Examination Reports : Bureau of Insurance

Pursuant to your instructions and in accordance with the provision of 24-A M.R.S.A. §221, the Maine Bureau of Insurance (hereinafter, "the Bureau") conducted an examination, as of December 31, 2006, of the financial condition of

ANTHEM HEALTH PLANS OF MAINE, INC.

The examination, performed at the home office of Anthem Health Plans of Maine, Inc. (hereinafter, "the Company" and "AHPM") in South Portland, Maine, was made in accordance with the standards and procedures established by the Bureau and the National Association of Insurance Commissioners (hereinafter, "the NAIC") and for that reason, included tests of the accounting records and other procedures considered necessary under the circumstances.

The accompanying financial statements have been prepared pursuant to statutory accounting practices prescribed or permitted by the NAIC and the Bureau. These practices differ in certain respects from generally accepted accounting principles.

For purposes of this report, comments on various items may be limited to matters involving departure from laws, rules or regulations, a significant change in the amount of the item, or where an explanation, comment and/or recommendation is warranted.

The following report is respectfully submitted.

SCOPE OF EXAMINATION

The Bureau conducted a routine full-scope statutory examination of the Company covering the period of January 1, 2004 to December 31, 2006. The last routine full-scope statutory examination performed by the State of Maine was for the period ended December 31, 2003. The full-scope examination was performed using the specific risk analysis approach. The following matters were considered and reviewed in order to assess their respective impact on financial condition and conformity with related laws.

DESCRIPTION OF COMPANY

The Company is part of a holding company system and is a wholly-owned subsidiary of ATH Holding Company, LLC (hereinafter, "ATH") which is a wholly-owned subsidiary of WellPoint, Inc. (hereinafter, "WLP"), a publicly traded company. The Company is a stock insurance company organized and existing under the laws of the State of Maine. The Company was licensed for health authority by the State of Maine on May 25, 2000. The Company's major lines of businesses written are Comprehensive Hospital and Medical and Federal Employees Health Benefit Plans. The Company's lesser lines of business include Medicare Supplement, Vision Only and Dental Only.

Company History

The Company was incorporated on March 10, 2000 in anticipation of the acquisition of Associated Hospital Services, Inc. d/b/a Blue Cross and Blue Shield of Maine (hereinafter, "BCBSME"), by Anthem Insurance Companies, Inc. (hereinafter, "AICI"). By Decision and Order dated May 25, 2000, the Maine Superintendent of Insurance granted the application of BCBSME to convert to a for-profit stock insurer and to voluntarily dissolve. The Decision and Order also approved the application of AICI, through AHPM, to acquire substantially all of the assets and assume substantially all of the liabilities of the converted BCBSME. The assets acquired included the stock and ownership interests in affiliates and subsidiaries of BCBSME. The Acquisition Order additionally granted AHPM a certificate of authority to operate as a health insurer with a health maintenance organization (hereinafter, "HMO") line of business.

At the time AHPM was incorporated, AICI was the ultimate controlling person in the insurance holding company system. AICI converted from a mutual insurance company to a stock insurance company on November 2, 2001 and, as part of the conversion, it became a wholly-owned subsidiary of Anthem, Inc., a new Indiana stock corporation created for the purpose of being the public holding company for the Anthem family of companies.

On December 21, 2000 the Maine Superintendent of Insurance approved the January 1, 2001 merger of Central Maine Partners Health Plan, Inc. with its parent, AHPM. Central Maine Partners Health Plan, Inc. ceased operations on December 31, 2000 and merged into AHPM on January 1,2001.

On November 23, 2004, the Maine Superintendent of Insurance approved the merger of Maine Partners Health Plan, Inc with its parent, AHPM. Maine Partners Health Plan, Inc. merged with its parent AHPM on January 1, 2005.

On November 30, 2004, Anthem, Inc, completed its acquisition of California-based WellPoint Health Networks Inc. and changed its name to WLP.

Effective December 28, 2006, Anthem East, LLC, the sole shareholder of AHPM, merged with and into ATH, making that company the new shareholder of AHPM.

