A.M. Best Downgrades Ratings of Blue Cross and Blue Shield of Minnesota and Its Subsidiary

Business Wire, June 11, 2008

OLDWICK, N.J. -- A.M. Best Co. has downgraded the financial strength rating (FSR) to A- (Excellent) from A (Excellent) and issuer credit ratings (ICR) to "a-" from "a" of BCBSM, Inc., d/b/a Blue Cross and Blue Shield of Minnesota (BCBSM) and its insurance subsidiary, HMO Minnesota d/b/a Blue Plus. In addition, A.M. Best has downgraded the FSRs to B (Good) from A- (Excellent) and ICRs to "bbb " from "a-" of BCBSM's members, FirstSolutions and MII Life, Incorporated. All companies are domiciled in Eagan, MN. The outlook for all ratings has been revised to stable from negative.

The downgrading of BCBSM's ratings is based upon its trend of underwriting losses over the past couple of years, deteriorated level of capitalization and competitive landscape. The company has targeted breakeven underwriting earnings; however, A.M. Best expects BCBSM will have difficult attaining profitability in the near term given the very competitive pricing environment in which the group operates and the trend of growing underwriting losses, which exceeded $80 million for 2007. Capitalization levels have lowered over the past few years with risk-based capital (RBC) just below 600% at year-end 2007 from over 800% in 2004; these amounts include the reserves for the tobacco settlement. Without the settlement reserves the actual RBC is much lower.

Offsetting rating factors include the companies' leading positions in administrative services, which support state-wide services in Minnesota and throughout the United States. Furthermore, BCBSM has performed well in gaining market share in both the commercial and government market segments. BCBSM has used its Blue Brand strength to garner 34% market share in the commercial business segment and nearly 47% of the Medicare Prescription Drug market by leveraging the relationship it has in the Northern Plains Alliance, which is an alliance of six Blues plans covering seven states.

For Best's Ratings, an overview of the rating process and rating methodologies, please visit www.ambest.com/ratings.> Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers. For more information, visit www.ambest.com.