A.M. Best Assigns Initial Rating to Christiana Care Health Plans, Inc.

Business Editors

OLDWICK, N.J.--(BUSINESS WIRE)--Dec. 17, 2002

A.M. Best Co. has assigned an initial financial strength rating of B++ (Very Good) to Christiana Care Health Plans, Inc. (Christiana Care) (Wilmington, DE). The rating outlook is stable.

The rating reflects Christiana Care's strategic role as the managed care affiliate of Christiana Care Corporation, a not-for-profit integrated health care delivery system. The rating also reflects an improved profitability at two divisions, First State Health Plans (Medicaid) and Mid-Atlantic Health Plans (Commercial). These divisions provide a strong working capital position and ample statutory surplus to support expansion. Partially offsetting these strengths is the limited service area, reliance on government plans and a competitive commercial marketplace.

Established in 1994 to provide manage care products, Christiana Care with 121,000 members has become Delaware's second largest health insurer and the sole Medicaid underwriter for the Diamond State Health Plan. The health maintenance organization (HMO) enrollment is augmented with ASO, POS and PPO commercial plan offerings. Premium increases are consistently driven by Medicaid and ASO with fully insured commercial premiums added over the past three years. The underwriting gain has benefited from a lower medical loss ratio of 85.1% and an administrative expense ratio of 8.9%, while the investment income remains stable as the asset allocation is primarily fixed income securities. Administrative expense has been held low by the application technology platforms and outsourcing of processing functions. Cash from operations supports a stronger working capital position with the current ratio at 221.1% and the overall liquidity ratio at 252.9%. In the past three years, capital contributions from the parent have lowered balance sheet leverage and increased equity reserve. Comparatively, premiums to capital of 3.7 times, months reserve of 3.5 times and equity per member per month of $51.58 are better than the median for small-managed care companies. The NAIC risk-based capital is above 500% of the authorized control level (ACL).

Excess capital provides adequate cushion against risks inherent to the business strategy as Christiana Care is the sole Medicaid underwriter in Delaware. After several years of loss, the Title XIX Medicaid business turned profitable in 2001. In 2002, Medicaid membership was expanded significantly with the addition of 46,000 members from a competitor. Provider network advantages include; 745 primary care physicians, 1,393 specialty care physicians and 14 hospitals, which supports growth in the commercial HMO where Christiana Care offers a choice of plans for small and large groups.

Finally, the service area is confined to New Castle, Kent and Sussex Counties in Delaware with ancillary services across state lines. As a small local plan, Christiana Care faces strong competition from established companies such as CareFirst, Coventry Health, Aetna U.S. HealthCare and Cigna HealthCare in marketing commercial plans, especially to large groups. A.M. Best believes it is important for Christiana Care to develop new commercial plan designs in order to achieve higher market share.

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.