Affiliated Entities

An abbreviated organizational chart as of December 31, 2006 is presented below:

organizational chart

Management and Control

The Company is governed by a seven member Board of Directors. The following are the duly elected members of the Board of Directors and the Officers serving at December 31, 2006:

Directors

Erin P. Hoeflinger, Chair	David C. Colby*
Nancy Louise Purcell	Clark M. Millman
Robert D. Kretschmer	Sandra H. Miller
Angela F. Bra1y
*David C. Colby resigned in May 2007 and was replaced by Wayne S. DeVeydt.

Officers

Erin P. Hoeflinger	President
Nancy Louise Purcell	Secretary
Chrystal L. Veazey-Watson	Assistant Secretary
Robert D. Kretschmer	Treasurer
Lendall L. Smith, Esq.	Clerk

Each Director and Officer of the Company is required to complete a conflict of interest statement annually to disclose any material interest or affiliation which is likely to be in conflict with his/her official duties and responsibilities to the Company. The Company is in substantial compliance with its conflict of interest policy.

Corporate Records

Reviews of the Company's Articles of Incorporation, Bylaws, and Minutes of the Board of Directors' meetings held from the period January 1, 2004 to the completion of field work were performed. The reviews indicated that the Company is conducting its affairs substantially in compliance with its Articles of Incorporation and Bylaws.

Growth of the Company

The following table presents selected comparative data that the Company reported for the period under examination:

as of December 31 (in thousands)
	2006	2005	2004*	2003*
Cash & Invested Assets	$306,503	$290,112	$272,048	$229,247
Total Assets	541,695	458,859	417,167	365,978
Claims & Policy Reserves	172,468	175,435	149,122	122,914
Total Liabilities	326,399	244,098	239,980	229,714
Total Capital & Surplus	$215,296	$214,761	$177,187	$136,264

Years ended December (in thousands)
	2006	2005	2004*	2003*
Net Premium Income	$1,073,744	$1,034,419	$918,695	$954,159
Net Underwriting Gain	42,527	39,412	45,818	67,767
Net Investment Gain	17,406	15,877	14,169	11,440
Pre-tax Income	60,356	55,387	60,019	79,216
Net Income	$40,433	$35,642	$40,017	$51,235

Member Months	3,837	3,947	3,616	3,821

*Restated to reflect merger of Maine Partners Health Plan, Inc. into Anthem Health Plans of Maine, Inc.

Fidelity Bond and Other Insurance

As of December 31, 2006, the Company had adequate coverage under an Employee Dishonesty Policy in compliance with 24-A M.R.S.A. §3359 (2) (F). The policy is issued to the Company's ultimate parent, WLP, and the policy includes WLP's subsidiaries. The aggregate limit of liability on the primary policy for fidelity insurance and computer crime is $20,000,000 each.

The Company's other insurance coverage, also through WLP, includes usual and customary coverage for property, casualty and workers' compensation protection.

Officers' and Employees' Welfare and Pension Plans

The Company does not have any employees. The Company is allocated salaries and employee benefit costs which are directly attributable to the Company's operations through an Amended and Restated Master Administrative Services Agreement with its ultimate parent, WLP.

Certain WLP employees allocated to the Company participate in an AICI sponsored non- contributory defined benefit pension plan. Effective January 1, 2006, benefits were curtailed under the non-contributory defined benefit pension plan. Employees hired on or after January 1, 2006 were not eligible to participate in the Plan. The Company is allocated certain costs associated with the non-contributory defined benefit pension plan based upon the number of eligible employees allocated to the Company.

AICI sponsored a postretirement medical benefit plan through December 31, 2006. Effective December 31, 2006, sponsorship of the postretirement medical benefit plan was transferred to ATH. Substantially all employees with ten years of service become eligible for these benefits if they reach retirement age while working for WLP. A share of total postretirement medical benefit plan cost is allocated to the Company based on the number of employees allocated to the Company.

