REPORT OF EXAMINATION
OF THE
ANTHEM BLUE CROSS LIFE AND HEALTH INSURANCE COMPANY
AS OF
DECEMBER 31, 2013
Filed on April 5, 2017
TABLE OF CONTENTS PAGE
SCOPE OF EXAMINATION ............................................................................................ 1
SUBSEQUENT EVENTS ................................................................................................ 2
COMPANY HISTORY: .................................................................................................... 7 Capitalization ............................................................................................................. 7 Dividends Paid to Parent ........................................................................................... 8
MANAGEMENT AND CONTROL:................................................................................... 8 Management Agreements ........................................................................................ 10
TERRITORY AND PLAN OF OPERATION ................................................................... 12
REINSURANCE: ........................................................................................................... 13 Assumed .................................................................................................................. 13 Ceded ...................................................................................................................... 13
ACCOUNTS AND RECORDS ....................................................................................... 14
FINANCIAL STATEMENTS: ......................................................................................... 15 Statement of Financial Condition as of December 31, 2013 .................................... 16 Underwriting and Investment Exhibit for the Year Ended December 31, 2013 ........ 17 Reconciliation of Surplus as Regards Policyholders from December 31, 2009
through December 31, 2013 ............................................................................... 19
COMMENTS ON FINANCIAL STATEMENT ITEMS: .................................................... 20 Claims unpaid .......................................................................................................... 20 Accrued medical incentives ..................................................................................... 20 Unpaid claims adjustment expense ......................................................................... 20 Aggregate health policy reserves ............................................................................. 20 Aggregate life policy reserves .................................................................................. 20 Aggregate health claim reserves.............................................................................. 20
SUMMARY OF COMMENTS AND RECOMMENDATIONS: ........................................ 20 Current Report of Examination ................................................................................ 20 Previous Report of Examination .............................................................................. 20
ACKNOWLEDGMENT .................................................................................................. 21
Los Angeles, California March 8, 2017
Honorable Dave Jones Insurance Commissioner California Department of Insurance Sacramento, California
Dear Commissioner:
Pursuant to your instructions, an examination was made of the
ANTHEM BLUE CROSS LIFE AND HEALTH INSURANCE COMPANY
(hereinafter also referred to as the Company) at the primary location of its books and
records at 120 S. Via Merida, Thousand Oaks, California 91362. The Company’s
statutory office is located at 21555 Oxnard Street, Woodland Hills, California 91367.
SCOPE OF EXAMINATION
We have performed our multi-state examination of the Company. The previous
examination of the Company was made as of December 31, 2009. This examination
covers the period from January 1, 2010 through December 31, 2013. The examination
was conducted in accordance with the National Association of Insurance
Commissioners’ Financial Condition Examiners’ Handbook (Handbook). The Handbook
requires the planning and performance of the examination to evaluate the Company’s
financial condition, to identify prospective risks, and to obtain information about the
Company, including corporate governance, identification and assessment of inherent
risks, and the evaluation of the system controls and procedures used to mitigate those
risks. The examination also included an assessment of the principles used and the
significant estimates made by management, as well as an evaluation of the overall
financial statement presentation, and management’s compliance with Statutory
Accounting Principles and Annual Statement instructions. All accounts and activities of
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the Company were considered in accordance with the risk-focused examination
process.
The examination was a coordinated examination with Indiana as the Lead State, and
was conducted concurrently with examinations of other insurance entities within the
WellPoint Group of Companies (“WellPoint”).
In addition to those items specifically commented upon in this report, other phases of
the Company’s operations were reviewed including the following areas that require no
further comment: corporate records; fidelity bonds and other insurance; pensions, stock
ownership; growth of company; statutory deposits; and loss experience.
SUBSEQUENT EVENTS
During 2014, the Company’s ultimate parent, WellPoint, Inc., changed its name to
Anthem, Inc.
During February 2015, Anthem, and entities, were the target of a sophisticated external
cyber-attack. The attackers gained unauthorized access to certain information
technology systems and obtained personal information related to many individuals and
employees, such as names, birthdates, health care identification/social security
numbers, street addresses, email addresses, phone numbers and employment
information, including income data. To date, there is no evidence that credit card or
medical information, such as claims, test results or diagnostic codes, were targeted,
accessed or obtained, although no assurance can be given that they will not
identify additional information that was accessed or obtained.
