A.M. Best Assigns A- -Excellent- Rating To Blue Cross Blue Shield of Michigan.

OLDWICK, N.J.--(BUSINESS WIRE)--May 3, 1999--

A.M. Best Co. today assigned an A- (Excellent) rating to Blue Cross Blue Shield of Michigan, Detroit, and its core operating subsidiary, Blue Care Network of Michigan.

The rating reflects the company's leading market share, strong distribution/provider relationships, consistent bottom-line earnings and stable, well-performing investment portfolio. Offsetting factors include moderately diminished underwriting performance in its core lines of business, substantial investment in affiliated operations and regulatory operating constraints. Blue Cross Blue Shield of Michigan (BCBSM) maintains the strongest market share among all health insurers in Michigan. Core in-state penetration currently exceeds 50%. The company has experienced steady membership growth in each of the past four years and maintains a leading position in all four major product segments, which include: managed traditional, preferred-provider organization, point of service and HMO. More than half of the company's enrollment is aligned with the managed traditional product segment. HMO products are offered through Blue Care Network.

The HMO product segment is the most competitive for the organization; recent growth in this segment has offset attrition experienced by the company's rather substantial indemnity block of business.

The company's statewide presence is a function of strong distribution and provider relationships that provide important competitive advantage. Its products are marketed by an extensive sales force consisting of internal staff and a network of external independent agents established by the company. The company also has established close working relationship with organized labor, the auto industry and various state chambers and associations to bolster and sustain its leading market presence. Furthermore, the company has leveraged its member base to build extensive networks in the state and negotiate favorable contractual terms with hospitals and physicians.

BCBSM has achieved consistently profitable bottom-line results in each of the past five years. In addition to administrative scale efficiencies, the company benefits from a large, well-performing investment portfolio that contributes significantly to overall profitability. Other income is derived from generally well-capitalized subsidiary operations.

Underwriting performance has declined over the past five years. Most recently, results have been impacted by losses experienced by Blue Care Network in the HMO market that offset improvement in the more traditional market segments directly aligned with Blue Cross Blue Shield of Michigan. Besides competitive pricing conditions and unfavorable utilization trends, HMO results were affected by restructuring costs associated with the formation of Blue Care Network. In February 1998, four separate BCBSM affiliated Blue Care Network HMOs merged to form a single Blue Care Network HMO.

BCBSM is the largest Medicare Supplemental carrier in the state. The company's participation in this market is influenced by its mandatory carrier status and is consistent with its non-profit mission, which entails a commitment to provide the seniors market with a viable health-care service product, despite restrictive rate limitations that ultimately diminish bottom line performance. BCBSM is well capitalized in support of its existing business risk. However, the company has made substantial investments in subsidiary operations. These investments expose it to more stringent surplus requirements and pressure its capital adequacy profile. Consequently, A.M. Best incorporates an assessment of subsidiary capital strength as part of the overall financial strength evaluation.

The company also is subject to a rate-setting structure that effectively limits earnings in certain segments and restricts the company's underwriting performance.

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