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Maine.gov > PFR Home > Insurance Regulation> Administrative & Enforcement Actions > Document 664 : INS 99-14 : Hearing Decision
SUPERINTENDENTS EXHIBIT NO. 1
STATE OF MAINE
Robert L. Hoyer, witness for the Superintendent, testifies as follows:
Q. Please state your name, your firm, and professional affiliations.
A. My name is Robert L. Hoyer. I am a partner in the firm and am Managing Partner of the Arthur Andersen LLP Life & Health Actuarial Services group. I am a Fellow of the Society of Actuaries (FSA) and Member of the American Academy of Actuaries (MAAA).
Q. Please describe your professional background.
A. I have over 30 years of insurance industry and health care experience and have served clients in the actuarial consulting field for over 18 years. Over the course of my consulting career, I have been regularly engaged in advising state regulators and other clients with regard to valuation and related financial matters in the life insurance, health insurance, and managed care industries. In the course of that work, I have provided formal public reports, affidavits in court proceedings, and live as well as prefiled testimony in administrative proceedings.
Q. Please describe what Arthur Andersen LLP was retained to do by the Superintendent of Insurance relative to the valuation aspects of the pending proceeding?
A. In connection with our service in the referenced matter, Arthur Andersen LLP was asked to review the report of Houlihan Lokey Howard & Zukin Financial Advisors ("HLHZ") entitled, "Valuation of Blue Cross Blue Shield of Maine ("BCBSME"), Valuation as of July 13, 1999," ("the HLHZ report") filed with the State of Maine Bureau of Insurance ("the Bureau"). The HLHZ report was developed as part of the filing regarding a proposed acquisition of the assets of BCBSME by Anthem Health Plans of Maine, Inc. ("Anthem").
Q. What was your role during the course of this engagement?
A. I supervised and reviewed all work performed by Arthur Andersen LLP on this engagement.
Q. In performing its work for the Superintendent, what steps were taken by Arthur Andersen LLP?
A. The resulting work performed by Arthur Andersen LLP was as outlined below:
Q. Based upon the procedures utilized, what conclusions did you draw as to the market multiple approach used by HLHZ in its appraisal?
A. HLHZs market research and selection of guideline companies and transactions were, in general, reasonable and appropriate. Our market research and analysis, performed on a judgmental basis, was not inconsistent with selected guideline company data reflected in the report. Further, our pro-forma analysis of HLHZs market approach appraisal on the basis of revised financial data through December 31, 1999, resulted in generally lower values than those reached by HLHZ as of July 13, 1999.
Q. What conclusions did you reach relative to the discounted cash flow analysis undertaken by HLHZ?
A. Our limited-scope actuarial appraisal discounted cash flow (DCF) analysis, on the basis of revised financial data through December 31, 1999, resulted in generally lower values than those reached by HLHZ as of July 13, 1999. Certain aspects of our actuarial appraisal DCF analysis tended to increase value relative to the HLHZ DCF analysis, such as the expected increase in enrollment from the new contract with the State of Maine, and from customers formerly with Tufts Health Plan or Harvard Pilgrim Health Plan. Similarly, certain aspects of our actuarial appraisal DCF analysis tended to decrease value relative to the HLHZ DCF analysis, such as the reduction in statutory surplus and deterioration in statutory earnings which emerged subsequent to July 13, 1999, the date HLHZs analysis was prepared, and the reduction in future earnings and surplus indicated in subsequent projections. In aggregate, the overall effect on value was a decrease relative to values concluded by HLHZ.
Q. What overall conclusions did you reach regarding the methodologies and assumptions of HLHZ?
A. HLHZs approaches to determine value and related methodologies were typical of those used in the valuation industry. HLHZs applications of selected methodologies and selections of underlying assumptions were often judgmental in nature. Relative to our independent assessment, in general, in regard to aspects as to which there might be a difference of point of view, HLHZs analyses tended to overstate value in certain instances, and understate value in others. Relative to our independent assessment, in aggregate, HLHZs methodologies tended to overstate value.
Q. What is your conclusion of the ranges of value and ultimate fair market value determined by HLHZ?
A. The ranges of value and HLHZs ultimate conclusion of fair market value on the basis of value indications derived from market and company data and application of methodologies and assumptions thereto were not unreasonable. The HLHZ report, taken as a whole, is appropriate to support a conclusion of fair market value of BCBSME and its subsidiaries as of July 13, 1999.
Q. The conversion statute which establishes the standards to be applied in this proceeding requires that the Superintendent be capable of finding the fair market value as of the date of conversion. In your opinion, what should the relationship between the net proceeds to the foundation and the fair market value be in order to meet this standard?
A. Based on information through March 28, 2000, it appears that proceeds received by the charitable trust would be approximately $80 million to $82 million if the transaction were to close on March 28, 2000. We understand BCBSME has submitted pre-filed testimony outlining adjustments to the HLHZ valuation (to reflect changes in the market value of BCBSME between July 13, 1999 and March 28, 2000). If the proceeds received by the charitable trust are not less than the market value as adjusted by BCBSME (assuming such adjustments are deemed reasonable) then the statutory standard appears to be satisfied.
Dated: March 30, 2000 ______________________________________________________
ROBERT L. HOYER
Last Updated: January 21, 2014
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