A.M. Best Affirms Ratings for The Regence Group Affiliates.

OLDWICK, N.J. -- A.M. Best Co. has affirmed the financial strength rating (FSR) of A (Excellent) and issuer credit rating (ICR) of "a" of Regence BlueShield (Seattle, WA). A.M. Best also has affirmed the FSRs of A- (Excellent) and ICRs of "a-" of Regence BlueShield's two subsidiaries, Asuris Northwest Health (Asuris) (Washington) and Regence Life and Health Insurance Company (Portland, OR), as well as Regence BlueCross BlueShield of Oregon (Regence BCBSO), Regence BlueCross BlueShield of Utah (Regence BCBSU) and its subsidiary, HealthWise (both of Salt Lake City, UT). The outlook for all ratings is stable. All the above companies are affiliates of The Regence Group (Portland, OR).

The ratings of Regence BlueShield reflect its strong risk-based capital, enrollment growth and member persistency. Capitalization has slightly declined as a result of lower earnings; however, the level of risk-based capital is considered strong.

Offsetting rating factors include the decline in favorable underwriting gains. The lower operating performance is the result of intentional pricing revisions to scale back profit margins and slow the growth of reserves. Regence BlueShield's invested asset portfolio composition is somewhat aggressive for a not-for profit health insurer; approximately 38% of surplus is comprised of unaffiliated equity security investments. A.M. Best does acknowledge that the equity portfolio is well diversified.

The ratings of Regence BCBSO recognize the strength in its market position, membership gains and its affiliation with The Regence Group. Regence BCBSO has seen favorable results in new enrollment in targeted segments through increased marketing and sales efforts and improved retention of its existing business. The company has a solid market position in Oregon, which is aided by its brand name recognition.

Offsetting ratings factors include the decline in capitalization levels, equity exposure and competition in the Oregon marketplace. The decline in capitalization is partially due to the planned strategy of margin moderation, and the potential impact from unrealized losses in the investment portfolio may cause the level of risk-based capital to decline further. Regence BCBSO's invested asset portfolio is aggressive for a not-for-profit insurer; approximately 34% of surplus as of December 31, 2007 is comprised of unaffiliated equity security investments. The company operates in a highly competitive environment with many insurers vying for business. The competitive environment has the potential to create pricing pressure for Regence BCBSO.

The ratings of Regence BCBSU reflect the strength in its market position, membership gains and its affiliation with The Regence Group. Medical enrollment had grown by 2.2% in 2007, and the economic conditions in Utah also have contributed to small group organic growth. Cross-selling of Regence Life and Health products also has strengthened Regence BCBSU's affiliation with The Regence Group.

Offsetting factors include deceased earnings, equity exposure and the intensified competitive landscape. The decline in earnings is the result of implementing ongoing corrective measures, including the strategic focus on core customer segments, revisions to product pricing and increased leveraging of The Regence Group wide management expertise and financial resources. The level of earnings is expected to improve in the near term as Regence BCBSU prices above cost trend. Regence BCBSU's invested asset portfolio composition is aggressive for a not-for-profit health insurer; approximately 30% of surplus is comprised of unaffiliated equity security investments. Additionally, any further deterioration in the equity markets increases the potential impact from unrealized losses in the investment portfolio and may cause the level of risk-based capital to decline. Moreover, several nationally-focused competitors have entered the Utah market recently. This increased competition could place pressure on Regence BCBSU's market share.

Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers. For more information, visit www.ambest.com.