Item 1. Business
GENERAL
Trigon Healthcare, Inc. through its subsidiaries is the largest managed health care company in Virginia, serving over 2.0 million members primarily through statewide and regional provider networks. (Trigon Healthcare, Inc. and subsidiaries herein collectively referred to as "Trigon" or the "Company"). The Company's membership represents approximately 28% of the Virginia population and 34% of the Virginia population in those areas where Trigon has the exclusive right to use the Blue Cross and Blue Shield service marks and tradenames.
The Company divides its business into four segments: health insurance, government programs, investments and all other. The Company's health insurance segment provides a comprehensive spectrum of managed care products primarily through three network systems with a range of utilization and cost containment controls. Within the Company's network product offerings, employer groups may choose various funding options ranging from fully insured to partially or fully self-funded financial arrangements. While self-funded customers participate in Trigon's networks, the claims are not underwritten by Trigon but are funded by the groups. As of December 31, 2000, the fully insured, also referred to as commercial, products made up over one-half of total enrollment. Its components include: three HMO networks which are the Company's most tightly managed and cost efficient networks; the preferred provider organization ("PPO") networks which offer greater choice of providers than Trigon's HMO networks; and the participating provider ("PAR") network which is the Company's broadest and most flexible network. Commercial products also include Medicare supplement plans and Medicaid HMO plans. Self-funded enrollment as of December 31, 2000 represented 35.5% of total enrollment. Self-funded arrangements are available to groups with more than 100 employees and are typically utilized by groups with more than 1,000 employees. Trigon charges self-funded groups an administrative fee based on the number of members in a group or the group's claims experience. In addition, most self-funded groups purchase aggregate and/or claim specific stop loss coverage. In exchange for a premium, the group's aggregate liability is capped for the year or the group's liability on any one episode of care is capped.
The government programs segment includes the Federal Employee Program ("FEP") which is the Company's largest customer. Through its participation in the national contract between the Blue Cross and Blue Shield Association ("BCBSA") and the U.S. Office of Personnel Management ("OPM"), the Company provides health benefits to federal employees in Virginia. FEP revenues represent the reimbursement by OPM of medical costs incurred including the actual cost of administering the program, as well as a performance-based share of the national program's overall profit. As of December 31, 2000, FEP enrollment represented 11.0% of total enrollment. The Company discontinued its role as a claims processing intermediary for the federal government with the Medicare Part A program in Virginia and West Virginia effective August 31, 1999. Additionally, the Company discontinued its role as the primary provider of computer processing capabilities for Medicare Part A claims processing to certain other Blue Cross and Blue Shield plans during November 1999. As an administrative agent for Medicare, the Company allocated operating expenses to determine reimbursement due for services rendered in accordance with the contract. Medicare claims processed are not included in the consolidated statements of operations and the reimbursement of allocated operating expenses is recorded as a reduction of the Company's selling, general and administrative expenses.
All of the investment portfolios of the consolidated subsidiaries are managed and evaluated collectively within the investment segment. The Company's other health-related business, including disease management programs, third-party administration for medical and workers compensation, health promotions and similar products, is reflected in an "all other" category.
Refer to Note 22, "Segment Information," on pages 52 and 53 of the Company's 2000 Annual Report to Shareholders, which are incorporated herein by reference, for financial information relating to reportable segments.
The following table sets forth the data by network for the last five years:
SIGNIFICANT CUSTOMERS
Trigon's two largest customers are the FEP and Commonwealth of Virginia ("COV"). FEP represents 17.8% of total consolidated revenues. The contract renews automatically for a term of one year each January 1, unless either party gives written notice at least 60 days prior to the date of renewal. Under the program, a special FEP reserve is maintained at the national level as a protection against adverse claims trends. However, if the contract should terminate with a negative balance in the FEP special reserve, the losses would be allocated to participating plans as subcontractors based on a ratio of the Company's past five year claims experience as a percent of the total program's experience. As of September 30, 2000, the national reserve stood at 3.2 months of claims and administrative payments in reserve, which is above the target of a 3.0 month reserve base. The December 31, 2000 calendar year national reserve balance has not been published but is expected to remain at or above the target reserve base. Since 1972, the Company has provided health benefits to employees and retirees of COV. The current multi-year contract to administer the COV statewide, self-funded medical/surgical health care benefits programs was effective July 2000. As of December 31, 2000, the self-funded revenues under the contract represent 17.7% of total consolidated revenues and cover 206,000 COV members. Annually, at open enrollment, COV employees may select Trigon or other health benefit plan choices.
NETWORKS
Trigon's HMO, PPO and PAR networks provide for the delivery of health care services at generally reduced costs due to favorable network arrangements with health care providers and by including members in health care decisions. The Company has the largest membership base in Virginia, which generally allows it to negotiate contracts with its Virginia providers that specify favorable rates and incorporate utilization management and other cost controls. Members assume responsibility for a portion of health care costs through copayments, coinsurance and annual deductible contract provisions. Members may choose to receive health care services from providers not part of the network at an additional cost to the member. Trigon believes that the copayment, coinsurance, annual deductible provisions and out of network costs enhance its ability to control costs by encouraging members to take more responsibility for their health care decisions.
Trigon established its first Health Maintenance Organization ("HMO") in 1984 and now operates three separate HMOs. HealthKeepers, Inc. ("HealthKeepers") is a state qualified HMO that operates primarily in the central, eastern and southwestern areas of Virginia. Peninsula Health Care, Inc. ("Peninsula"), a joint venture owned 51% by Trigon, is a state qualified HMO operating primarily on the Peninsula in Eastern Virginia. The Company owns Priority Inc., which owns a federally qualified HMO, Priority Health Care, Inc. ("Priority"), operating in the Tidewater area in Eastern Virginia. As of December 31, 2000, the HMO networks included approximately 2,300 primary care physicians, 5,200 specialist physicians and 53 acute care hospitals throughout Virginia. Members choose a primary care physician who is responsible for coordinating health care services for the member. The HMO product portfolio is presented to customers as a stand-alone HMO offering, or through "Blue Advantage," a program which includes HMO and PPO options administered and priced as a single program and which can only be utilized by groups that contract with Trigon on an exclusive basis. The Company's PPO network is a statewide PPO network which, as of December 31, 2000, included approximately 11,800 physicians and 89 acute care hospitals within Virginia. Members may seek care from any PPO network physician depending on services required. Trigon's PAR network provides more traditional health coverage and included approximately 12,200 physicians and 89 acute care hospitals. The PAR network offers members greater customization of benefit design and fewer restrictions in the use of non-network providers than the PPO network. Trigon expects that its PAR network and products will continue to be an important offering for groups desiring greater flexibility and choice in networks and benefits, as well as a source of new PPO and HMO members. Trigon also offers Medicaid HMO products to participants in Temporary Aid to Needy Families program and the Aged, Blind and Disabled Individuals programs in the Peninsula and Tidewater regions of Virginia and within the City of Richmond and five surrounding counties in central Virginia.
