A.M. Best Downgrades Rating of Health Insurance Plans of Greater New York and Affirms Rating of ConnectiCare; Assigns Negative Outlook

Business Wire, May 1, 2006

OLDWICK, N.J. -- A.M. Best Co. has downgraded the financial strength rating to B (Very Good) from B (Very Good) of Health Insurance Plans of Greater New York (HIP) (New York, NY) and its subsidiary, HIP Insurance Company of New York. Additionally, A.M. Best has affirmed the FSR of B (Very Good) of ConnectiCare, Inc. (Farmington, CT). The ratings have been removed from under review and assigned a negative outlook.

The ratings of HIP reflect consistent positive earnings, sizable market share and strong name recognition. Offsetting factors include its weakened capital position following the ConnectiCare acquisition, the potential for further capital deterioration and its increasing medical loss ratio.

For the last five years, all of HIP's lines of business (except Medicaid) have been profitable on both an underwriting and net income basis. HIP's strong name recognition has helped it to build a 10% market share in the greater New York City area, with a large portion of the membership comprised of municipal and union contracts.

A.M. Best remains concerned about HIP's level of capitalization. The ConnectiCare acquisition significantly increased goodwill on HIP's balance sheet. The company has not been able to replenish its capital through earnings due to large losses in another subsidiary, Vytra Health Plans of Long Island, Inc. (Vytra), which was merged into HIP during first quarter 2006. Vytra's losses resulted in a write-down on HIP's balance sheet. The remaining amount of goodwill exposure creates the potential for further write-downs should the performance of HIP's other subsidiaries deteriorate.

A.M. Best believes that the current level of capitalization is low for the ratings and has concerns that 2006 budgeted profits may not be enough to restore them to adequate levels. The upcoming merger with Group Health Inc. (GHI) may put further strain on HIP's already low capitalization level. The company's traditional utilization patterns have shifted as more members are switching from HIP's physicians' practices to general fee-for-service providers. That has caused an increase in the medical loss ratio and put pressure on medical cost trends for the future. In order to stay competitive, HIP will be under pressure to come up with effective medical cost control mechanisms, as well as to develop more favorable rates with general fee-for-service providers.

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