S&P Announces: Blue Cross Blue Shield of Michigan Outlook Revised to Positive

by C-BW@CLARI.NET (NY S&P VIA BIZWIRE) on 2004-04-30 12:10:07

S&P Announces: Blue Cross Blue Shield of Michigan Outlook Revised to Positive; 'BBB+' Ratings Affirmed
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NEW YORK--(BUSINESS WIRE)--April 30, 2004--On April 30, 2004,
Standard & Poor's Ratings Services revised its outlook on Blue Cross
Blue Shield of Michigan (BCBSM) and BCBSM's subsidiary, Blue Care
Network of Michigan (BCN), to positive from stable because of BCBSM's
strong competitive position and the expectation that the improvement
in earnings and capitalization in 2003 will be maintained. At the same
time, Standard & Poor's affirmed its 'BBB+' counterparty credit and
financial strength ratings on BCBSM and BCN.
The ratings on BCN are based on explicit support from the parent
company, BCBSM.

Outlook

Standard & Poor's expects BCBSM to benefit from the improved
competitive environment, with small-group market reform positively
affecting earnings and capital in 2004. Earnings are expected to be
more than $250 million in 2004, and the capital adequacy ratio is
expected to further improve to more than 160%. BCBSM's enrollment is
expected to increase 1%-2% annually.

Major Rating Factors

-- Strong business position. BCBSM has successfully leveraged its
strong relationship with medical providers and insured groups,
quality customer service, and diversified product lines into a
strong market position in Michigan's healthcare market. BCBSM
commands a dominant 54% enrollment market share of the
Michigan's market. The plan provides medical benefits to
nearly 4.8 million members.

-- Strong and improved operating performance. BCBSM's overall
operating performance has steadily improved and is a
significant strength to the rating. In the past two years, the
company has had a favorable earnings trend as it has continued
to focus on appropriately pricing its business and reducing
administrative expenses while enjoying the benefits of a
lower-than-expected medical cost trend. In 2003, BCBSM
reported consolidated GAAP net income of $367.7 million
compared with $161.5 million in 2002 and $56.2 million in
2001. Standard & Poor's believes that the improved regulatory
environment in Michigan following the adoption of small-group
market reform will provide the foundation for continued strong
earnings.

-- Strong and improving capital position. Capitalization improved
to strong levels in 2003, as demonstrated by a capital
adequacy ratio of 142% compared with 119% in 2002. Reform is
expected to provide BCBSM with greater flexibility to continue
to grow its capital base.

-- Business concentration. With a large part of the plan's
business concentrated in Michigan, BCBSM's operating
performance is directly linked to Michigan's overall economic
growth.

-- Recoverability of regulatory asset. In the late 1990s, BCBSM
was permitted under GAAP accounting to establish a regulatory
asset to book losses from area-rated business. Small group
market reform should mitigate the risk of collecting the
remaining asset of $112.4 million at the end of 2003.



Ratings List
TO FROM
Blue Cross Blue Shield of Michigan
Blue Care Network of Michigan
Counterparty credit rating BBB+/Positive/-- BBB+/Stable/--
Financial strength rating BBB+/Positive BBB+/Stable