Trigon's networks have contracts with hospitals, physicians and other professionals at generally reduced rates due to the volume of business it offers to health care providers that are a part of the network. Hospital provider contracts, typically three to five years in duration, are generally paid on the basis of per diems (i.e., fixed fee schedules where the daily rate is based on the type of service; primary method of in-patient reimbursement), per case per admission (i.e., fixed fee schedules for all services during a member's hospitalization), or a percentage of covered charges with limits on the subsequent year increases. The average rate negotiated with hospitals under this arrangement is lower than the hospital's average standard retail charges. Services not subject to special per case or per diem payment arrangements are generally paid according to a fee schedule or as a percentage of billed charges. Beginning in 1997, the Company changed its method of reimbursing hospitals for outpatient procedures which has led to substantial savings. Over a three-year period, the Company converted its facility outpatient contracts from a percent of covered charges to a fixed fee reimbursement schedule for 6,500 procedures. When considering whether to contract with a physician, the Company conducts a credentialing program to evaluate the applicant's professional experience, including licensure. The Company's HMO network provides reimbursement to almost all of the primary care physicians in the HMO network on a capitated basis. Specialists are reimbursed based on a fee schedule or, in some cases, on a capitated basis. Some ancillary services, lab services, behavioral health and vision services are also capitated. PPO and PAR physician provider contracts employ fixed fee schedules, which are below standard billing rates. The Company uses three basic components to establish physician fee schedule payments: Medicare's Resource Based Relative Value System methodologies, competitor reimbursement rates and ongoing reviews of specific allowances to determine if suitable payment levels are in place. Physician fee schedule payments are adjusted when considered appropriate to do so.
UTILIZATION MANAGEMENT
Trigon also manages health care costs in its networks by using utilization management system guidelines for the networks that are intended to address quality of care and help to ensure that only appropriate services are rendered and that such services are provided in a cost-effective manner. Trigon recognizes that the right care in the right setting at the right time using the right provider for the right price equates to quality medical care. In the HMO network, the primary care physicians are considered to be the overall manager of the individual's health care needs and manage and optimize care through the use of referrals and by approving all specialty care before it is rendered. In addition, the HMO reviews all high cost services needed by individual members that are not provided by the primary care physician. The Company also manages health care costs and quality by reviewing monthly cost and utilization trends within all networks. Utilization rates and cases are reviewed in the aggregate and by service type to identify opportunities for better quality and cost control. In addition, the highest cost services are studied to determine if costs can be reduced by using new, less expensive technologies or by creating additional networks or
contracts, such as networks for ambulatory care, to reduce provider costs. The Company requires pre-admission approval of all hospital and skilled nursing facility stays and concurrent review of length of stay. Trigon uses the Milliman & Robertson Healthcare Management Guidelines (M&R) complimented by InterQual for its medical necessity decision support criteria. M&R guidelines were developed based on nationwide best practices benchmarks that maximize efficiency in health care delivery. InterQual is a nationally recognized, evidence-based criteria set developed through peer review medical literature. The Company also modifies the decision support guidelines based on input from its regional physician panels, thus enhancing the support of the guidelines by network providers. Trigon prospectively reviews the medical necessity of home health, private duty nursing and durable medical equipment. Also, the Company retrospectively reviews physician practice patterns. Trigon conducts physician profiles that indicate quality and cost effective standards. All new medical technologies are reviewed in advance in an attempt to ensure that only safe and effective new medical procedures are covered. Additionally, the Company also employs a comprehensive disease management program. In this program, the Company identifies those members having certain chronic diseases, such as asthma and diabetes, and proactively works with the member and the physician to facilitate appropriate treatment, help to ensure compliance with recommended therapies and educate members on lifestyle modifications to manage the disease. The Company believes that the program promotes the delivery of efficient care and helps to improve the quality of health care delivered.
QUALITY
Trigon's HMO quality improvement standards are modeled on those of the National Committee on Quality Assurance ("NCQA"), an independent, nonprofit institution that reviews and accredits health maintenance and managed care organizations. The quality improvement program instituted by the Company's HMOs provides for the review of quality of care service and the initial and ongoing review of the credentials of all network providers. This credentialing process includes a review of whether the provider has the necessary licenses, is qualified in the specialty indicated and meets standards for safety, sanitation and accessibility. The HMO reviews the findings with a quality improvement committee, which includes practicing physicians from the HMO network. In addition, quality of care services are monitored through profiling and data analysis, member satisfaction surveys and problem case review. In March 2000, Trigon's Peninsula and Priority HMOs received an accreditation status of Excellent from the National Committee for Quality Assurance for its commercial and Medicaid products. HealthKeepers earned an accreditation status of Excellent for its commercial product. A score of Excellent is the highest level of accreditation awarded to healthplans. This accreditation level is reserved for those managed care organization product lines that deliver the highest levels of care and service, and whose clinical and administrative systems exceed NCQA's rigorous requirements for consumer protection and quality improvement.
The Company has an active program to evaluate the quality and appropriateness of care provided by its PPO and PAR networks. Provider credentialing, profiling and member satisfaction surveys, along with monitoring of outcomes and clinical studies are all performed to monitor and manage quality of care. Network physicians and other providers participate in quality management programs overseen by medical advisory panels. Using the Company's computerized medical information database, these programs involve profiles of the tests, types of treatment and procedures performed for specific diagnoses by these physicians, as well as reviews of aggregate data. The American Accreditation Health Care Commission/URAC has awarded Trigon Insurance Company (dba Trigon Blue Cross Blue Shield) ("Trigon Insurance") a full, two-year accreditation for health utilization management services effective through May 2002. Trigon Insurance has been certified since 1992.
MARKETING
Trigon markets its products and services to both individuals and groups. The individual products are marketed principally through direct marketing initiatives and through brokers. The group market includes small, medium and large group employers. The smaller group employers generally use insurance brokers to assist in the selection of products and analysis of the actual cost of competing plans. As the group size grows, employers may use consultants to assist them in the tailoring of benefits and networks. The larger group employers are generally more sophisticated purchasers, often engaging consultants to work with the Trigon sales staff to tailor benefit and network design to match their specific needs more closely. In addition, Trigon has a direct sales staff that markets the full range of Trigon products and services.