Upon discovery of the cyber-attack, Anthem took immediate action to remediate the
security vulnerability and retained a cyber-security firm to evaluate the systems and
identify solutions based on the evolving landscape and has continued to implement
security enhancements since this incident. Anthem is providing credit monitoring and
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identity protection services to those who have been affected by this cyber-attack.
Subsequent to the cyber-attack Anthem has incurred expenses to investigate and
remediate this matter and expects to continue to incur expenses of this nature in the
foreseeable future and will recognize these expenses in the periods in which they are
incurred.
Actions have been filed in various federal and state courts and other claims have been
or may be asserted against Anthem on behalf of current or former members, current or
former employees, other individuals, shareholders or others seeking damages or other
related relief, allegedly arising out of the cyber-attack. State and federal agencies,
including state insurance regulators, state attorneys general, the Health and Human
Services Office of Civil Rights and the Federal Bureau of Investigation, are investigating
events related to the cyber-attack, including how it occurred, its consequences and
Anthem’s responses. Although Anthem is cooperating in these investigations, Anthem
may be subject to fines or other obligations, which may have an adverse effect on how
they operate their business and their results of operations. With respect to the civil
actions, a motion to transfer was filed with the Judicial Panel on Multidistrict Litigation in
February 2015 and was subsequently heard by the Panel in May 2015. In June 2015,
the Panel entered its order transferring the consolidated matter to the U.S. District
Court for the Northern District of California. The U.S. District Court entered its case
management order in September 2015. Anthem filed a motion to dismiss ten of the
counts that are before the U.S. District Court. In February 2016, the court issued an
order granting in part and denying in part their motion, dismissing three counts with
prejudice, four counts without prejudice and allowing three counts to proceed. Plaintiffs
filed a second amended complaint in March 2016, and Anthem subsequently filed a
second motion to discuss. In May 2016, the court issued an order granting in part and
denying in part their motion, dismissing one count with prejudice, dismissing certain
counts asserted by specific named plaintiffs with or without prejudice depending on their
individualized facts, and allowing the remaining counts to proceed. In July 2016,
plaintiffs filed a third amended complaint which Anthem answered in August 2016. Fact
discovery is scheduled to be completed by December 2016. There remain two state
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court cases that are presently proceeding outside of the Multidistrict Litigation. Anthem
has contingency plans and insurance coverage for certain expenses and potential
liabilities of this nature. While a loss from these matters is reasonably possible, Anthem
cannot reasonably estimate a range of possible losses because their investigation into
the matter is ongoing, the proceedings remain in the early stages, alleged
damages have not been specified, there is uncertainty as to the likelihood of a class
or classes being certified or the ultimate size of any class if certified, and there are
significant factual and legal issues to be resolved.
On July 24, 2015, the Company's ultimate parent company, Anthem, and Cigna
Corporation (Cigna) entered into an Agreement and Plan of Merger dated as of
July 23, 2015, by and among Anthem, Cigna, and Anthem Merger Sub Corp., a
Delaware corporation and a direct wholly-owned subsidiary of Anthem, pursuant to
which Anthem will acquire all outstanding shares of Cigna, or the Acquisition. The
Acquisition will further Anthem’s goal of creating a premium health benefits
company with critical diversification and scale to lead the transformation of health care
delivery for consumers. Cigna is a global health services organization that delivers
affordable and personalized products and services to customers through employer-
based, government-sponsored and individual coverage arrangements. All of Cigna’s
products and services are provided exclusively by or through its operating subsidiaries,
including Connecticut General Life Insurance Company, Cigna Health and Life
Insurance Company, Life Insurance Company of North America and Cigna Life
Insurance Company of New York. Such products and services include an integrated
suite of health services, such as medical, dental, behavioral health, pharmacy, vision,
supplemental benefits, and other related products including group life, accident and
disability insurance. Cigna maintains sales capability in 30 countries and jurisdictions.
