STATE OF MAINE

DEPARTMENT OF PROFESSIONAL

AND FINANCIAL REGULATION

BUREAU OF INSURANCE

IN RE: APPLICATION OF ASSOCIATED )

HOSPITAL SERVICE OF MAINE, )

d/b/a BLUE CROSS AND BLUE )

SHIELD OF MAINE, TO CONVERT )

TO A STOCK INSURER AND )

VOLUNTARILY LIQUIDATE AND )

DISSOLVE )

Docket No. INS 99-

IN RE: APPLICATION OF ANTHEM ) APPLICATION FOR

HEALTH PLAN OF MAINE, INC., ) CERTIFICATE OF

TO ACQUIRE TO ACQUIRE THE ASSETS ) AUTHORITY

OF ASSOCIATED HOSPITAL SERVICE )

OF MAINE, d/b/a BLUE CROSS AND )

BLUE SHIELD OF MAINE, )

AND RELATED TRANSACTIONS )

Docket No. INS 99-

INTRODUCTION

Concurrent with the filing of this Application for Certificate of Authority, Anthem Insurance Companies, Inc. ("Anthem"), in the name of its wholly owned subsidiary to be formed, Anthem Health Plans of Maine, Inc. (d/b/a Anthem Blue Cross Blue Shield of Maine) ("Anthem BCBSME"), has filed for approval of the acquisition (the "Acquisition") by Anthem, through Anthem BCBSME, of substantially all of the assets and liabilities of Associated Hospital Service of Maine, d/b/a Blue Cross and Blue Shield of Maine ("BCBSME"), including the transfer of its licenses and permits and its stock interests in its two HMO subsidiaries, Maine Partners Health Plan, Inc. ("Maine Partners"), and Central Maine Partners Health Plan, Inc. ("Central Maine Partners").

Specifically, pursuant to 5 M.R.S.A. § 194-A(5) and 24 M.R.S.A. § 2301(9-D), BCBSME will convert to a stock insurer, whereupon BCBSME will sell and assign, and Anthem BCBSME will purchase and assume, all Insurance Contracts of BCBSME in force at the Closing, together with all operating assets of BCBSME used in the operation of its business, and its stock in, respectively, Maine Partners and Central Maine Partners. Immediately after the Closing, the policy and contract holders of BCBSME will become policy or contract holders of Anthem BCBSME, without any break in continuity of benefits and services. In addition, while BCBSME's ownership interest in Maine Partners and Central Maine Partners will transfer to Anthem BCBSME, the policy and contract holders of Maine Partners and Central Maine Partners will continue, without interruption of benefits or service, as policy and contract holders of those HMOs. At Closing, Anthem BCBSME will acquire BCBSME's (and, indirectly, Maine Partners' and Central Maine Partners') then-existing network of physicians and other providers who will continue to provide service to policy and contract holders.

As part of the Acquisition, Anthem will incorporate Anthem BCBSME, and seeks the establishment of Anthem BCBSME as a Maine domestic stock health insurer and the issuance to it of a Certificate of Authority to transact insurance in Maine pursuant to 24-A M.R.S.A. § 404-413. This Application for Certificate of Authority seeks the permission of the Superintendent of Insurance for Anthem BCBSME to transact the business of insurance as a Maine domestic health insurer.