COMPETITION
The health care industry is highly competitive both in Virginia and in other states in the southeastern and mid-Atlantic United States into which the Company principally intends to expand. Managed care companies, including large, well- capitalized companies which market managed care products nationwide, have also identified the southeastern and mid-Atlantic regions of the United States as being favorable for expansion. In some cases, market entrants, as well as existing health care companies, have competed with the Company for business by offering very favorable pricing terms to customers. The Company faces this competition in the areas in which it is licensed to use the Blue Cross and Blue Shield service marks and tradenames. In areas outside of its licensed territory, the Company's ability to successfully compete may be adversely affected by its inability to use the Blue Cross and Blue Shield service marks and tradenames, by the presence of competitors that are able to use such service marks and tradenames in the areas and by the Company's lack of substantial market share or established provider networks in these areas. The Company also faces competition from health care providers that combine and form their own networks in order to contract directly with employer groups and other prospective customers to provide health care services.
INVESTMENTS
The Company's investment policies are designed to provide liquidity to meet anticipated payment obligations and preserve capital. Trigon fundamentally believes that concentrations of investments in any one asset class are unwise due to constantly changing interest rates as well as market and economic conditions. Accordingly, the Company maintains a diversified investment portfolio consisting both of fixed income and equity securities, with the objective of producing a consistently growing income stream and maximizing risk- adjusted total return. The fixed income portfolio includes government and corporate securities, both domestic and international, with an average quality rating of AA as of December 31, 2000. The portfolio had an average contractual maturity of 5.6 years as of December 31, 2000. A portion of the fixed income portfolio is designated as a short-term fixed income portfolio and is intended to cover near-term cash flow needs and to serve as a buffer for unanticipated business needs. The equity portfolios contain readily marketable securities ranging from small growth to well-established Fortune 500 companies. The international portfolio is diversified by industry, country and currency-related exposure. As of December 31, 2000, the Company's equity exposure, comprised of direct equity as well as equity-indexed investments, was 14.0% of the total portfolio, as compared to 11.0% as of December 31, 1999.
The Company utilizes internal and external investment managers. Both the internal and external managers invest within guidelines established by the Company designed to fit into the overall investment strategy. These guidelines establish minimum quality and diversification requirements that, among other things, provide limitations on the allowable investment for a single issuer as well as currency exposure for those managers investing in international securities.
As of December 31, 2000, the composition of the Company's fixed income investment securities by rating is as follows (in thousands):
(1) Ratings are assigned by Moody's Investor Service, Inc., Standard & Poor's Corporation or Fitch Investors Service, L.P.
Refer to Note 4, "Investment Securities," on pages 37 through 39 of the Company's 2000 Annual Report to Shareholders, which are incorporated herein by reference, for additional financial information relating to the Company's investment securities.
Other than currently or formerly occupied Company property or through mortgage- backed securities, the Company has no investment in real estate or mortgage loans.
INFORMATION SYSTEMS
The Company develops and maintains its own information systems. Information systems have played and will continue to play a key role in ongoing plans to continually improve quality, lower costs and improve service for the Company's customers. Trigon's centralized common database and analytical technologies allow for increasingly more sophisticated methods of managing costs and quality of care. The database includes comprehensive information on virtually all physicians and hospitals and approximately one third of the population in Virginia, which assists Trigon in analyzing the medical and economic performance of providers and the medical and economic experience of specific customer groups and individuals.
The Company uses an integrated set of applications software to support marketing and underwriting, eligibility and billing, electronic claims submission, claims administration, managed care programs and corporate financial management. A combination of custom developed and licensed systems is used to meet the unique needs of different products and markets. An overall systems architecture is maintained to promote consistency of data, processing rules and flexibility. Different systems serving the unique products or markets feed data to a corporate information and decision support system. This decision support system provides a single source of information for all of the Company's data reporting and analytic needs. This includes operational and financial performance, underwriting and marketing analysis, utilization management and actuarial reporting.
REGULATION
HEALTH CARE REFORM - FEDERAL and VIRGINIA. The Company's business is subject to a changing legal, legislative and regulatory environment. Some of the more significant current issues that may affect the Company's business include:
. efforts to expand tort liability of health plans; . initiatives to increase health care regulation; . proposed class action lawsuits targeting the health care industry's efforts to deliver quality care at affordable costs; and . proposed physician antitrust waivers.
Current initiatives to increase health care regulation at the federal level include new legislative proposals for a "patients' bill of rights." Such legislation was introduced in the Senate in early February 2001 and would expand tort liability for health plans and change the practices for deciding medical necessity. Similar legislation is expected to be considered by the House during 2001. Given the general uncertainty of the political process, it is not possible to determine what, if any, legislation will ultimately be enacted or what the effect on the Company of any such legislation would be.
Several major companies in the health care industry have had proposed class action lawsuits filed against them by a coalition of plaintiffs' attorneys. Given that no such lawsuits are currently pending against the Company and given the uncertainties of predicting the outcome of litigation generally, it is not possible to determine at this time what the ultimate effect, if any, on the Company of any such litigation would be.
On November 21, 2000 the Department of Labor issued its final regulation specifying new requirements for claims and appeal procedures for ERISA regulated group health and disability plans. The regulation is applicable only to ERISA regulated plans, whether they are fully-insured or self-insured. It is effective for claims filed on or after January 1, 2002. The Company does not believe that the regulation will have a material adverse impact on the consolidated financial condition or results of operations.
During the past year the Department of Health and Human Services ("HHS") has issued two significant sets of final regulations resulting from the Health Insurance Portability and Accountability Act of 1996 ("HIPAA")--one dealing with administrative simplification and the other dealing with privacy of individually identifiable health information. Final regulations governing security standards for the maintenance and transmission of health information are also expected during 2001. On February 23, 2001, HHS opened the privacy regulation to an additional 30-day comment period to determine if changes in the final regulation are required. The compliance date for the administrative simplification regulation is October 2002, while the compliance date for the privacy regulation is currently April 2003. A new Virginia law governing disclosure of privacy practices has been passed and will be effective July 1, 2001. This law was enacted pursuant to federal requirements established by the Gramm-Leach-Bliley Act.
