A.M. Best Downgrades Ratings of HealthMarkets, Inc. and Its Subsidiaries

OLDWICK, N.J.--(Business Wire)--
A.M. Best Co. has downgraded the financial strength rating to B++
(Good) from A- (Excellent) and issuer credit ratings to "bbb+" from
"a-" of The MEGA Life and Health Insurance Company, The Chesapeake
Life Insurance Company (both of Oklahoma City, OK) and Mid-West
National Life Insurance Company of Tennessee (North Richland Hills,
TX), all subsidiaries of HealthMarkets, Inc. (HealthMarkets) (North
Richland Hills, TX). A.M. Best also has downgraded the ICR to "bb+"
from "bbb-" of HealthMarkets. The outlook for all ratings is negative.

The rating downgrades primarily reflect declining premium revenue,
high financial leverage, decreased interest coverage, high level of
dividends and turnover in senior management. HealthMarkets' captive
agent distribution system and position in the price sensitive
self-employed consumer market segment are the main drivers of the
organization's premium revenue and operating income. Premium revenue
in this segment has been declining since late 2005 due to lower agent
sales, which also has negatively affected operating income levels, as
well as the organization's transition to lower margin products.
HealthMarkets' financial leverage remains high due to the funding of
its acquisition by The Blackstone Group and its declining shareholder
equity. Interest coverage has declined due to the decrease in
operating earnings of the organization. Additionally, the amount of
dividends paid by the insurance subsidiaries has exceeded earnings for
the past few years, although A.M. Best does acknowledge that the
insurance entities are adequately capitalized for their business
risks. Since HealthMarkets was acquired by The Blackstone Group, there
have been numerous senior management changes. A.M. Best is concerned
with the stability of senior management at the organization and its
ability to successfully implement corrective action measures,
especially given the turnover in senior management.

Offsetting rating factors include the good risk-based capital
levels of the subsidiaries, support from a group of private equity
firms led by The Blackstone Group and the pending settlement of a
multi-state market conduct examination.

The negative outlook recognizes A.M. Best's concerns that the key
metrics mentioned above are not expected to improve in the near term
due to current operating results, which are significantly lower than
historical levels. Furthermore, the large amount of dividends that
have been paid by the insurance entities is concerning and could
impact the capitalization of the subsidiaries should the payment trend
continue.

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.

A.M. Best Co.
Analysts
Bridget Maehr
908-439-2200, ext. 5321
bridget.maehr@ambest.com
or
Sally Rosen
908-439-2200, ext. 5280
sally.rosen@ambest.com
or
Public Relations
Jim Peavy
908-439-2200, ext. 5644
james.peavy@ambest.com
or
Rachelle Morrow
908-439-2200, ext. 5378
rachelle.morrow@ambest.com

Copyright Business Wire 2008