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 these positive factors, earnings have been lower than expected through the first two quarters of 2007, driven by higher-than-expected medical costs, particularly in western Pennsylvania. Highmark operates in a highly competitive health insurance market where organic growth opportunities are limited and intense price competition for existing business is pressuring operating margins. In addition, although regulatory restraints on Highmark's level of surplus by the Pennsylvania Insurance
