A.M. Best Affirms "A-" Excellent Rating of Finger Lakes Health & Finger Lakes Medical

Business Wire, Sept 28, 1998

OLDWICK, N.J.--(BUSINESS WIRE)--Sept. 28, 1998--A.M. Best Co. has affirmed the "A-" (Excellent) ratings of Finger Lakes Health Insurance Co. and Finger Lakes Medical Insurance Co., Rochester, N.Y., which do business jointly as Blue Cross & Blue Shield of the Rochester Area.

The rating reflects the dominant share the combined companies have of the Rochester health insurance market and their strong managed-care operations. It also reflects the steady growth of insured membership, favorable earnings and good capitalization for the combined companies.

Blue Cross & Blue Shield of the Rochester Area has 60 years' experience with community rating and relationships with local providers that promote shared health costs. This unusual business environment has proved a strong barrier to new competition. As a result, the company enjoys a 70% market share, which gives it more power in provider contracting negotiations. This, in turn, helps control medical costs. In addition, a high degree of electronic processing reduces administrative expenses.

The result is health-care costs that are below the national average and a stable, satisfied customer base. Blue Cross & Blue Shield of the Rochester Area is well positioned to react to market change without significant loss of market share.

The company's surplus has grown in recent years due to changes in New York State's insurance regulation, which increased Finger Lakes' rate-setting flexibility. A.M. Best also considers the risk-based capital level to be further strengthened by the high proportion of community-rated business and the companies' unique risk-sharing arrangements with providers. However, A.M. Best does not expect the company's capital level to grow significantly in the near future due to competitive pricing in the Rochester market.

In 1997, the company entered into a strategic alliance with Blue Cross & Blue Shield of Central New York through the creation of a joint, not-for-profit holding company called Excellus, Inc. Beginning in the first quarter of 1998, Blue Cross & Blue Shield of Utica-Watertown became affiliated with Blue Cross & Blue Shield of the Rochester Area and Blue Cross & Blue Shield of Central New York as the third member plan of Excellus, Inc. The focus of the alliance has been to serve as a means to share information only and no financial relationship exists to date.

For the near future, however, the company's high market share and low uninsured population will likely limit further growth in membership, due to small anticipated population growth and a few new employers in the region. The company's diversification away from its core medical business and expansion of long-term care sales within and outside of New York will mitigate this limited growth potential.

Blue Choice also had its Best's Rating of "A-" (Excellent) affirmed. The rating reflects the HMO's strategic position as a line of business within Finger Lakes Health Insurance Co.

In addition, Finger Lakes Long Term Care Insurance Co. and MedAmerica Insurance Co. had their "A-" (Excellent) Best's Ratings affirmed. The ratings reflect the companies' strategic roles as the long-term care insurance subsidiaries of Blue Cross & Blue Shield of the Rochester Area. The long-term care subsidiaries are an integral part of the parent's growth strategy, extending operations beyond its core medical business and legislatively restricted service area surrounding Rochester, N. Y.

A.M. Best Co., established in 1899, is America's oldest and most widely recognized insurance rating and information source. For more information, visit A.M. Best's Web site at http://www.ambest.com.