A.M. Best Upgrades Rating of Arkansas Blue Cross and Blue Shield.

OLDWICK, N.J. -- A.M. Best Co. has upgraded the financial strength rating to A (Excellent) from A- (Excellent) of Arkansas Blue Cross and Blue Shield, A Mutual Insurance Company (ABCBS) (Little Rock, AR). The rating outlook is stable.

ABCBS' rating is based on continued favorable earnings over the past five years. The primary drivers of the organization's earnings trend are its significant market operations that are supported by a large membership base that is well ahead of the competition, as well as almost complete participation by provider networks within Arkansas. ABCBS exhibits a highly efficient administrative infrastructure, and reliable underwriting helps to ensure favorable operating margins, while maintaining a very strong capitalization that has grown in the past five years.

Additionally, ABCBS has embarked on a definitive business diversification strategy that is expected to strongly influence and add cohesiveness among mutual and not-for-profit Blue Plans in the southern region of the United States after bringing renewed focus and innovation to a broad suite of traditional ancillary products. This evolving business profile is expected to lower operating costs, help in alleviating geographic concentration risk and broaden ABCBS' reach within the region, while establishing a national presence for non-branded products.

A decision to limit premium pricing inflation as a means of managing profit margins and the resulting growth in risk-based capital will require some product re-engineering. ABCBS' investment performance, though favorable, has delivered declining yields, even as average maturities have decreased. A.M. Best believes that ABCBS is in an optimal position to make the necessary changes to strengthen its operations and to promote itself as a regional player in the life/health insurance marketplace. A.M. Best also believes that innovation, which is the basis of strategic planning initiatives, must be prevalent in the execution phase over the next few years in order to reduce the likelihood of a regional competitor gaining market share.

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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.