The Company is assessing the impact of these HIPAA regulations and the state privacy legislation on the Company's practices and operations. The Company does not believe that the Gramm-Leach-Bliley legislation or the HIPAA administrative simplification regulation will have a material adverse impact on operations. Given that the HIPAA security regulation has not been finalized and that further changes may arise from the reopening of the privacy regulation, the Company has not yet determined what the effect of these HIPAA regulations may be on the Company.
At the state level, the Virginia General Assembly, in its 2001 Session, did not pass legislation that would substantially increase health care costs, restrict choice or drive up the number of uninsured Virginians. At this time, the health care legislation that did pass is not expected to have a material effect on the Company's consolidated financial condition or results of operations.
INSURANCE COMPANY AND HMO REGULATION. Trigon Insurance, Trigon Health and Life Insurance Company ("Trigon Health and Life"), a health and life company, and the three HMO subsidiaries are subject to the insurance laws and regulations of the Commonwealth of Virginia, the domiciliary state of these companies. In
addition, Trigon Health and Life is also subject to the insurance laws and regulations of the other jurisdictions in which it is licensed or authorized to do business. These insurance laws and regulations generally give state regulatory authorities broad supervisory, regulatory and administrative powers over insurance companies and insurance holding companies with respect to most aspects of their businesses. Such regulation is intended primarily for the benefit of the policyholders and enrollees and not investors. Regulatory authorities exercise extensive supervisory power over health and life insurance companies and HMOs with respect to licensing; the approval of policy forms and policies used; the nature of, and limitations on, a company's investments; the periodic examination of the operations of the companies; the form and content of annual statements and other reports required to be filed on the financial condition of the companies; the establishment of minimum capital or net worth requirements for these companies and other requirements. Additionally, the HMOs are subject to regulation regarding quality assurance, covered benefits, contracts between the HMO and its health care providers, the accessibility of providers in the service area of an HMO and other requirements. State regulatory authorities require the insurance companies and the HMOs to maintain restricted investments represented by interest-bearing investment securities, which are held by trustees or the state regulatory agencies as a special fund for the policyholders and enrollees if the company fails to meet its obligations in that state.
Trigon Insurance, the HMO subsidiaries and Trigon Health and Life are required to file periodic statutory financial statements in each jurisdiction in which they are licensed. Trigon has one federally qualified HMO that is also subject to regulation and review by the OPM and certain other federal authorities, with which it must file periodic reports. Areas covered by federal law are similar to those covered by state law and regulation. In addition, one of the Company's HMOs offered a Medicare risk product through December 31, 1999 that subjected that HMO to regulation and review by the U.S. Department of Health and Human Services and certain other federal authorities as well. Trigon Insurance, the HMO subsidiaries and Trigon Health and Life are periodically examined by the insurance departments of the jurisdictions in which they are licensed to do business.
INSURANCE HOLDING COMPANY REGULATION. Trigon Healthcare, Inc. is not regulated as an insurance company but, as the direct or indirect owner of all the capital stock of Trigon Insurance, the three HMOs and Trigon Health and Life, is regulated as an insurance holding company and subject to the insurance holding company act of Virginia, the state in which the subsidiaries are domiciled. The act contains certain reporting requirements as well as restrictions on transactions between an insurer or HMO and its affiliates. The Virginia insurance holding company laws and regulations generally require insurance companies and HMOs within an insurance holding company system to register with the State Corporation Commission and to file with the State Corporation Commission certain reports describing capital structure, ownership, financial condition, certain intercompany transactions and general business operations. In addition, various notice and reporting requirements generally apply to transactions between insurance companies and HMOs and their affiliates within an insurance holding company system, depending on the size and nature of the transactions. Virginia insurance holding company laws and regulations require prior regulatory approval or, in certain circumstances, prior notice of, certain material intercompany transfers of assets as well as certain transactions between insurance companies, HMOs, their parent holding companies and affiliates.
Additionally, Virginia insurance holding company acts restrict the ability of any person to obtain control of an insurance company or HMO without prior regulatory approval. Without such approval (or an exemption), no person may acquire any voting security of an insurance holding company which controls a Virginia insurance company or HMO, or merge with such a holding company, if as a result of such transaction such person would "control" the insurance holding company. "Control" is defined as the direct or indirect power to direct or cause the direction of the management and policies of a person and is presumed to exist if a person directly or indirectly owns or controls 10% or more of the voting securities of another person.
RISK-BASED CAPITAL REQUIREMENTS. Virginia has statutory risk-based capital ("RBC") requirements for health and other insurance companies. Such requirements are intended to assess the capital adequacy of life and health insurers, taking into account the risk characteristics of an insurer's investments and products. The formula for calculating such RBC requirements, set forth in instructions adopted by the NAIC, is designed to take into account asset risks, insurance risks, interest rate risks and other relevant risks with respect to an individual insurance company's business. Under these laws, an insurance company must submit a report of its RBC level to the Virginia State Corporation Commission as of the end of the previous calendar year.
The RBC requirements categorize insurance companies according to the extent to which they meet or exceed certain RBC thresholds. The law requires increasing degrees of regulatory oversight and intervention as an insurance company's RBC declines. The level of regulatory oversight ranges from requiring the insurance company to inform and obtain approval from the domiciliary Insurance Commissioner of a comprehensive financial plan for increasing its RBC to mandatory regulatory intervention requiring an insurance company to be placed under regulatory control in a rehabilitation or liquidation proceeding.
As of December 31, 2000, the RBC levels of Trigon Insurance and Trigon Health and Life, as calculated in accordance with the NAIC RBC instructions, exceeded all RBC thresholds.
The NAIC has proposed that states adopt RBC standards for HMOs. On March 10, 2000, the Governor of Virginia signed into law the RBC standards for HMOs that became effective January 1, 2001, and the Company has determined that, as of December 31, 2000, the RBC levels for each of its HMOs exceed all RBC thresholds under the new law.