Under the terms of the Merger Agreement, Cigna’s shareholders will receive $103.40 in
cash and 0.5152 shares of Anthem’s common stock for each Cigna common share
outstanding. The value of the transaction is estimated to be approximately $53.0 billion
based on the closing price of Anthem’s common stock on the New York Stock
Exchange on July 23, 2015. The final purchase price will be determined based on
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Anthem’s closing stock price on the date of closing of the Acquisition. The combined
company will reflect a pro forma equity ownership comprised approximately 67%
Anthem shareholders and approximately 33% Cigna shareholders. Anthem expects to
finance the cash portion of the Acquisition through available cash on hand and the
issuance of new debt. Anthem entered into a bridge facility commitment letter and a
joinder agreement with a group of lenders which will provide up to $22.5 billion under a
364-day senior unsecured bridge term loan credit facility to finance the Acquisition in the
event that Anthem has not received proceeds from any combination of (i) senior
unsecured term loans, (ii) common or preferred equity or equity-linked securities
and/or (iii) senior unsecured notes in a public offering or private placement in an
aggregate principal amount of at least $22.5 billion prior to the consummation of the
Acquisition. In addition, in August 2015, Anthem entered into a term loan facility which
will provide up to $4.0 billion to finance a portion of the Acquisition. The commitment of
the lenders to provide the bridge facility and the term loan facility is subject to several
conditions, including the completion of the Acquisition. On July 21, 2016, the U.S.
Department of Justice, or DOJ, along with certain state attorneys general, filed a civil
antitrust lawsuit in the U.S. District Court for the District of Columbia seeking to block
the Acquisition. Trial commenced on November 21, 2016. On January 18, 2017,
Anthem provided notice to Cigna that Anthem had elected to extend the termination
date under the Merger Agreement from January 31, 2017 until April 30, 2017. Following
the conclusion of the trial, the Court ruled in favor of the DOJ, on February 8, 2017, and
Anthem promptly filed notice that Anthem would appeal the Court's ruling. On February
14, 2017, Cigna purported to terminate the Merger Agreement and commenced
litigation against Anthem in the Delaware Court of Chancery, or Delaware Court,
seeking damages and a declaratory judgment that its purported termination of the
Merger Agreement was lawful, among other claims. Anthem believes Cigna's
allegations are without merit. Also on February 14, 2017, Anthem initiated its own
litigation against Cigna in the Delaware Court seeking a temporary restraining order to
enjoin Cigna from terminating the Merger Agreement, specific performance compelling
Cigna to comply with the Merger Agreement and damages. On February 15, 2017, the
Delaware Court granted Anthem's motion for a temporary restraining order and issued
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an order enjoining Cigna from terminating the Merger Agreement. The temporary
restraining order became effective immediately and will remain in place pending any
further order from the Delaware Court. Anthem intends to vigorously defend the
Acquisition in both the Circuit Court and the Delaware Court and remains committed to
completing the Acquisition as soon as practicable.
On December 1, 2016, a Regulatory Settlement Agreement, (RSA) was entered into by
Anthem and the California Department of Insurance, Indiana Department of Insurance
(INDOI), Maine Bureau of Insurance, Missouri Department of Insurance, New
Hampshire Insurance Department, North Dakota Department of Insurance, and South
Carolina Department of Insurance (collectively, the "Lead Regulators") and the
insurance regulatory departments, divisions, or offices of each of the remaining states
and U.S. jurisdictions that adopt, agree to, and approve this Agreement ( the
"Participating Regulators"). This RSA resulted from the targeted multi-state market
conduct and financial examination initially called by the lNDOI as lead domestic
regulator on February 26, 2015, as a result of Anthem's announcing of the cyber-
security breach noted above. The purpose of the examination was to assess Anthem's
state of cyber-security preparedness prior to the Data Breach, its post-Data Breach
response, the adequacy of measures taken by the Company to mitigate the harm to
consumers whose personally identifiable information (PIT) was compromised, and
determine the identity of the persons responsible for the breach. "The results of this
examination found that a) Anthem's pre-breach cyber-security was reasonable and
included the implementation of technologies and procedures consistent with or
exceeding those of a typical organization of its size and type; b) Anthem's preparations
to respond to a data breach began well before the incident occurred and included a
detailed Incident Response Plan (IR Plan); c) The Company's IR Plan allowed it to
timely and effectively respond to the Data Breach when it was discovered, removing
the attacker's ability to access the network within three days of identifying the Data
Breach; d) The examiners identified the attacker with high confidence and concluded
with medium confidence that the attacker was acting on behalf of a foreign
government. Attacks associated with this foreign government have not resulted in PIT
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being transferred to non-state actors; e) Anthem promptly communicated and
cooperated with law enforcement and regulatory officials; f) Anthem provided affected
individuals with notice through direct mailing, emailing, news publications, website
notice, and working with state insurance departments; g) Within two weeks of
discovering the Data Breach, Anthem contracted with a vendor to provide credit
protection services for two years to breach-impacted consumers; and h)
Immediately following discover of the Data Breach, Anthem engaged expert consultants
to investigate the Data Breach and assist Anthem with its post-breach response. To
date, Anthem has already incurred significant costs related to the Data Breach: $2.5
million to engage expert consultants; $115 million for the implementation of security
improvements; $31 million to provide initial notification to the public and affected
individuals; and $112 million to provide credit protection to breach-impacted consumers.
