TEXT-Fitch affirms Blue Cross of Idaho's IFS at 'A-'

Fri Jun 22, 2012 10:35pm IST

June 22 - 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
Health Insurance and Managed Care (U.S.) Sector Credit Factors
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