RESTRICTIONS ON DIVIDENDS. In the event the Company determines to pay dividends, the principal source of funds to pay dividends to stockholders would be dividends received by the Company from its subsidiaries. Virginia insurance laws and regulations restrict the payment of extraordinary dividends declared by insurance companies, including health care insurers such as Trigon Insurance, in a holding company system. An insurance company is prohibited from paying an extraordinary dividend unless it obtains the approval of the State Corporation Commission. An extraordinary dividend is one which, together with the amount of dividends and distributions paid by the insurance company during the immediately preceding 12 months, exceeds the lesser of (i) 10% of the insurance company's statutory surplus to policyholders as of the preceding December 31 or (ii) the insurance company's statutory net income (not including realized capital gains) for the preceding calendar year. Further, an insurance company may not pay a dividend unless, after such payment, its surplus to policyholders is reasonable in relation to its outstanding liabilities and adequate to meet its financial needs. The State Corporation Commission may bring an action to enjoin or rescind payment of any dividend or distribution that would cause the insurance company's statutory surplus to be unreasonable or inadequate. On January 17, 2001, the State Corporation Commission approved Trigon Insurance's request to effect an extraordinary dividend of $125 million to its parent, Trigon Healthcare, Inc., on March 1, 2001. As a result of this dividend, any additional dividend distributions by Trigon Insurance during 2001 will require the approval of the State Corporation Commission. During 2000, 1999 and 1998, Trigon Insurance paid dividends to its parent, Trigon Healthcare, Inc., of $125 million, $48.9 million and $227.5 million, respectively. The 2000 and 1999 dividends were cash dividends. The 1998 dividend included $200.0 million of cash and $27.5 million of stock of a wholly-owned subsidiary.
On February 2, 2001, the State Corporation Commission approved Trigon Health and Life's request to effect an extraordinary dividend of $25 million to its parent, Monticello Service Agency, Inc. (MSA), on March 1, 2001. As a result of this dividend, any additional dividend distributions by Trigon Health and Life during 2001 will require the approval of the State Corporation Commission. MSA in turn distributed $20 million of this extraordinary dividend to its parent, Trigon Healthcare, Inc., on March 1, 2001. No regulatory approval was required for this dividend.
ASSESSMENTS AGAINST INSURERS. Under insolvency or guaranty association laws in most states, insurance companies can be assessed for amounts paid by guaranty funds for policyholder losses incurred by insolvent insurance companies. Most state insolvency or guaranty association laws, including Virginia's, currently provide for assessments based upon the amount of premiums received on insurance underwritten within such state. Substantially all of Trigon's premiums are currently derived from insurance underwritten in Virginia.
Under the Virginia Life, Accident and Sickness Insurance Guaranty Association (the "Association") Act, assessments against insurance companies which issue policies of accident or sickness insurance, such as Trigon Insurance, are made retrospectively and are based (up to prescribed limits) upon the ratio of (i) the insurance company's premiums received in Virginia over the previous three calendar years on accident and sickness insurance, to (ii) the aggregate amount of premiums received by all assessed member insurance companies over such three calendar years on accident and sickness insurance. The guaranty fund assessments made under the act are administered by the Association, which has its own board of directors selected by member insurers with the approval of the State Corporation Commission. An assessment may be abated or deferred by the Association if, in
the opinion of the board, payment would endanger the ability of the member to fulfill its contractual obligations, but the other member insurers may be assessed for the amount of such abatement or deferral. Any such assessment paid by a member insurance company may be offset against its premium tax liability to the Commonwealth of Virginia over the ten calendar years following the year of the payment, in amounts equal to ten percent of the amount paid. The amount and timing of any future assessments, however, cannot be reasonably estimated and are beyond the control of the Company.
VIRGINIA'S OPEN ENROLLMENT PROGRAM. The Commonwealth of Virginia has an open enrollment program pursuant to which Trigon Insurance is required to offer comprehensive accident and sickness insurance contracts to individuals without imposition of certain underwriting criteria that would deny coverage on the basis of medical condition, age or employment status. As an incentive for participating in the open enrollment program, Trigon Insurance pays Virginia premium tax of three-fourths of one percent (0.75%) on premiums received from individual accident and sickness insurance rather than the general Virginia premium tax of two and one fourth percent (2.25%). This general Virginia premium tax applies to all accident and sickness insurance premiums received by Trigon Insurance from group business. To withdraw from the open enrollment program, Trigon Insurance is required to give 24 months advance notice of withdrawal to the State Corporation Commission.
BANKRUPTCY AND INSOLVENCY. In the event of default on any debt incurred by the Company or the bankruptcy of the Company, the creditors and stockholders of the Company would have no right to proceed against the assets of Trigon Insurance or any other subsidiary of the Company. If Trigon Insurance were subject to a rehabilitation or liquidation proceeding, such proceeding would be brought by the State Corporation Commission which would act as the receiver with respect to such insurance company's property and business. All creditors of Trigon Insurance, including, without limitation, members and, if applicable, the various state guaranty associations, would be entitled to payment in full from such assets before the Company, as a stockholder, would be entitled to receive any distributions therefrom.
THE BLUE CROSS BLUE SHIELD LICENSE
The Company and certain of its subsidiaries have the exclusive right to use certain Blue Cross and Blue Shield service marks and tradenames for all of their plans and products throughout Virginia other than a small portion of the northern Virginia suburbs adjacent to Washington, D.C. The license requires an annual fee to be paid to BCBSA equal to total association expenses allocated to members based upon enrollment and premium and subjects the Company to certain other guidelines. BCBSA is a national trade association of Blue Cross and Blue Shield licensees, the primary function of which is to promote and preserve the integrity of the Blue Cross and Blue Shield name and service marks as well as provide certain coordination among plan and provider services. Each BCBSA licensee is an independent legal organization and is not responsible for obligations of other BCBSA member organizations. The Company has no right to use the Blue Cross and Blue Shield service marks and tradenames outside of its designated territory within the Commonwealth of Virginia.
Under the Company's license agreement with BCBSA, an institutional investor (generally defined as an entity identified in Rule 13d-1(b) (1) (ii) of the rules and regulations under the Securities Exchange Act of 1934 and which makes certifications required by item 10 of SEC Schedule 13G) may own up to 10% of the outstanding voting securities of the Company. All other stockholders are subject to a 5% ownership limitation. Ownership by any stockholder of voting securities in excess of such limits would subject the Company to automatic termination of its license.
The Company's Articles of Incorporation contain certain provisions which are intended to prevent any holder from acquiring shares in excess of the limits set forth in the Company's license agreement. However, there can be no assurance that a court would enforce these provisions or that if these provisions were not enforced that the Company would retain the license from BCBSA. If the BCBSA license were to be terminated, there would be a material adverse effect on the Company's business and operations, which the Company does not believe it can meaningfully quantify.