AICI sponsored a certain voluntary employee programs through December 31, 2006. The voluntary employee programs include several qualified defined contribution plans which cover substantially all employees. Eligible employees may participate in only one plan. A share of total qualified defined contribution costs is allocated to the Company based on the number of employees allocated to the Company.

Through December 31, 2006 WLP sponsored deferred compensation plans that were previously sponsored by AICI through January 1, 2006. The deferred compensation plan amounts are payable according to the terms and subject to the conditions of said deferred compensation agreements. A share of total deferred compensation plan costs is allocated to the Company based on the number of employees allocated to the Company.

The Company has no legal obligation for the benefits under any of the above listed plans.

Territory and Plan of Operation

The Company is licensed to write accident and health insurance, including HMO products, in the State of Maine. Presently, the Company offers a wide variety of managed care and indemnity health insurance options to individuals and corporate customers within the State of Maine. These products are offered to both fully insured and "administrative services only" plans. In addition to providing managed care, the Company participates in the Medicare program regulated by the Centers for Medicare & Medicaid Services (hereinafter, "CMS").

The Company maintains networks of providers for its health insurance products. The Company's providers consist of the following types: primary care physicians, specialist physicians, ancillary services and hospital services. Pursuant to 24-A M.R.S.A. §4204 (6) HMO provider contracts are required to contain "hold harmless" clauses. Pursuant to 24-A M.R.S.A. §4204 (7) HMO provider contracts are required to contain continuation of benefits provisions. Certain of the provider contracts reviewed did not contain a hold harmless clause and/or a continuation of benefits clause which is in non-compliance with Maine Statutes (see Comment and Recommendation # 1).

Accounts and Records

Accounts and records were reviewed and tested in order to assess their impact on financial condition and conformity with related laws.

REINSURANCE

The Company has two reinsurance agreements with AICI. The first coverage is a quota share agreement that provides surplus relief and would only be triggered by certain Risk Based Capital ratios. The second coverage is an insolvency reinsurance agreement. These agreements represent compliance with paragraphs 10 & 11 of the Decision and Order dated May 25, 2000. During the period of examination (2004-2006), neither the quota share agreement nor the insolvency agreement was triggered.

FINANCIAL STATEMENTS

The accompanying financial statements fairly present in all material respects, the Company's statutory financial position as of December 31, 2006, and statutory results of operations for the period then ended. The financial statements as of December 31, 2005 and December 31, 2004 are unexamined and are presented for comparative purposes only.

STATUTORY STATEMENTS OF ADMITTED ASSETS, LIABILITIES AND SURPLUS

At December 31, 2006, 2005 and 2004

	2006	2005 (unexamined)	2004* (unexamined)
Admitted Assets:
Bonds (note 2)	$283,736,538	$218,676,929	$236,189,616
Common stocks (note 3)	497,311	6,992,281	7,310,855
Real estate - occupied by the company (note 4)	15,079,993	16,965,921	17,939,563
Cash and short-term investments (note 5)	7,162,492	47,455,268	10,604,705
Receivable for securities	26,252	22,063	3,712
Investment income due and accrued	2,808,006	2,351,443	2,640,222
Premiums and other considerations (note 6)	31,066,092	16,251,256	12,613,385
Amounts recoverable from reinsurers	-	53,638	1,755,818
Amounts receivable relating to uninsured plans (note 7)	25,716,803	14,226,357	17,189,100
Current federal income tax recoverable (note 8)	3,246,693	3,484,130	3,728,587
Net deferred tax asset (note 8)	12,760,036	9,871,895	7,159,776
Electronic data processing equipment and software	703,287	333,026	505,977
Receivable from parent, subsidiaries and affiliates	7,086,065	10,491,003	6,489,740
Health care and other amounts receivable (note 9)	122,935,941	110,262,324	92,380,760
Aggregate write-ins for other than invested assets (note 10)	28,869,091	1,421,056	655,387
TOTAL ADMITTED ASSETS	$541,694,600	$458,858,590	$417,167,203