In light of the facts set forth, the corrective actions already implemented by Anthem, and
the Additional Corrective Actions agreed to, the Lead Regulators find that administrative
fines or penalties are not warranted. Additional Corrective Actions include a) Continued
implementation of enhanced security measures at an estimated additional cost of at
least $30 million; b) Continuation of cyber-security monitoring; and c) Anthem Minor
Credit Protection Program at an estimated additional cost of at least $15 million.
COMPANY HISTORY
On October 4, 2007 the California Department of Insurance approved an amended
Certificate of Authority to change the Company’s name from BC Life & Health Insurance
Company to Anthem Blue Cross Life and Health Insurance Company.
Capitalization
The Company is authorized to issue 250,000 shares of Class A voting common stock
with a par value of $100 per share. As of December 31, 2013, there were 50,000
shares outstanding.
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Dividends Paid to Parent
The Company paid the following ordinary cash dividends to its parent, WellPoint
California Services, Inc., during the examination period:
Year Amount 2012 $ 192,000,000 2013 321,300,000 Total $ 513,300,000
MANAGEMENT AND CONTROL
The Company is a member of an insurance holding company system. WellPoint, Inc.,
is one of the largest health benefits companies in the United States. WellPoint, Inc., is
the ultimate controlling entity. The following abridged chart, which is limited to the
Company’s ultimate parent and its affiliates, depicts the Company’s relationship within
the holding company system:
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WellPoint, Inc. (Indiana)
Anthem Holding Corp. (Indiana)
WellPoint California Services, Inc. (Delaware)
Blue Cross of California (California)
(CA)
Anthem Blue Cross Life and Health Insurance Company
(California)
Golden West Health Plan, Inc.
(California)
Park Square I, Inc. (California)
Park Square Holdings, Inc. (California)
Park Square II, Inc. (California)
(*) all ownership is 100% unless otherwise noted.
Management of the Company is vested in a three-member board of directors elected
annually. A listing of the members of the board and principal officers serving on
December 31, 2013 follows:
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Directors
Name and Residence Principal Business Affiliation
Wayne Scott DeVeydt Indianapolis, Indiana
Senior Vice President and Chief Financial Officer WellPoint, Inc.
Catherine Irene Kelaghan Carmel, Indiana
Vice President and Counsel WellPoint, Inc.
Mark James Morgan Newbury Park, California
President and Chief Executive Officer Anthem Blue Cross Life and Health Insurance Company
Principal Officers
Name Title
Mark James Morgan (*) President and Chief Executive Officer Cassie Shuang Kam (**) Chief Financial Officer Robert David Kretschmer Treasurer Kathleen Susan Kiefer Secretary George Lewis Chartrand Assistant Secretary Eric Kenneth Noble Assistant Treasurer
(*) Replaced by John Brian Ternan, effective May 26, 2015 as President and Chief
Executive Officer
(**) Replaced by Jay Reginald King, effective September 5, 2014
Management Agreements
Amended and Restated Master Administrative Services Agreement: Effective
January 1, 2004, the Company and its ultimate parent, WellPoint, Inc., entered into an
amended and restated Master Administrative Services Agreement. The initial term of
the agreement was for one year and continued for successive yearly renewal terms.
