A.M. Best Places Cobalt Under Review.

Business Editors

OLDWICK, N.J.--(BUSINESS WIRE)--Aug. 14, 2001

A.M. Best Co. has placed the financial strength ratings of B++ (Very Good) for the Cobalt Corporation, Milwaukee, companies under review with developing implications.

The action follows the July 30, 2001 announcement that Cobalt has retained Bear, Stearns & Co. to consider strategic alternatives in response to purchase inquiries from other Blue Cross and Blue Shield plans. The companies comprising Cobalt are: Blue Cross & Blue Shield United of Wisconsin (BCBSUW), Compcare Health Services Insurance Corporation (Compcare), United Heartland Life Insurance Corporation, United Wisconsin Insurance Company, Unity Health Plans Insurance Corporation (Unity) and Valley Health Plan, Inc. (Valley).

A.M. Best believes the companies of Cobalt will benefit from an alliance with a stronger parent if a deal is finalized. Two years of large net losses at several of the companies has weakened the capital position of both the individual entities as well as the capital of Cobalt. Additionally, a $70 million collateral loan between BCBSUW and Cobalt is due January 1, 2002. This collateral loan constitutes over 50% of BCBSUW's net worth. A stronger parent should provide Cobalt additional access to capital from either the new parent organization or the capital markets. If a suitable acquirer is not found, Cobalt will need to raise capital to repay the inter-company loan or obtain regulatory approval for an extension. Moreover, the individual entities and Cobalt may need additional capital if the net losses continue and negatively impact Cobalt's capital position.

During 1999 and 2000, Cobalt sustained large net losses due to the losses reported by the health care insurance entities. However, in the first half of 2001, BCBSUW and Unity returned to profitability. At the end of 2001, Valley is expected to post a small gain although it reported a nominal net loss for the first half of 2001. This gain will be due to the implementation of higher renewal actions on the July renewals. Unfortunately, losses at Compcare, Cobalt's largest HMO, continue. In the second quarter 2001, Compcare reported a $12.7 million pre-tax loss. This loss is attributable to greater than expected increases in health costs in the Milwaukee area after Compcare's capitation contracts ended. With approximately 52% of Compcare's inforce policyholders renewing January 1, 2002, these losses are expected to continue for the remainder of 2001. A.M. Best remains concerned about the continuing losses and will closely monitor the earnings and capitalization of the entire Cobalt Corporation.

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.