Liabilities and Surplus:
Claims unpaid (note 11)	$93,523,130	$99,751,237	$105,840,049
Unpaid claims adjustment expenses (note 11)	3,241,745	3,480,708	3,773,393
Aggregate health policy reserves (note 11)	75,703,424	68,835,913	37,863,000
Aggregate health claim reserves	-	3,367,233	1,645,400
Premiums received in advance	1,142,594	11,862,078	13,741,238
General expenses due or accrued (note 12)	31,534,108	25,763,835	12,169,869
Current federal income tax payable (note 8)	842,445	763,775	1,277,599
Ceded reinsurance premiums payable	-	-	1,755,819
Amounts withheld/retained for the account of others	635,519	180,360	253,196
Remittances and items not allocated	6,746,716	3,554,980	4,228,075
Amounts due parent, subsidiaries and affiliates (note 13)	91,027,784	17,011,873	22,685,321
Liability for amounts held under uninsured plans (note 9)	19,190,370	2,552,440	27,866,557
Aggregate write-ins for other liabilities	2,811,246	6,973,365	6,880,799
TOTAL LIABILITIES	326,399,081	244,097,797	239,980,315

Common capital stock (note 14)	2,500,000	2,500,000	2,500,000
Gross paid in and contributed surplus	120,652,900	120,652,900	120,652,900
Unassigned funds	92,142,619	91,607,893	54,033,988
TOTAL SURPLUS (note 14)	215,295,519	214,760,793	177,186,888
TOTAL LIABILITIES and SURPLUS	$541,694,600	$458,858,590	$417,167,203

* Restated to reflect merger of Maine Partners Health Plan, Inc. into Anthem Health Plans of Maine

STATUTORY STATEMENT OF OPERATIONS

for the Years ended December 31, 2006, 2005 and 2004

	2006	2005 (unexamined)	2004* (unexamined)
Underwriting Income:
Net premium income	$ 1,073,744,037	$ 1,034,419,011	$ 918,695,139
Change in unearned premium reserves and reserve for rate credits	(6,867,512)	(30,972,913)	(16,750,252)
TOTAL REVENUE	1,066,876,525	1,003,446,098	901,944,887
Underwriting Deductions:
Hospital/medical benefits	750,924,025	685,392,060	603,188,359
Other professional services	5,666,033	5,704,068	23,326,527
Outside referrals	-	1,021,027	496,134
Emergency room and out-of-area	31,298,171	27,758,735	22,449,271
Prescription drugs	143,266,992	139,271,813	122,392,525
Aggregate write-ins for other hospital and medical	-	1,721,833	-
Net reinsurance recoveries	-	1,857,577	(14,748,041)
Total Hospital and Medical Deductions	931,155,221	862,727,113	757,104,775
Claim adjustment expenses	39,369,902	44,064,379	45,053,247
General administrative expenses	53,824,080	57,242,459	54,291,434
Increase in reserves for life, accident and health contracts	-	-	(322,189)
TOTAL UNDERWRITING DEDUCTIONS	1,024,349,203	964,033,951	856,127,267
NET UNDERWRITING GAIN	42,527,322	39,412,147	45,817,620
Investment Operations:
Net investment income earned	17,531,904	16,192,384	11,808,454
Net realized capital gain or loss, net of income taxes	(125,492)	(315,044)	2,360,409
NET INVESTMENT GAINS	17,406,412	15,877,340	14,168,863
Aggregate write-ins for other income or (expenses)	422,242	97,767	32,624
INCOME BEFORE FEDERAL AND FOREIGN INCOME TAXES	60,355,976	55,387,254	60,019,107
Federal and foreign income taxes incurred	19,922,844	19,744,915	20,001,998
NET INCOME	$40,433,132	$35,642,339	$40,017,109

* Restated to reflect merger of Maine Partners Health Plan, Inc. into Anthem Health Plans of Maine