The agreement can be terminated by either party by providing a one year notice prior to
the expiration of any renewal. Under the terms of the agreement, WellPoint, Inc.
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provides space and various administrative, management and support services to the
Company. The cost and expenses related to the services provided are allocated in an
amount equal to the direct and indirect costs and expenses incurred in providing such
services. The Company reimbursed WellPoint, Inc. for the actual cost of these services.
For 2010, 2011, 2012, and 2013, the Company paid $932,094,903, $956,091,251,
$914,692,907, and $955,190,143, respectively, in fees to WellPoint, Inc. under the
terms of this agreement. The California Department of Insurance (CDI) approved the
amended agreement on June 15, 2010.
Administrative Services Agreement: Effective August 1, 2003, the Company and its
affiliate, Worldwide Insurance Services, Inc. (WIS), a Virginia corporation, entered into
an Administrative Services Agreement. Under the terms of the agreement, WIS
provides a variety of administrative services, including: underwriting, pricing of risk,
premium and fee administration, policy and contract administration, policyholder and
customer services, claims administration, and management of third party vendors.
Third party vendors include preferred provider organizations and other vendors who
provide services with respect to reinsured policies of the Company under a coinsurance
agreement with HTH Re. Ltd., a Bermuda reinsurer. The Company paid WIS for the
actual cost of these services. For 2010, 2011, 2012, and 2013, the Company paid
$2,269,410, $2,242,762, $3,837,551 and $4,093,874, respectively, in fees to WIS under
the terms of this agreement. The CDI approved this agreement on
September 21, 2007.
Subcontractor Services Agreement: Effective August 1, 2003, the Company and its
affiliate, WIS, entered into a Subcontractor Services Agreement. Under the terms of the
agreement, the Company provides WIS the following services: claims adjudication
services, customer services, personnel, and management services. Fees charged by
the Company under this agreement are $9.30 per claim, with additional access fees
calculated based on claims experience. For 2010, 2011, 2012, and 2013, the Company
received $894,815, $991,470, $1,174,549, and $1,346,422, respectively, in fees from
WIS under the terms of this agreement. The CDI approved this agreement on
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August 21, 2007.
Pharmacy Benefits Administrative Services Agreement: Effective December 1, 2009,
the Company entered into a Pharmacy Benefits Administrative Services Agreement with
its ultimate parent, WellPoint, Inc. The agreement replaces and supersedes the
previous Pharmacy Benefit Services Management Agreement between the Company
and NextRx Services, Inc. (previously Professional Claim Services, Inc. dba WellPoint
Pharmacy Management). Under the terms of the agreements, WellPoint, Inc. retained
Express Scripts, Inc. to provide certain pharmacy benefit management services to the
members of WellPoint, Inc.’s affiliated health plans, including the Company. The CDI
approved this agreement on October 6, 2009.
Consolidated Tax Allocation Agreement: Effective December 31, 2005, the Company
and its affiliates are part of a Consolidated Tax Allocation Agreement with its ultimate
parent, WellPoint, Inc., and its subsidiaries. Allocation of taxes is based upon separate
return calculations. The intercompany income tax balances are settled based on the
Internal Revenue Service due dates. The CDI approved this agreement on
April 26, 2007.
TERRITORY AND PLAN OF OPERATION
The Company is licensed to transact life and disability insurance solely in the State of
California. The Company offers traditional medical and dental coverage, as well as
preferred provider organization and indemnity coverage, and provides administrative
services relating to health plans for self-insured employers. The Company also writes
life insurance for individuals and group term life insurance for small and large employer
groups. The Company’s total direct written premium for the year ending 2013 was $5.3
billion. The written premium was comprised of group accident and health insurance,
$2.7 billion (51%), other accident and health insurance of $2.6 billion (48%) and group
and ordinary life, $46.5 million (1%).
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The Company operates as a licensee of the Blue Cross Blue Shield Association. The
Company services approximately 3.4 million members. The Company does not have its
own employees. Services are provided to the Company by its affiliate, Blue Cross of
California. The Company markets its products through independent agents and direct
marketing.
REINSURANCE
Assumed
The Company has no reinsurance assumed.