COMPONENTS OF APPLICATION

1. Business and Marketing Plan for Maine; Current Operations; Forecast of Anticipated Results.
   1. Assumption of Substantially All Assets and Liabilities
      Anthem BCBSME is applying to the Bureau of Insurance for a Certificate of Authority to conduct accident and health insurance business and to operate a health maintenance organization as a line of business that BCBSME presently operates, as a for-profit domestic health insurer governed by 24-A M.R.S.A.
      At the Closing, BCBSME intends to assign, and Anthem BCBSME intends to assume, obligations under BCBSME's Insurance Contracts as provided in the Bulk Reinsurance Agreement, Bill of Sale, and Assumption of Liabilities between BCBSME and Anthem BCBSME (the "Bulk Reinsurance Agreement") (the proposed form of which is part of the Initial Consolidated Filing), along with substantially all of the other assets and liabilities of BCBSME. The then-current BCBSME policy, contract and certificate holders will receive a certificate from Anthem BCBSME assuming, without modification or interruption, the health benefits in effect under the terms and conditions of their BCBSME policy or contract. Anthem, through Anthem BCBSME, intends to continue the direct insurance, managed care, HMO, third party administration and other health care businesses conducted by BCBSME and its subsidiaries prior to the Acquisition.
      Anthem BCBSME anticipates continuing BCBSME's current product offerings. There is no current plan or intention to change the BCBSME product offerings or product mix as a result of the proposed Acquisition (although, as noted elsewhere, over time there will be an integration of some management responsibilities and product offerings as a New England regional structure is implemented). In order to achieve all of the advantages of a combined presence in New England, and to better serve customers with employees in multiple locations, some products may be converted to a standardized product portfolio over time. The standardized portfolio would be jointly designed by Anthem's Eastern plans to best meet the needs of its customers while maximizing service and efficiency. Any such new products would be implemented in accordance with Maine laws and regulations (including those regarding Bureau of Insurance approvals).
   2. Future Employment and Business Operations
      Consistent with its history of maintaining a strong local presence in the communities that it serves, Anthem anticipates a significant employment base in Maine after consummation of the Acquisition. Pursuant to the terms of the Asset Purchase Agreement between BCBSME and Anthem dated as of July 13, 1999, Anthem will achieve the goal of substantially proportionate employment levels in the geographic areas in which Anthem operates, including Maine, subject to such fluctuations as are required to respond to business conditions in general or substantial changes in relevant Maine laws or regulations.
      Anthem's present intention is that the Maine operations will be coordinated by an enhanced Anthem East management organization. Anthem East is the functional division of Anthem that is responsible for all of Anthem's and its subsidiaries' health care financing, managed care and HMO business in New England. Anthem is open to additional partners joining its Anthem East region. While additional transactions are a part of Anthem's New England strategy, the Acquisition is not subject to or conditioned upon the completion of any other transaction.
      Anthem operates with a management system that consists of Corporate, Shared Service, Regional and State level functions. The "Corporate" functions are generally performed in Indiana, and include activities such as payroll, treasury and compensation/benefits design. "Shared Service" functions refers to those activities which are delivered on a standardized basis under the direction of a single corporate executive (e.g., information systems and legal), but the employees are distributed throughout the Anthem services areas. "Regional" services are managed regionally and include claims and billing and enrollment. Finally, employees are organized at the "State level" to provide those services for which local decision making is important, such as sales, provider contracting and the medical management functions.
      Consistent with that approach, Anthem intends that many of the administrative activities of Anthem BCBSME's business will be managed and conducted out of BCBSME's existing South Portland, Maine headquarters and that the day-to-day administrative activities to service Anthem's Maine business will be performed by persons who are currently employed by BCBSME with the guidance and assistance of Anthem. These local employees will be responsible for coordinating and overseeing enrollment activity, supervising educational activities, providing service to accounts, tracking customer satisfaction, and provider contracting and medical management and will serve as local contact centers for members, providers, employees and regulatory authorities. In addition, the marketing of health care coverage to Maine residents will be performed by local employees.
      Additional information about Anthem's historical and current operations, its business and marketing plans for Maine, and its forecast of anticipated results are provided in Items 2 and 5 of Anthem BCBSME's Form A.
2. Biographical Sketches of Officers and Directors.
   Biographical sketches of Anthem BCBSME's and Anthem's officers and directors are provided in response to Item 3 of Anthem BCBSME's Form A as Exhibit D thereto.
3. Character of Management.
   Information regarding the character of the management of Anthem and Anthem BCBSME is provided in response to Item 3 of Anthem BCBSME's Form A and exhibits to that Item.