STATEMENT OF STATUTORY CAPITAL AND SURPLUS

for the Years ended December 31, 2006, 2005 and 2004

	2006	2005 (unexamined)	2004* (unexamined)
Capital and surplus prior reporting period	$214,760,793	$177,186,888	$136,264,139
Net income or (loss)	40,433,132	35,642,339	40,017,109
Change in unrealized capital gains & losses net of tax	105,022	(119,475)	(14,627,830)
Change in net deferred income tax	(349,729)	3,239,081	423,551
Change in nonadmitted assets	(4,053,699)	(1,188,040)	15,109,919
Dividend to stockholder	(35,600,000)	-	-
Net change in capital and surplus	534,726	37,573,905	40,922,749
Capital and surplus end of reporting period	$215,295,519	$214,760,793	$177,186,888

* Restated to reflect merger of Maine Partners Health Plan, Inc. into Anthem Health Plans of Maine

NOTES TO THE FINANCIAL STATEMENTS

Note 1 - Accounting Practices

As a result of the acquisition of WellPoint Health Networks Inc. by Anthem, Inc. the Company implemented a group wide financial standard, during the course of 2006, wherein all member companies were directed to follow the same accounting and reporting standards in accordance with WLP's interpretation of the Statements of Statutory Accounting Principles and other relevant accounting literature. Member companies were directed to follow this practice except in situations where specific state regulations or a prescribed practice would require different statutory accounting and reporting.

These standards were adopted for the period ended December 31, 2006 only. Since prior period financial statements were not restated to reflect these changes, comparability between the periods ending December 31, 2006, December 31, 2005 and December 31, 2004 was affected.

Note 2 – Bonds

Bonds that are designated highest-quality and high quality by the NAIC (designation 1 and 2) are stated at amortized value. All other bonds are stated at the lower of amortized cost or fair value. The following tables describe the Company's bond portfolio at December 31, 2006.

Bond Classification	Actual Cost	Par Value	Market Value	Book Carrying Value
U.S. Government	$24,268,590	$24,056,496	$24,272,062	$24,260,067
Other Government	110,805	100,000	101,371	104,071
States, Territories & Possessions	13,517,795	12,095,000	12,889,350	13,034,626
Political subdivisions of States, Territories & Possessions	16,470,784	14,460,000	15,511,285	15,838,529
Special Revenue	143,445,502	137,277,946	140,999,490	141,804,940
Public Utilities	6,212,602	6,020,000	6,138,931	6,109,542
Industrial & Miscellaneous	83,166,676	81,797,714	81,753,002	82,584,763
Total	$287,192,754	$275,807,156	$281,665,491	$283,736,538

NAIC Rating Category	Actual Cost	Par Value	Market Value	Book Carrying Value
NAIC 1	$259,818,202	$248,977,156	$254,447,374	$256,549,640
NAIC 2	27,317,717	26,780,000	27,165,769	27,134,550
NAIC 3	56,835	50,000	52,348	52,348
Total	$287,192,754	$275,807,156	$281,665,491	$283,736,538

NAIC 1 is assigned to obligations exhibiting the highest quality. Credit risk is low. The issuer's profile is stable.
NAIC 2 is assigned to obligations exhibiting high quality. Credit risk is presently low but may increase in the near future. The issuer's credit profile is reasonably stable.
NAIC 3 is assigned to obligations of medium qua1ity. Credit risk is intermediate. The issuer's credit profile has elements of instability.

As required by 24-A M.R.S.A. § 412 the Company has maintained the required security deposit with the Treasurer of Maine.

Note 3 – Common Stocks

Corporate stocks are stated at market value in accordance with valuations promulgated by the NAIC. Unrealized capital gains and losses on investments reported at market value are charged directly to surplus as required by Statement of Statutory Accounting Principles (hereinafter, "SSAP") No. 30.

Investments in subsidiaries are properly stated using the equity method, in compliance with the requirements of SSAP No. 88. The Company elected not to have an audit performed on the books and records of its subsidiary, Machigonne Inc. at December 31, 2006, and the Company fully nonadmitted this asset at December 31, 2006.

Note 4 – Properties Occupied by the Company

Properties occupied by the Company are stated at depreciated cost less encumbrances, in compliance with SSAP No. 40

Note 5 – Cash, Cash Equivalents, and Short-term Investments

The Company properly reports the aggregate negative cash balance as a negative asset, investments with original maturities of three months or less as cash equivalents, and all other investments with original maturities of less than one year as short-term investments, as required by SSAP No.2.

