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A.M. Best Rating
Rating Upgraded to A (Excellent)
A.M. Best Company upgraded the financial strength rating of Arkansas Blue Cross
and Blue Shield to A (Excellent) from A- (Excellent) in November 2005. A.M. Best
stated that the rating outlook is stable. Arkansas Blue Cross had been rated A-
(Excellent) from 1994 to 2004.
A rating from A.M. Best represents an independent opinion of a company's financial
strength and ability to meet its obligations to policyholders from one of the leading
providers of insurer ratings.
Rating Rationale
A.M. Best based its rating on "continued favorable earnings over the past five years"
and cited the primary drivers of the earnings trend as:
- Significant market operations that are supported by a large membership base that
is well ahead of the competition;
- Almost complete participation by provider networks within Arkansas.
In addition, Arkansas Blue Cross "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," A.M. Best continued.
A.M. Best also cited the "definitive business diversification strategy" of Arkansas
Blue Cross "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."
A.M. Best continued to say that this evolving business profile of Arkansas Blue
Cross would:
- Lower operating costs;
- Help in alleviating geographic concentration risk;
- Broaden the reach of Arkansas Blue Cross within the region while establishing a
national presence for non-branded products.
Future Direction
"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,"
stated A.M. Best. "Investment performance, though favorable, has delivered declining
yields, even as average maturities have decreased."
A.M. Best believes that Arkansas Blue Cross "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."
A.M. Best also affirmed A- Excellent ratings in 2004 for three Arkansas Blue Cross
and Blue Shield affiliates: USAble Life, USAble Corporation and HMO Partners, Inc.
(Health Advantage).
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