that near term margin compression and declines on overall profitability could be pronounced if the company successfully grows its government-sponsored and individual business. This is due to increased costs related to Affordable Care Act of 2010 (ACA) and because these businesses typically operate at lower margins than group business, which currently represents the bulk of BCID's operating portfolio.
Fitch views BCID's current capital strength, as measured by RBC and managed care premiums to equity ratios, to be consistent with an 'AAA' rating level. At year-end 2013 BCID's NAIC risk-based capital (RBC) ratio was a very strong 581% of the company action level.
Looking forward over the next 12-24 months, Fitch expects BCID's capital to grow at a slower rate than premiums, if the company aggressively grows its membership in the individual and
Fitch therefore expects BCID's risk-adjusted capitalization to decline but remain supportive of at least an 'AA' rating category. Specifically, BCID's asset and premium leverage ratios are likely to rise from recent low levels, while the RBC ratio could decrease closer to 400% over the next few years.
Fitch's Stable Outlook reflects the agency's expectation that BCID's very strong risk-based capital (RBC) levels and dominant market position in
BCID has no material debt outstanding and no goodwill on its balance sheet. The company's investment portfolio at
Underwriting income in 2013 was
From a rating perspective, Fitch views BCID's concentrated market position in
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 erode the company's current market share, or the loss of the right to use the
Fitch has affirmed the following rating with a Stable Outlook:
--IFS rating at 'A-'.
Additional information is available at 'www.fitchratings.com'
--'Insurance Rating Methodology' (
--'Health Insurance and Managed Care (U.S.) Sector Credit Factors Special Report' (
Insurance Rating Methodology
Source: Fitch Ratings
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