CareFirst posted net income of $92.4 million from continuing operations in 2001. Membership continued to expand, surpassing the 3 million mark in June 2001 and ending the year at 3.1 million, a 3 percent gain from year-end 2000. The most dramatic expansion of membership came in Delaware where enrollment increased 19 percent, due largely to growth within major accounts, our capacity to tailor plans to meet specific customer needs and a sharp focus on marketing throughout the year. Nearly 80,000 new members were also added in the Washington area. These gains were partially offset by a loss of 37,000 members in Maryland, largely the result of CareFirst’s withdrawal from the Medicaid program. The company also faced weakness in its Maryland operations where losses were recorded on Open Enrollment and commercial HMO operations.

The company’s ability to do well in a very competitive marketplace is largely the consequence of effectively managed administrative expenses, strong brand identity, and customer service. CareFirst administrative costs for 2001 ran at only 9 percent of total revenues. From our customers’ perspective this means that 91 cents of every premium dollar in 2001 was allocated to health care and related services. And for the fifth consecutive year, CareFirst earned the Blue Cross and Blue Shield Association’s prestigious Brand Excellence Award. The award recognizes success in promoting customer loyalty to the Blue Cross and Blue Shield brand names.

CareFirst continues to make substantial investments in information technology to further integrate several core operating systems and to expand the company’s e-commerce capabilities. Additional capital investments will be made in 2002 and the next few succeeding years to comply with reporting and member privacy requirements set forth in the federal Health Insurance Portability and Accountability Act (HIPAA).

CareFirst revenues on consolidated operations — including premiums and premium-equivalents — rose to nearly $6 billion in 2001, up from $5 billion in 2000. The company’s statutory reserves, a measure of financial strength used to assess an insurer’s ability to cover claims, to meet unexpected contingencies and provide a source of funding to invest in product and service improvements, rose to $784.7 million at year-end 2001, a 13 percent gain from year-end 2000.

*Financial results for 1999 have been restated to include operating results of Blue Cross Blue Shield of Delaware and to properly display the discontinued Medicare and Medicaid operations of CareFirst BlueCross BlueShield.