Strong competitive position in its core markets of western and central Pennsylvania. Strong earnings profile, with improving business diversification. Very strong capitalization (2006 capital adequacy ratio of 233%). Very strong liquidity. Strong financial flexibility. Lower-than-expected earnings through the second quarter of 2007. Intense price competition in markets. Limited medical membership growth opportunities. Regulatory constraints on surplus. Insurer of last resort in western and central Pennsylvania. The insurer financial strength rating on Highmark Inc. (Highmark), d/b/a Highmark Blue Cross Blue Shield and Highmark Blue Shield, is based on the company's strong competitive position, particularly in its core markets of western and central Pennsylvania, and its strong earnings profile, improving business diversification, very strong capitalization, strong liquidity, and financial flexibility. Slightly offsetting