The license agreements between BCBSA and its licensees prohibit a licensee from entering into certain transactions which would result in an unlicensed entity obtaining control of the licensee or acquiring a substantial portion of the licensee's assets related to services provided under the Blue Cross or Blue Shield service marks. The license
agreements also require that a licensee pay to BCBSA a specific amount upon termination of the license agreement, subject to certain limited exceptions. The amount payable upon termination of the license agreement is equal to $25 multiplied by the number of the licensee's members receiving products or services sold or administered under the Blue Cross or Blue Shield service marks, subject to reduction to the extent the payment of such fee would cause such licensee to fall below certain capital requirements established by the BCBSA.
RATING
SUBSIDIARIES. Trigon Insurance, HealthKeepers and Peninsula are each presently assigned a rating of "A" (Excellent) by A.M. Best Company. Priority is presently assigned an A.M. Best rating of "A-" (Excellent). A.M. Best's ratings are divided into two broad categories - Secure and Vulnerable. All of the ratings assigned to the Company's subsidiaries are classified as Secure. The ratings of "A" and "A-" are assigned to companies which have, on balance, excellent financial strength, operating performance and market profile when compared to the standards established by the A.M. Best Company. It is the opinion of A.M. Best Company that such companies have a strong ability to meet their ongoing obligations. Such ratings are not directed to the protection of investors and are subject to review and change over time. In March 2000, Trigon Insurance received both a counterparty credit rating and an insurer financial strength rating of "AA-" (Very Strong) from Standard & Poor's. The counterparty credit rating is an opinion of the company's overall creditworthiness and financial capacity to pay its financial obligations. This rating indicated the company has a strong capacity to meet its financial commitments. The insurer financial strength rating is a current opinion that the financial security characteristics of the company are very strong with respect to its ability to pay under its insurance contracts in accordance with the contract terms.
COMMERCIAL PAPER. Standard and Poor's assigned its A-1 short-term issuer credit rating to Trigon's $300 million commercial paper program in March 2000. An obligor rated `A-1' by Standard and Poor's has STRONG capacity to meet its financial commitments, and is rated in the highest category by Standard & Poor's.
In March 2000 Fitch issued an Short-Term credit rating to Trigon's $300 million private placement commercial paper program. Issuers rated by Fitch have the highest credit quality, indicating the strongest capacity for timely payment of financial commitments. ratings typically are provided to issuers with a conservative capital profile, strong liquidity, high-quality investments, an excellent competitive profile, and consistent strong earnings.
In March 2000, Moody's Investors Service assigned a Prime-2 short-term debt rating to Trigon's $300 million commercial paper program. Issuers rated Prime-2 by Moody's have a strong ability for repayment of senior short-term debt obligations. This is normally evidenced by leading market positions in well- established industries, high rates of return on funds employed, conservative capitalization structure, broad margins in earnings coverage of fixed financial charges and high internal cash generation, and the maintenance of ample alternate liquidity, although capital characteristics may be more affected by external conditions than issuers rated Prime-1 by Moody's.
EMPLOYEES
As of December 31, 2000, the Company had 3,917 full-time and 82 part-time employees. The employees are primarily located in Virginia, with the majority of the Virginia employees in the cities of Richmond and Roanoke. Employees are also located in Delaware, Georgia, Illinois, Maryland, New Jersey, North Carolina, Oklahoma, Pennsylvania and Washington D.C. The Company believes that its relationship with its employees is good. No employees are subject to collective bargaining agreements.
EXECUTIVE OFFICERS
For a listing of the positions held with the Company by each executive officer and other information, refer to "Officers," on page 56 of Trigon Healthcare Inc.'s 2000 Annual Report to Shareholders, which is incorporated herein by reference.
SERVICE MARKS
The Company has registered and maintains several service marks, trademarks and tradenames at the federal level, in the Commonwealth of Virginia and in certain other states. "Trigon," "Keycare" and "HealthKeepers" are included among these marks. Although the Company considers its registered service marks, trademarks and tradenames important in the operation of its business, the business of the Company is not dependent on any individual service mark, trademark or tradename. For a discussion of the Company's license to use certain Blue Cross and Blue Shield service marks and tradenames, see "The Blue Cross Blue Shield License."
FORWARD-LOOKING INFORMATION
The Private Securities Litigation Reform Act of 1995 (the "Act") provides a "safe harbor" for forward-looking statements, so long as those statements are identified as forward-looking and are accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those discussed in the document. The Company desires to take advantage of these safe harbor provisions. Certain information contained in this Form 10-K is forward-looking within the meaning of the Act or Securities and Exchange Commission rules. Words such as expects, anticipates, intends, plans, believes, seeks or estimates, or variations of such words and similar expressions are also intended to identify forward-looking statements. Such forward-looking statements are subject to inherent risks and uncertainties, many of which are beyond the control of the Company. Set forth below are certain important factors that, in addition to general economic conditions and
other factors, some of which are discussed elsewhere in this Form 10-K, may affect these forward-looking statements and the Company's business generally.
ESCALATING HEALTH CARE COSTS AND THE HEALTH CARE INDUSTRY. The Company's profitability depends in large part on accurately predicting and effectively managing health care costs. Predicting medical costs is difficult partially due to the variability of medical inflation. Trigon continually reviews and adjusts its premium and benefit structure to reflect its underlying claims experience and revised actuarial data; however, several factors could adversely affect the medical loss ratios. Certain of these factors, which include changes in health care practices, inflation, new technologies, major epidemics, natural disasters and malpractice litigation, are beyond any health plan's control and could adversely affect the Company's ability to accurately predict and effectively control health care costs.
Competitive price pressures in the health insurance and managed care industry, which generally result from the entry and exit of health care companies in the marketplace, historically have resulted in, or contributed to, pricing and profitability cycles. While we believe structural changes in the managed health care and health insurance industry have altered traditional cyclical patterns, there can be no assurance that a continuation of the typical cyclical pattern will not adversely affect the profitability of the Company in the next few years.
COMPETITION. The health care industry is highly competitive both in Virginia and in other states in the southeastern and mid-Atlantic United States into which the Company principally intends to expand. See "Competition." There is no assurance that the overall competition will not exert strong pressures upon Trigon's profitability, its ability to increase enrollment, or its ability to successfully pursue growth in areas both within and outside of Virginia.
GOVERNMENT REGULATION. The Company and its subsidiaries are subject to federal and state regulation. See "Regulation." Regulatory initiatives may be undertaken in the future, either at the federal or state level, to engage in structural reform of the health care industry in order to reduce the escalation in health care costs or to make health care more accessible. Such reform, if it occurs, could adversely affect Trigon's results of operations or financial condition.
