Fitch Upgrades Health Care Service Corp. Sr. Notes to 'A'

Business Wire, August 18, 2005

CHICAGO -- Fitch has upgraded the rating on Health Care Service Corporation's (HCSC) $400 million 7.75% coupon unsecured notes due June 2011 to 'A' from 'A-'. The Rating Outlook is Stable.

Today's rating action reflects a significant improvement in the operating performance and balance sheet fundamentals of HCSC over the past several years. Additionally, Fitch believes that the company's litigation risk has declined significantly over the past few years due to its settlement of a long-standing dispute with the Illinois Attorney General and its currently successful defense against a suit by the Texas Attorney General.

HCSC's rating is supported by the company's very strong regional competitive position (particularly in Illinois), strong balance sheet fundamentals, favorable operating performance, and conservative management team. The rating also considers Fitch's Outlook for strong commercial pricing competition for the remainder of 2005 and 2006, and challenges associated with rising medical costs and the evolving regulatory and legislative environment.

HCSC's strong balance sheet fundamentals reflect the company's excellent statutory capitalization, moderate financial leverage, high quality investment portfolio, and good liquidity. The company's statutory capital levels have improved considerably over the past few years, driven primarily by very strong operating earnings. At year-end 2004, the company's NAIC risk-based capital ratio stood at 411% of the company action level, and outstanding debt was approximately 12% of total statutory capital. For the 12 months ended Dec. 31, 2004, the company reported net statutory earnings of $995 million.

HCSC operates in its three core states, Illinois, Texas, and New Mexico, as the sole licensee of the Blue Cross and Blue Shield trademarks in these states. The company is also in talks to merge with Group Health Services of Oklahoma, Inc., which has exclusive rights to use the names and marks in Oklahoma. Fitch views HCSC's use of the trademarks, which have very strong brand identity, as a key competitive advantage. Fitch believes that HCSC has been able to successfully leverage its leading market position to gain competitive provider reimbursement arrangements, particularly in the Chicago metropolitan area.

Based on membership, Chicago-based HCSC is the fourth largest health insurer in the U.S., with membership of approximately 9.8 million at March 31, 2005. The company offers a broad range of health insurance and managed care products and services to the group and individual market segments, primarily in its three core states. In addition, the company offers group term and individual life, disability income, and several other financial products and services through its life insurance subsidiaries.

Health Care Service Corporation

--$400 million 7.75% senior notes due 2011 upgraded to 'A'/Stable.

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