A.M. Best Takes Various Rating Actions on Arkansas Blue Cross Blue Shield and Its Subsidiaries.

OLDWICK, N.J. -- A.M. Best Co. has affirmed the financial strength rating of A- (Excellent) of Arkansas Blue Cross Blue Shield, a Mutual Insurance Company (ABCBS). The rating outlook has been revised to stable from positive. All companies are located in Little Rock, AR.

This rating affirmation reflects ABCBS' favorable operating performance, very strong capital position and leading market position within Arkansas and the product and distribution support provided by its niche subsidiaries. ABCBS is the oldest and remains the largest provider of health care financing in Arkansas. Earnings have improved through the implementation of adequate rates, cost reductions through product design and process changes. The company maintains a very strong risk-adjusted capital position.

Partially offsetting these rating factors are ABCBS' changing business mix, the challenge of growing and maintaining its market share, regulatory risks and the potential strain on capital in maintaining a statewide managed care network. ABCBS maintains a substantial market share in Arkansas, which limits its future growth opportunities. As a means to increase the affordability of health care, ABCBS faces the risk of the Arkansas insurance regulator becoming more active within the health insurance industry regarding future rate levels. The company is experiencing migration in its membership mix as fully-insured large groups are shifting to self-directed health care or self insurance.

If the company does not maintain its cost effective statewide networks, this could put a strain on future capital and surplus. The potential of the enforcement of any willing provider legislation could have a negative effect on profitability and operations as ABCBS' ability to negotiate reimbursement rates could come under additional pressure.

Additionally, A.M. Best has assigned a financial strength rating of A- (Excellent) to USAble Corporation (USAble). The rating outlook is stable.

The rating reflects the significant amount of third party administration business that is strategically important to the overall operations of ABCBS. USAble is a downstream holding company that is wholly owned by ABCBS. Subsequently, USAble owns 69.8% of USAble Life and 50% of HMO Partners, Inc.

HMO Partners is jointly owned by USAble and Baptist Medical Systems HMO, an affiliate of Baptist Health Systems, which is the largest hospital system in Arkansas. USAble also maintains ownership of four unconsolidated joint ventures.

A.M. Best has also affirmed the financial strength ratings of A- (Excellent) of HMO Partners, Inc and USAble Life. The rating outlooks are stable.

These two companies are considered strategic subsidiaries of ABCBS. HMO Partners, doing business as Health Advantage, is the largest HMO in Arkansas, and USAble Life has carved a niche in the voluntary payroll deduction market.

For current Best's Ratings, independent data and analysis on more than 1,050 health companies and more than 130 HMO industry composites, please visit http://www.ambest.com/health/.

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 http://www.ambest.com.