POTENTIAL RISKS ASSOCIATED WITH GROWTH THROUGH ACQUISITIONS. As a result of the expansion of managed care companies into Virginia and the southeastern and mid- Atlantic regions of the United States, the competition to purchase health care companies has intensified, which in many instances has resulted in significant increases in the costs of acquiring such companies, and which could affect the availability of attractive acquisition opportunities. In addition, the Company has no significant experience in expanding its managed health care business outside Virginia. There can be no assurance that the Company will successfully identify or complete acquisitions or that any acquisitions, if completed, will perform as expected or will contribute significant revenues or profits to the Company. The Company's ability to expand successfully outside of Virginia through acquisitions or otherwise may be adversely affected by its inability to use the Blue Cross and Blue Shield service marks and trademarks outside of the Company's licensed territory in Virginia, by the Company's lack of substantial market share or established provider networks outside of Virginia and by the presence of competitors with strong market positions in these areas.
CONCENTRATION OF BUSINESS IN VIRGINIA. While the Company's growth strategy includes expansion outside Virginia, for the foreseeable future a significant portion of the Company's revenues may be subject to economic factors specific to Virginia. Therefore, there can be no assurance that a downturn in the Virginia economy would not adversely affect the Company.
POTENTIAL LOSS OF BLUE CROSS AND BLUE SHIELD SERVICE MARKS AND TRADENAMES. Trigon and the BCBSA are parties to a license agreement pursuant to which the Company and certain of its subsidiaries have the exclusive right to use certain Blue Cross and Blue Shield service marks and tradenames for their products throughout Virginia other than certain northern Virginia suburbs adjacent to Washington, D.C. See "The Blue Cross Blue Shield License." If the BCBSA license were to be terminated, there would be a material adverse effect on the Company's business and operations, which the Company does not believe it can meaningfully quantify. To the extent that the Company continues to use the Blue Cross and Blue Shield service marks and tradenames in marketing its managed care products, there can be no assurance that any negative publicity concerning BCBSA and
other BCBSA licenses will not adversely affect the sales of the Company's managed care products and the Company's operations.
ITEM 2.
ITEM 2. PROPERTIES
The Company is headquartered in Richmond, Virginia, where it owns a four-story building with 268,000 square feet of office space. The Company also owns an office facility and warehouse in Roanoke, Virginia with 190,500 square feet. The Company leases additional office space totaling 447,400 square feet in Richmond, 120,900 square feet in Roanoke and other locations in Virginia and 6,000 square feet combined in Maryland, Pennsylvania and North Carolina. These properties are primarily used by the health insurance segment for operations and for corporate administration. The Company also owns a 70,800 square foot office facility in Fayetteville, North Carolina that is for sale.
Square footage utilized by segment as of December 31, 2000 was as follows: health insurance, 833,600; government programs, 29,000; investments, 3,900; and other reportable segments, 50,300. The remaining 116,000 square feet utilized by the Company was used for corporate administration.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
On June 9, 2000, the Company's subsidiary, Trigon Insurance Company, filed a lawsuit against the federal government for the recovery of federal income tax overpayments for the years 1989 through 1995. If successful, the Company expects to recover approximately $35 million in cash refunds plus interest of about $20 million and to receive tax refunds for the years 1996 through 1999 of about $65 million. In addition, if the Company is successful it could receive substantial additional tax credits that could lower federal income tax liability in future years.
The lawsuit, filed in the United States District Court for the Eastern District of Virginia, relates to the initial valuation and deductibility of the Company's assets when, along with other Blue Cross or Blue Shield organizations, it became subject to federal income taxation in 1987. As part of this change in tax status, Congress provided that if a Blue Cross or Blue Shield organization disposed of an asset that it had acquired while tax-exempt, its taxable gain or loss would be computed by reference to the asset's fair market value at the time the organization became subject to tax. The Company is seeking deductions for losses incurred on the termination of certain customer and provider contracts that were held by it on January 1, 1987, based on the fair market value of the contracts on that date.
The Internal Revenue Service asserts that the Company is not entitled to deduct losses incurred on the termination of these contracts. The resolution of the Company's refund claim is subject to uncertainties, including whether the court will allow the deductions and, if so, the amount of the deductions that will be allowed. While the Company believes that its claim is meritorious, it cannot predict the ultimate outcome of the claim.
The Company and certain of its subsidiaries are involved in various other legal actions occurring in the normal course of their business. While the ultimate outcome of such litigation cannot be predicted with certainty, in the opinion of Company management, after consultation with counsel responsible for such litigation, the outcome of those actions is not expected to have a material adverse effect on the financial condition and results of operations of the Company.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Refer to page 28, "Market Prices of Common Stock and Dividend Data," of Trigon Healthcare Inc.'s 2000 Annual Report to Shareholders, which is incorporated herein by reference.
Refer to "Part 1 - Business -- Regulation -- Insurance Holding Company Regulation" and "Part 1 - Business -- Regulation -- Restrictions on Dividends" for discussion of insurance holding company regulations and dividend restrictions. In addition, under the terms of the Company's $300 million revolving credit agreement and Amendment Nos. 1 and 2, the Company may not pay dividends on the Company's common stock unless the aggregate of all dividends paid by the Company plus payments to purchase, redeem or otherwise acquire capital stock of the Company (other than the Commonwealth Payment and purchases of Company capital stock made on or after December 1, 1999 in an aggregate amount not to exceed $150 million) does not exceed the sum of (i) $10 million plus (ii) 50% of the consolidated net income (or minus 100% of consolidated net loss) of the Company for the period from February 5, 1997, the completion date of the Demutualization, through the end of the most recently completed fiscal quarter, plus (iii) an amount (not to exceed $50 million) equal to 50% of the cumulative cash dividends paid out of income of certain subsidiaries of the Company earned prior to January 1, 1997 and received by the Company after the effective date of the revolving credit agreement and before December 31, 1997.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
Refer to pages 18 and 19, "Selected Consolidated Financial and Operating Data," of Trigon Healthcare Inc.'s 2000 Annual Report to Shareholders, which are incorporated herein by reference.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Refer to pages 20 through 26, "Management's Discussion and Analysis of Financial Condition and Results of Operations," of Trigon Healthcare Inc.'s 2000 Annual Report to Shareholders, which are incorporated herein by reference.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Refer to page 27, "Quantitative and Qualitative Disclosures About Market Risk," of Trigon Healthcare Inc.'s 2000 Annual Report to Shareholders, which is incorporated herein by reference.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Refer to pages 29 through 53, the Consolidated Financial Statements, page 54, "Independent Auditors' Report," and page 17, "Quarterly Financial Information," of Trigon Healthcare Inc.'s 2000 Annual Report to Shareholders, which are incorporated herein by reference.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Refer to pages 1 through 2, "Election of Directors," and page 5, "Section 16(a) Beneficial Ownership Reporting Compliance," of the Company's definitive Proxy Statement dated March 23, 2001, which are incorporated herein by reference solely as they relate to the Directors of the Company.