Ceded
The following is a summary of the principal ceded reinsurance treaties in force as of
December 31, 2013:
Type of Contract Reinsurer’s Name Company’s Retention Reinsurer’s Maximum Limits
Health Coverage for International Students
HTH Re, Ltd. 80% and 100% Quota Share
20% and 0% Quota Share
Individual Long Term Care various years and plans
General Reins Corp (formerly Cologne Life Reinsurance Company)
80% Quota Share 20% Quota Share
Individual Long Term Care various years and plans
Gen Re Life Corp (formerly Cologne Life Reinsurance Company)
40% Quota Share 60% Quota Share
Individual Long Term Care various years and plans
Westport (formerly Employers Reinsurance Corporation)
60% Quota Share 40% Quota Share
Life and AD&D
Hartford Life and Accident Insurance Company
$300,000 per life Not to exceed $1,700,000 per person
Chiropractic Claims & Expenses for commercial PPO members
American Specialty Health Insurance Company
100% Quota Share 0% Quota Share
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As of December 31, 2013, reinsurance recoverable for all ceded reinsurance totaled
$0.5 million or 0.04% of surplus as regards policyholders. The ceded reinsurance
recoverable was 100% from non-affiliated admitted reinsurers.
ACCOUNTS AND RECORDS
California Insurance Code (CIC) Section 735 states that the Company must inform the
board members of the receipt of the examination report. The board should be informed
of the report both in the form first formally prepared by the examiners and in the form as
finally settled and officially filed by the commissioner. The board must also enter that
fact in the board minutes. A review of the board minutes disclosed that, while the draft
was presented to the board, the officially filed report was not presented.
It is recommended that the Company implement procedures to ensure future
compliance with CIC Section 735.
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FINANCIAL STATEMENTS
The financial statements prepared for this examination report include:
Statement of Financial Condition as of December 31, 2013 Underwriting and Investment Exhibit for the Year Ended December 31, 2013 Reconciliation of Surplus as Regards Policyholders from December 31, 2009 through December 31, 2013 Reconciliation of Examination Changes as of December 31, 2013
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Statement of Financial Condition as of December 31, 2013
Ledger and Nonledger Assets Not Net Admitted Assets Assets Admitted Assets Notes Bonds $ 1,867,648,597 $ $ 1,867,648,597 Preferred stocks 19,927,155 19,927,155 Common stocks 69,658,585 69,658,585 Cash and short-term investments 187,307,293 187,307,293 Contract loans 232,692 232,692 Derivatives 1,667,966 1,667,966 Other invested assets 76,973,468 1,683,049 75,290,419 Investment income due and accrued 22,273,682 22,273,682 Premiums and agents’ balances in course of collection 123,514,584 12,787,067 110,727,517 Accrued retrospective premiums 5,819,080 5,819,080 Amount recoverable from reinsurers 466,898 466,898 Amounts receivables relating to uninsured plans 374,106,758 73,653,312 300,453,446 Current federal and foreign income tax recoverable and interest thereon 2,711,074 2,711,074 Net deferred tax asset 114,925,289 90,545 114,834,744 Receivables from parent, subsidiaries and affiliates 28,681,450 28,681,450 Health care and other amounts receivable 68,554,462 41,066,440 27,488,022 Aggregate write-ins for other than invested assets 7,786,531 4,802,354 2,984,177
Total assets $ 2,972,255,564 $134,082,767 $ 2,838,172,797
Liabilities, Surplus and Other Funds
Claims unpaid $ 532,922,426 (1) Accrued medical incentives 1,510,215 (1) Unpaid claims adjustment expenses 19,251,665 (1) Aggregate health policies reserves 202,881,266 (1) Aggregate life policy reserves 7,332,149 (1) Aggregate health claim reserves 7,723,191 (1) Premium received in advance 19,093,296 General expenses due or accrued 46,579,276 Ceded reinsurance premiums payable 667,496 Amounts withheld or retained for the accounts of others 7,217,111 Remittance and items not allocated 44,595,079 Amounts due to parent, subsidiaries and affiliates 583,248,303 Payable for securities 2,196,447 Funds held under reinsurance treaties with unauthorized insurers 5,446,007 Liability for amounts held under uninsured plans 73,694,045 Aggregate write-ins for liabilities 67,045,977
Total liabilities 1,621,403,949
