A.M. Best Affirms and Assigns Ratings to Blue Cross Blue Shield of Michigan and Its Subsidiary.

OLDWICK, N.J. -- A.M. Best Co. has affirmed the financial strength rating of A- (Excellent) and assigned issuer credit ratings (ICR) of "a-" to Blue Cross Blue Shield of Michigan (BCBSM) (Detroit, MI) and its subsidiary, Blue Care Network of Michigan (Southfield, MI). The outlook for all ratings is stable.

The ratings of BCBSM reflect the organization's strong capitalization, dominant market position in Michigan, membership growth and increased business diversification. The offsetting rating factors include reduced underwriting results, regulatory limitations in individual lines of business and increased capital spending through acquisition, investment in the subsidiaries and infrastructure.

The recent acquisition of M-CARE, combined with organic growth, increased Blue Care Network (BCN) membership by almost 47%, improved health maintenance organization (HMO) market share by about 8% and expanded the company's geographic reach. BCBSM established a leading position in the Medicare market, including group Medicare Advantage plans for retiree coverage, individual Medicare Advantage, as well as the Part D stand alone.

During 2005-2006, BCBSM introduced the strategy of group rate moderation that significantly reduced underwriting margins. The company's status of the insurer of last resort led to adverse risk selection and the inability to promptly adjust rates for individual lines of business, which resulted in substantial operating losses. However, in 2007 BCBSM received approval for rate increases for several individual products that may improve underwriting results. Following a steady growth in 2002-2005, the risk-based capitalization at BCBSM declined during 2006 and is expected to decline further in 2007. A.M. Best is concerned that if underwriting losses continue in the future, combined with the need to support the subsidiaries, there may be pressure on the organization's capital level.

For Best's Ratings, an overview of the rating process and rating methodologies, please visit www.ambest.com/ratings.

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.