A.M. Best Affirms Health Care Service Corporation; Upgrades GHS Health Maintenance Organization and Member Service Life.

OLDWICK, N.J. -- A.M. Best Co. has affirmed the financial strength rating (FSR) of A+ (Superior) and issuer credit rating (ICR) of "aa-" for Health Care Service Corporation (HCSC) (Chicago, IL), d.b.a. Blue Cross Blue Shield of Illinois/Texas/New Mexico/Oklahoma. A.M. Best has affirmed the FSRs of HCSC's subsidiaries. Concurrently, A.M. Best has affirmed the debt rating of "a+" on HCSC's $400 million 7.75% senior unsecured notes due June 2011. Additionally, A.M. Best has upgraded the FSRs to A (Excellent) from B++ (Very Good) of GHS Health Maintenance Organization (GHS HMO) and Member Service Life Insurance Company (Member Service Life). The outlook for all ratings is stable.

These rating actions reflect the completion of the merger between HCSC and Group Health Service of Oklahoma, d.b.a. Blue Cross Blue Shield of Oklahoma. A.M. Best has completed its review of HCSC's and Blue Cross Blue Shield of Oklahoma's operations, including GHS HMO and Member Service Life. This review included the strategic role that GHS HMO and Member Service Life play in providing HMO and ancillary coverage in Oklahoma.

The ratings of HCSC and its health insurance subsidiaries reflect the company's established market presence in its selected health insurance markets, sound financial and operating discipline, market and product diversity as well as solid capitalization. These strengths are partially offset by the low enrollment growth in New Mexico and the challenged profitability at the Texas HMO.

The health insurance operations of HCSC as well as its HMO subsidiaries have an established market presence in their respective markets. A diverse product portfolio designed to meet the needs of individuals and large, medium and small employer groups has contributed to the strong market share. Operating results have more than doubled and net income results tripled in the past three years. In addition, net income has exceeded $300 million for the past four years, excluding a one-time charge in 2002 and was more than $600 million for the past two years.

HCSC is well capitalized. Historically strong earnings have contributed significantly to consistent surplus growth and to favorable capital adequacy on a risk-adjusted basis. HCSC's debt to capital ratio was under 15% at year-end 2004 and is considered below industry average. Debt service coverage was strong at more than 30 times at year-end 2004.

New Mexico experienced an 11% decline in enrollment in early 2004, which was attributable to the loss of a national account; however membership has been steadily growing since that time. The New Mexico market is extremely competitive with HMOs owned by medical delivery systems as the major competitors. A.M. Best expects the growth of the New Mexico segment to remain challenged in the near term due to competitive pressures. However, A.M. Best recognizes that the New Mexico segment represents approximately 2% of HCSC's net premiums written and membership.

The Texas HMO operation has reported net and underwriting losses for two of the past four years. A.M. Best does acknowledge that the operating results at the Texas HMO have improved and HCSC has reported an underwriting and net gain in 2004. Additionally, A.M. Best recognizes that while the Texas HMO is strategic to HCSC, it only represents a small portion of the total business. Additionally, the premiums and membership at the Texas HMO are declining as more policyholders follow the national trend and switch to PPO and open access coverage.

Upon completion of the merger, Group Health Service of Oklahoma was merged into HCSC. As a result, the rating on Group Health Service of Oklahoma has been changed to an NR-5 (not formally followed).

The FSRs have been upgraded to A (Excellent) from B++ (Very Good) for the following subsidiaries of Health Care Service Corporation:

--GHS Health Maintenance Organization

--Member Service Life Insurance Company

The FSRs have been affirmed at A+ (Superior) for the following subsidiaries of Health Care Service Corporation:

--Health Care Service Corporation

--Fort Dearborn Life

--Health Care Service Corporation - HMO Texas

--HMOs of Blue Cross Blue Shield of Illinois

The FSRs have been affirmed at A (Excellent) for the following subsidiaries of Health Care Service Corporation:

--Colorado Bankers Life Insurance Company

--HMO New Mexico

A.M. Best Co., established in 1899, is the world's oldest and most authoritative insurance rating and information source. For more information, visit A.M. Best's Web site at www.ambest.com.