Pursuant to General Instruction G(3) to Form 10-K, information as to executive officers of the Company is set forth in Part I of this Form 10-K. See "Item 1 - Business -- Executive Officers."
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
Refer to pages 6 through 10, "Compensation of Executive Officers," of the Company's definitive Proxy Statement dated March 23, 2001, which are incorporated herein by reference solely as they relate to this item.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Refer to pages 3 and 4, "Beneficial Ownership of Securities," of the Company's definitive Proxy Statement dated March 23, 2001, which are incorporated herein by reference solely as they relate to this item.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
R. Gordon Smith, a director of the Company, is a partner of McGuire, Woods, Battle & Boothe, LLP, a law firm which serves as counsel to the Company and its subsidiaries.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this report. 1. Consolidated Financial Statements from Trigon Healthcare Inc.'s 2000 Annual Report to Shareholders are incorporated herein by reference in Item 8:
-- Consolidated Balance Sheets as of December 31, 2000 and 1999 (page 29) -- Consolidated Statements of Operations for the years ended December 31, 2000, 1999 and 1998 (page 30) -- Consolidated Statements of Changes in Shareholders' Equity and Comprehensive Income for the years ended December 31, 2000, 1999 and 1998 (page 31) -- Consolidated Statements of Cash Flows for the years ended December 31, 2000, 1999 and 1998 (page 32) -- Notes to Consolidated Financial Statements (pages 33 through 53) -- Independent Auditors' Report (page 54)
2. Financial statement schedules
3. Exhibits. The following is a list of exhibits to this Form 10-K.
* Management contract or compensatory plan or arrangement required to be filed as an exhibit to this Form 10-K pursuant to Item 14(c) of this Form 10-K.
All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
TRIGON HEALTHCARE, INC. Registrant
By: /s/ THOMAS R. BYRD ----------------------- THOMAS R. BYRD
Title: SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
Date: March 21, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Independent Auditors' Report The Board of Directors Trigon Healthcare, Inc.:
Under date of February 9, 2001, we reported on the consolidated balance sheets of Trigon Healthcare, Inc. and subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of operations, changes in shareholders' equity and comprehensive income and cash flows for each of the years in the three-year period ended December 31, 2000. In connection with our audits of the aforementioned consolidated financial statements, we also audited the related financial statement schedule included in this annual report on Form 10-K. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement schedule based on our audits.
In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
/s/ KPMG LLP
Richmond, Virginia February 9, 2001
S-1
SCHEDULE I
TRIGON HEALTHCARE, INC. AND SUBSIDIARIES CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT COMPANY)
Balance Sheets December 31, 2000 and 1999 (in thousands)
*Amounts are eliminated in consolidation.
See accompanying independent auditors' report and notes to condensed financial information.
S-2
SCHEDULE I
TRIGON HEALTHCARE, INC. AND SUBSIDIARIES CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT COMPANY), CONTINUED
Statements of Operations For the years ended December 31, 2000, 1999 and 1998 (in thousands)
*Amounts are eliminated in consolidation.
See accompanying independent auditors' report and notes to condensed financial information.
S-3
SCHEDULE I
TRIGON HEALTHCARE, INC. AND SUBSIDIARIES CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT COMPANY), CONTINUED
Statements of Changes in Shareholders' Equity and Comprehensive Income For the years ended December 31, 2000, 1999 and 1998 (in thousands)
S-4
SCHEDULE I
TRIGON HEALTHCARE, INC. AND SUBSIDIARIES CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT COMPANY), CONTINUED
Statements of Changes in Shareholders' Equity and Comprehensive Income, Continued For the years ended December 31, 2000, 1999 and 1998 (in thousands)
See accompanying independent auditors' report and notes to condensed financial information.
S-5
SCHEDULE I
TRIGON HEALTHCARE, INC. AND SUBSIDIARIES CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT COMPANY), CONTINUED
Statements of Cash Flows For the years ended December 31, 2000, 1999 and 1998 (in thousands)
*Amounts are eliminated in consolidation.
See accompanying independent auditors' report and notes to condensed financial information.
S-6
SCHEDULE I
TRIGON HEALTHCARE, INC. AND SUBSIDIARIES CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT ONLY), CONTINUED
Notes to Condensed Financial Information of Registrant (Parent Only)
The condensed financial information provided should be read in conjunction with the Consolidated Financial Statements of Trigon Healthcare, Inc. ("Registrant") incorporated by reference in Part II, Section 8 of this Form 10-K and the following notes:
(a) Basis of Presentation
The accompanying condensed financial information reflects the financial position as of December 31, 2000 and 1999 and the results of operations, changes in shareholders' equity and comprehensive income and cash flows for the years ended December 31, 2000, 1999 and 1998.
(b) Investment in Subsidiaries
The Registrant made a capital contribution to its subsidiary, Monticello Service Agency, Inc. of $18.5 million and $31.0 million during 2000 and 1999, respectively.
(c) Long-Term Debt
The information about long-term debt contained in note 12 of the notes to the consolidated financial statements of the Registrant is incorporated herein by reference.
(d) Capital Stock
The information about capital stock contained in note 14 of the notes to the consolidated financial statements of the Registrant is incorporated herein by reference.
(e) Cash and Stock Dividends
During 2000, 1999, and 1998, a subsidiary of the Registrant, Trigon Insurance Company, paid dividends to the Registrant of $125.0 million, $48.9 million, and $227.5 million, respectively. The 2000 and 1999 dividends were cash dividends. The 1998 dividend included $200.0 million of cash and $27.5 million of stock of a wholly-owned subsidiary.
On January 17, 2001, the Bureau of Insurance approved Trigon Insurance Company's request to effect an extraordinary dividend of $125.0 million to the Registrant on March 1, 2001. As a result of this dividend, any additional dividend distributions by Trigon Insurance Company during 2001 will require the approval of the Bureau of Insurance.
(f) Comprehensive Income
The information about comprehensive income contained in note 16 of the notes to the consolidated financial statements of the Registrant is incorporated herein by reference.
S-7
EXHIBIT INDEX