Cash (overdraft)	($5,064,655)
Cash equivalents	11,966,832
Short-term investments	260,315
	$7,162,492

Note 6 - Premiums and Considerations

Premiums and considerations at December 31, 2006 consisted of

Premiums & agents' balances in the course of collection, admitted	$24,059,378
Premiums & agents' balances in the course of collection, nonadmitted	(6,163,661)
Deferred premiums & agents' balances and installments booked but not yet due	13,170,375
	$31,066,092

Premiums and agents' balances, admitted, is substantially in compliance with SSAP No. 6. The premiums and agents' balances, nonadmitted was determined to be overstated (refer to Comment & Recommendation # 2). The overstatement is not considered material to the overall financial condition of the Company.

Deferred premiums consist primarily of an estimate of unbilled premium due from the Federal Employee Health Benefits Program (hereinafter, "FEP").

Note 7 – Amounts Receivable Relating to Uninsured Plans

Amounts receivable relating to uninsured plans consist primarily of billed and unbilled claims under the Company's self-insured programs in accordance with SSAP No. 47.

Note 8 – Federal and Foreign Income Taxes

The Company is party to an inter-company tax sharing agreement. Current federal and foreign income tax recoverable and payable is based upon separate return calculations with credit for net losses that can be used on a consolidated basis. Inter-company balances are settled on the Internal Revenue due dates.

Current Federal Income Tax Recoverable	$3,246,693
Net Deferred Tax Asset	$12,760,036
Current Federal Income Tax Payable	$842,445

The deferred tax asset was determined to be substantially in compliance with SSAP No. 10.

Note 9 - Health Care and Other Amounts Receivable and Liability for Amounts Held Under Uninsured Plans

Health care and other amounts receivable and liability for amounts held under uninsured plans comprise amounts due under the Company's periodic interim payment and level pay programs and amounts receivable for pharmacy rebates. Substantially all of the liability classified as due uninsured plans should have been classified as a write-in liability due providers. Further the methodology utilized to gross up the advance to providers was not appropriate pursuant to SSAP No. 84, paragraph 18 (see Comment and Recommendation #3).

Health Care and Other Amounts Receivable	$122,935,941
Liability for Amounts Held Under Uninsured Plans	$19,190,370

Note 10 - Aggregate Write-ins for Other Than Invested Assets

The aggregate write-ins for other than invested assets include $26,771,390 of receivable under the FEP, in accordance with SSAP No. 84, and $2,659,818 of miscellaneous amounts receivable of which $562,117 was nonadmitted.

Note 11 - Claims Unpaid, Unpaid Claims Adjustment Expenses and Aggregate Health Policy Reserves

The Company properly reports unpaid claims, unpaid claims adjustment expenses and estimates of incurred but not reported claims and claim adjustment expenses unpaid.

Claims Unpaid	$93,523,130
Unpaid Claim Adjustment Expenses	$3,241,745
Aggregate Health Policy Reserves	$75,703,424

Aggregate health policy reserves include reserves for experience rating refunds, experience modification program reserves, claims stabilization reserves (including FEP) and unearned premium reserves. The FEP liability is offset by a corresponding asset reported as an aggregate write-in (see Note 10). The unearned premium reserve as reported by the Company includes both unearned premium reserves and premiums received in advance (see Comment and Recommendation # 4).

The Bureau of Insurance contracted with an outside actuary to perform an actuarial analysis of the Company's claim liabilities and reserves. The actuarial review determined that the unpaid claims liability, the unpaid claim adjustment expenses and the aggregate health policy reserves (except for unearned premium and the FEP liability) were adequate (see Appendix A of the Actuarial Opinion).

Note 12 - General Expenses Due and Accrued

The $31,534,108 general expenses due and accrued balance includes $13,462,600 related to Maine's Unfair Prescription Drug Practices Act, $6,788,029 related to Maine's Dirigo Health Reform Act savings offset payment and $11,283,479 related to expense accruals.

