A.M. Best Affirms Credit Ratings of BCBSM, Inc. and HMO Minnesota, Revises Outlooks to Positive for MII Life Insurance, Incorporated

A.M. Best has affirmed the Financial Strength Rating (FSR) of A-
(Excellent) and the Long-Term Issuer Credit Rating (Long-Term ICR) of
“a-” of BCBSM, Inc., d/b/a Blue Cross Blue Shield of Minnesota
(BCBSM) and its subsidiary, HMO Minnesota d/b/a Blue Plus (Blue
Plus). In addition, A.M. Best has affirmed the Long-Term Issue Credit
Rating of “bbb+” on the $250 million 3.79% senior unsecured notes due
2025 issued by BCBSM. The outlook of these Credit Ratings (ratings) is
negative. Both companies are domiciled in Eagan, MN.

Concurrently, A.M. Best has revised the outlooks to positive from stable
and affirmed the FSR of B++ (Good) and Long-Term ICR of “bbb+” of MII
Life Insurance, Incorporated (MII Life) (St. Paul, MN). The ratings
reflect BCBSM’s balance sheet strength, which A.M. Best categorizes as
strong, as well as its adequate operating performance, neutral business
profile and appropriate enterprise risk management.

The negative outlook for BCBSM and Blue Plus reflects the recent history
of underwriting losses and potential that continued investments in the
business may pressure earnings in the near-term. Furthermore, the
dividend in 2017 from the BCBSM to its parent, Aware Integrated, Inc.
exceeded earnings and A.M. Best has concerns that should this continue,
risk-adjusted capitalization may weaken.

BCBSM maintains a favorable risk-adjusted capital position, which
supports its business and investment risks. However, both earnings and
capital growth have been challenged over the past several years. Both
BCBSM and Blue Plus have reduced their underwriting losses significantly
in 2017, which is attributed partially to pricing actions taken to
ensure rate adequacy, as well as exiting from highly volatile individual
on-exchange business. In addition, BCBSM continues to maintain a
dominant market position in Minnesota and enjoys strong brand
recognition, strategic relationships with a diverse group of provider
networks and a balanced product portfolio. However, A.M. Best notes that
BCBSM operates in a highly competitive environment in which pricing
pressures underwriting earnings for all carriers. Furthermore, BCBSM has
a high exposure to Minnesota’s Medicaid program and depends on its
ability to obtain sufficient rates to maintain profitability.

MII Life’s rating affirmations were driven by its very strong balance
sheet and adequate operating performance. The positive outlook reflects
the growing importance of MII Life for the parent organization as a
source of earnings and business diversification. The company has an
established presence in administering health spending and health
reimbursement accounts, as well as other custodial accounts and
services. MII Life has operated in its core product segments for over 30
years and ranks among the top leading administrators and the top
voluntary employee beneficiary association administrators in the nation.
The company reported favorable operating performance through early 2018.
Additionally, the company continues to benefit from operational and
financial support from its ultimate parent, Aware Integrated, Inc, and
its affiliated company, BCBSM. MII Life has a reinsurance agreement with

This press release relates to Credit Ratings that have been published
on A.M. Best’s website. For all rating information relating to the
release and pertinent disclosures, including details of the office
responsible for issuing each of the individual ratings referenced in
this release, please see A.M. Best’s Recent
Rating Activity web page. For additional information
regarding the use and limitations of Credit Rating opinions, please view Understanding
Best’s Credit Ratings. For information on the proper media
use of Best’s Credit Ratings and A.M. Best press releases, please view Guide
for Media – Proper Use of Best’s Credit Ratings and A.M. Best Rating
Action Press Releases.

A.M. Best is the world’s oldest and most authoritative insurance
rating and information source. For more information, visit www.ambest.com.

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