Common capital stock $ 5,000,000 Gross paid-in and contributed surplus 25,000,000 Unassigned funds (surplus) 1,186,768,848 Surplus as regards policyholders 1,216,768,848
Total liabilities, surplus and other funds $ 2,838,172,797
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Underwriting and Investment Exhibit for the Year Ended December 31, 2013
Statement of Income
Underwriting Income
Net Premium Income $5,314,570,413 Change in unearned premium reserve and reserves for rate credits 79,179,967 Aggregate write-ins for other non-health revenues 5,555 Total revenues $ 5,393,755,935
Deductions:
Hospital/Medical benefits $ 2,217,112,237 Other professional services 95,548,528 Outside referrals 261,595,408 Emergency room and out of area 1,046,739,495 Prescription drugs 724,898,436 Net incentive pools, withhold adjustments, and bonus amounts (509,349) Net reinsurance recoveries (12,704,988) Non-health claims (net) 25,055,952 Claims adjustment expenses including cost containment expenses 164,414,631 General and administrative expenses 628,000,242 Increase in reserve for life and accident and health contracts 69,112,680 Total underwriting deductions 5,219,263,272 Net underwriting gain 174,492,663
Investment Income
Net investment income earned $ 74,016,098 Net realized capital gain 20,231,806 Net investment gain 94,247,904
Other Income
Net loss from agents’ or premium balances charged off (amount charged off $594,588) $ (594,588) Aggregate write-ins for miscellaneous income 7,028,144
Total other income 6,433,556
Net income before federal income taxes 275,174,123 Federal and foreign income taxes incurred 106,271,175
Net income $ 168,902,948
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Capital and Surplus Account
Surplus as regards policyholders, December 31, 2012 $ 1,361,040,897
Net income $ 168,902,948 Change in net unrealized capital losses (6,880,211) Change in net deferred income tax 25,406,696 Change in nonadmitted assets (10,401,482) Dividends to policyholders (321,300,000)
Change in surplus as regards policyholders for the year (144,272,049)
Surplus as regards policyholders, December 31, 2013 $ 1,216,768,848
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Reconciliation of Surplus as Regards Policyholders from December 31, 2009 through December 31, 2013
Surplus as regards policyholders, December 31, 2009 per Examination $ 813,778,821
Gain in Loss in Surplus Surplus
Net income $ 920,761,679 $ Net unrealized capital gains 1,811,318 Change in net deferred income tax 14,841,504 Change in liability for reinsurance in unauthorized companies 2,138,120 Change in nonadmitted assets 66,270,025 Cumulative effect of changes in accounting principles 43,007,431 Dividends to policyholders 513,300,000
Total gains and losses $ 982,560,052 $ 579,570,025
Net increase in surplus as regards policyholders 402,990,027
Surplus as regards policyholders, December 31, 2013, per Examination $ 1,216,768,848
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COMMENTS ON FINANCIAL STATEMENT ITEMS (1) Claims unpaid (1) Accrued medical incentives (1) Unpaid claims adjustment expenses (1) Aggregate health policy reserves (1) Aggregate life policy reserves (1) Aggregate health claim reserves
The Company’s reserves were reviewed by the consulting actuarial firm of Merlinos and
Associates (Merlinos). The Indiana Department of Insurance retained Merlinos as part
of the coordinated examination of the WellPoint Group of Companies. Merlinos
concluded that the carried reserves as of December 31, 2013 were reasonable. In
addition, a Life Actuary from the California Department of Insurance (CDI) reviewed the
work of the consulting actuary and performed additional analysis as deemed
appropriate. The CDI actuary determined that the reserves were fairly stated.
SUMMARY OF COMMENTS AND RECOMMENDATIONS
Current Report of Examination
Accounts and Records – (Page 15): It is recommended that the Company implement
procedures in its board meetings to ensure compliance with CIC Sections 735.
Previous Report of Examination
None
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ACKNOWLEDGMENT
Acknowledgment is made of the cooperation and assistance extended by the
Company’s officers and employees during the course of this examination.
Respectfully submitted,
_/S/__________________________
Cuauhtemoc Beltran, CFE Examiner-In-Charge Senior Insurance Examiner Department of Insurance State of California