Note 13 - Amounts due Parent, Subsidiaries and Affiliates: Receivable from Parent, Subsidiaries and Affiliates

Amounts due or receivable from parent, subsidiaries and affiliates represent the amounts payable or receivable under the inter-company administrative, service and tax sharing agreements.

Amounts due Parent, Subsidiaries and Affiliates	$91,027,784
Receivable from Parent, Subsidiaries and Affiliates	$7,086,065

The following inter-company service agreements were in effect at December 31, 2006:

Company Providing Service	Service Provided
WellPoint, Inc.	Master Administrative Services Agreement
WLP & Subsidiaries	Consolidated Federal Income Tax Agreement
Anthem Health Plans, Inc.	Identification Card Processing
Anthem Health Plans, Inc.	Inter-Company Services Agreement
Meridian Resource Company, LLC	Subrogation and Claim Recovery Service Agreement
Anthem Prescription Management, LLC	Pharmaceutical Service Agreement

Note 14 - Capital and Surplus

As of December 31, 2006, the Company had authorized, issued and outstanding 2,500 shares of Class A common stock, par value $1,000. ATH, the immediate parent, owned 100% of the Company's common stock.

Capital and surplus of $215,295,519 was in compliance with the minimum net worth requirement of the State of Maine pursuant to 24-A M.R.S.A. §4204-A (4).

COMMENTS AND RECOMMENDATIONS

Comment: As noted in the Territory and Plan of Operation section, the Company is in non-compliance with 24-A M.R.S.A., §4204 (6) and (7). Certain provider contracts did not contain the required "hold harmless" and "continuation of benefits" clauses as required under State statute.

Recommendation: It is recommended that the Company review its provider contracts to ensure compliance with 24-A M.R.S.A., §4204 (6) and (7) and amend those contracts to include the required clauses.
Comment: As mentioned in Note 6 to the Financial Statements, premiums and agents' balances nonadmitted were determined to be overstated. Review of the financial statements indicated a significant year-over-year increase in the ratio of the nonadmitted amount to the total premiums and agents' balances in the course of collection as reported at December 31, 2006. During the course of this examination credit balances were identified as compensating balances which were available to reduce the amount identified as nonadmitted.

Recommendation: It is recommended that the Company perform a comprehensive review of premiums and agents' balances receivable in order to identify mispostings and compensating balances. (Based on a review of the Quarterly Statement as of March 31, 2007 it appears the Company has addressed this comment.)
Comment: SSAP No. 84, paragraph 18 states that for loans and advances to providers "the receivable and payable shall be reported gross rather than netted on the balance sheet". The Company is reporting a portion of this liability due as a liability to uninsured plans. Further, the methodology employed by the Company to segregate the receivable from the payable does not encompass 100% of the net balance due from providers resulting in an understatement of both the asset and liability. This comment pertains to the presentation of assets and liabilities and does not impact surplus.

Recommendation: It is recommended that the Company comply with all the provisions of SSAP No. 84.
Comment: The Company could not provide detail of its unearned revenue (account# 221110). The Company was able to provide a system report which tied to the total account balance as well as pages of a large report containing substantial policy level detail; however, there was no means to summarize the data. Subsequently, it was determined that this account contained both unearned premium & premiums received in advance. Due to the absence of summary information the examiners were unable to apply adequate sampling techniques to test the data. Accordingly, the examiners were unable to verify the accuracy of the liability reported nor could they determine the amount related to unearned premium (SSAP 54 paragraph 12) from the amount related to premium received in advance (SSAP 54 paragraphs 2-6).

Recommendation: It is recommended that the Company ensure the premium receivable system correctly identifies premiums paid in advance and provide policy detail as of the balance sheet date. The Company should further ensure the premium system can produce a detail policy list for all policies which are subject to the unearned calculation with a corresponding unearned amount by policy. The Company should report advance premium in accordance with SSAP 54 paragraphs 2-6 and calculate unearned premium in accordance with SSAP 54 paragraph 12.