4. Chart of Organization of Holding Company System.
   An organizational chart presenting, as of August 31, 1999, the identities of, and the interrelationships among, Anthem and all of Anthem's subsidiaries and affiliates is provided in response to Item 2(c) of Anthem BCBSME's Form A as Exhibit C thereto.
5. Holding Company Registration Statement.
   A copy of Anthem's holding company registration statement, as filed with its supervisory official in Indiana, is attached hereto as Exhibit A. There are no proxy solicitation statements.
6. Annual Statements of Parent.
   A copy of the annual statement of Anthem for 1998 is attached as Exhibit K to Anthem BCBSME's Form A.
7. Statement of Ownership.
   1. Anthem. As a mutual insurer, Anthem has no voting securities. No individual owns, holds, or controls 5% or more of the members' voting rights in Anthem, though many of Anthem's members have granted standing proxies to Anthem's Board of Directors. Information about Anthem's and Anthem BCBSME's Boards of Directors is provided in response to Item 3 of Anthem BCBSME's Form A and exhibits to that Item.
   2. Anthem BCBSME. Anthem BCBSME is to be wholly owned by Anthem East, Inc., which is in turn a wholly owned subsidiary of Anthem.
8. Capital and/or Surplus Requirements.
   Immediately after Closing, Anthem BCBSME will have paid-in capital stock and free surplus in amounts at least equal to that of BCBSME prior to Closing. In satisfaction of 24-A M.R.S.A. § 410, Anthem BCBSME will be capitalized with at least $1,000,000 in paid-in capital stock and $1,000,000 in initial free surplus. These amounts will be funded through Anthem's available working capital. Anthem is not obtaining any third-party financing in connection with the Acquisition.
9. Security Deposit.
   Pursuant to 24-A M.R.S.A. § 412(1), Anthem BCBSME agrees to make and maintain a deposit with the Superintendent of $100,000 in securities the Superintendent deems eligible for deposit under 24-A M.R.S.A. § 1253.
10. Policies To Be Issued.
    A list of policies and products currently offered by BCBSME is attached as Exhibit E to Anthem BCBSME's Form A. As stated in Item 5 of the Form A, Anthem BCBSME expects to offer the same range of products after the Acquisition that BCBSME offers today. No significant changes to BCBSME's (and Anthem BCBSME's) product families are expected in the near future beyond those already identified in Item 5 of Anthem BCBSME's Form A.
11. Appointment of General Agent.
    Pursuant to 24-A M.R.S.A. § 413(6) & 421, Anthem hereby agrees to cause Anthem BCBSME to appoint James B Zimpritch, its Clerk, to serve as its agent to receive service of legal process issued against it in Maine. After incorporation of Anthem BCBSME, Anthem BCBSME will provide to the Superintendent a copy of such appointment along with proof of the agent's consent to the appointment and a copy of a resolution of the board of directors of Anthem BCBSME, showing that those officers who executed the appointment were duly authorized to do so on behalf of the insurer.
12. Proposed Articles of Incorporation.
    The proposed Certificate of Organization of Anthem BCBSME is attached hereto as Exhibit B.
13. Proposed Bylaws.
    The proposed Bylaws of Anthem BCBSME are attached hereto as Exhibit C.
14. Maine Life and Health Insurance Guaranty Association.
    Anthem BCBSME agrees to participate in, and comply with the membership requirements of, the Maine Life and Health Insurance Guaranty Association, to the same extent as any other similarly situated commercial insurer. Anthem also agrees to transition into the Guaranty Association in the manner that the Superintendent determines appropriate during the course of this proceeding.
15. Management Agreements.
    A form of the Intercompany Services Agreement, which will govern the relationship between Anthem and Anthem BCBSME, is attached in response to Items 2 and 12(c)(ii) as Exhibit B to Form A.
16. Stock Offerings; Mergers or Consolidations; Tender Offers Made to Acquire Other Insurers.
    As a new insurer, Anthem BCBSME has been involved in no mergers or consolidations, and has made no stock offerings or tender offers to acquire other insurers within the preceding three years.
17. Business Name.
    Anthem BCBSME will not use a business name deceptively similar to that of any insurer currently holding a valid certificate of authority. Anthem BCBSME has reserved the use of the names "Anthem Health Plans of Maine, Inc." and "Anthem Blue Cross and Blue Shield of Maine."
18. Application Fee.
    Pursuant to 24-A M.R.S.A. § 601(1)(A), Anthem, on behalf of Anthem BCBSME, submits with this Application the required $1,000.00 fee. When requested by the Superintendent, Anthem shall, on behalf of Anthem BCBSME, submit the $100.00 for issuance of the Certificate of Authority.

SIGNATURE

Anthem Insurance Companies, Inc. has caused this application to be duly signed on its behalf in the City of Indianapolis and State of Indiana on the day of September, 1999.

ANTHEM INSURANCE COMPANIES, INC.

[SEAL] By:___________________________________
Name: David R. Frick
Title: Exec. Vice President and Chief
Legal and Administrative Officer

Attest:

___________________________________
Signature of Officer

___________________________________
Title

CERTIFICATION

The undersigned deposes and says that he has duly executed the attached application dated September 15, 1999, for and on behalf of Anthem Insurance Companies, Inc.; that he is the Executive Vice President and Chief Legal and Administrative Officer of such company and that he is authorized to execute and file such instrument. Deponent further says that he is familiar with the instrument and the contents thereof, and that the facts therein set forth are true to the best of his knowledge, information and belief.

______________________________________
Name: David R. Frick