CONCLUSION

The Company's financial condition, as disclosed by this examination, is reflected in statements and supporting exhibits contained in this report. The basis of preparation of such statements conforms to laws, rules and regulations prescribed and/or permitted by the Maine Bureau of Insurance.

Acknowledgement of cooperation and assistance extended to the examiners by all Company personnel is hereby expressed.

STATE OF MAINE

COUNTY OF KENNEBEC, SS

Kendra L. Godbout, CPA, CFE, being duly sworn according to law, deposes and says that in accordance with the authority vested in her by Eric A. Cioppa, Acting Superintendent of Insurance, pursuant to the Insurance Laws of the State of Maine, she has made an examination on the conditions and affairs of the

ANTHEM HEALTH PLANS OF MAINE, INC.

of South Portland, Maine as of December 31, 2006, and that the foregoing report of examination, subscribed to by her, is true to the best of her knowledge and belief. The following examiners from the Bureau of Insurance assisted:

Graham Payne, Examiner In Charge
Jill C. Tobey, CPA, CFE
Faith Talbot, AFE
Debra Blaisdell

_____________________________
Kendra L. Godbout, CPA, CFE
Director of Financial Analysis

Subscribed and sworn to before me

this 15th day of February, 2008

_______________________________
Patricia A. Galouch, Notary Public

My commission expires: March 2, 2014

APPENDIX A

ANTHEM HEALTH PLANS OF MAINE, INC.

ACTUARIAL EXAMINATION
AS OF DECEMBER 31, 2006

INS Consultants, Inc.
419 S. 2nd Street
New Market, Suite 206
Philadelphia, PA 19147
(215) 625-9877; Fax (215) 627-7104

Examination Scope

The following is a list of the Anthem Health Plans of Maine, Inc. balance sheet items INS Consultants, Inc. (INS) was asked to include within the actuarial examination:

L1	Claims unpaid	$ 93,523,130
L2	Accrued medical incentive pool and bonus amounts	0
L3	Unpaid claims adjustment expenses	3,241,745
L4	Aggregate health policy reserves	75,703,424
L7	Aggregate health claim reserves	0

The period under examination covered calendar years 2004 through 2006, with the primary emphasis of the examination being the balance sheet items as of December 31, 2006. INS' findings and conclusion are presented next, followed by a description of the balance sheet items and the examination work performed thereon.

Findings and Conclusion

General

As of December 31, 2006, Anthem Healthcare Plans of Maine, Inc. (Anthem) held liabilities primarily for medical care coverages. Because of the short duration of Anthem's assets and liabilities, asset adequacy / cash flow testing analysis was not required.

Data Validity

The validity of valuation data and inclusion testing was performed by Maine's Bureau of Insurance (MBI). Validity tests by MBI examiners, hereafter referred to as the "examiners", indicated a general absence of errors in the underlying data used for valuation. The inclusion tests indicated that the valuation data files are complete.

Liability Analysis

The liabilities are for unpaid claims incurred on or before December 31, 2006, unpaid claim adjustment expenses and aggregate health policy reserves. The unpaid claim liability includes future claim payments for known claims and for incurred but unreported claims and other accruals. INS independently calculated the liability for incurred but unreported claims (based on claim triangles provided by Anthem and data verified by the examiners) using a completion factor method. INS' analysis of the unpaid claims liability indicates that it has been fairly stated.

INS reviewed Anthem's aggregate health policy reserves except the reserves for unearned premium and Federal Employee Program (FEP) liabilities (which were reviewed by the examiners). INS' analysis indicated that these reserves were reasonable. INS' analysis of these reserves indicates they have been fairly stated.

INS also reviewed the liability for expenses associated with administering future unpaid claims. Based on our review, INS concluded that Anthem has made adequate provision for this liability.

INS confirmed that the accrued medical incentive pool and bonus amounts and aggregate health claim reserves were zero.

Conclusion

Based on INS' analysis, the balance sheet items included and discussed within this report have been accepted as stated by Anthem.

_______________________________
Frank G. Edwards, Jr., ASA, MAAA
INS Consultants, Inc.
October 10, 2007