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FOR IMMEDIATE RELEASE
OLDWICK - OCTOBER 21, 2016 04:16 PM (EDT)
A.M. Best has removed from under review with negative implications and downgraded the Long-Term Issuer Credit Rating (ICR) to “bb” from “bb+” and affirmed the Financial Strength Rating (FSR) of B (Fair) of Oregon Dental Service (ODS). The outlook assigned to these Credit Ratings (ratings) is negative. A.M. Best also has assigned an FSR of B- (Fair) and a Long-Term ICR of “bb-” to Moda Health Plan, Inc. (Moda Health). The outlook assigned to these ratings is stable. Both companies are domiciled in Portland, OR.
The rating action on ODS reflects the material capital strain as well as regulatory and operational challenges due to the negative operating performance of its subsidiary, Moda Health, and increased organizational financial leverage. ODS operates as the Delta Dental plan providing dental products in its core markets of Oregon and Alaska. Moda Health writes medical health insurance products in the same markets. Moda has sold certain assets and secured additional surplus notes in support of Moda Health, which has resulted in a high level of financial leverage and increased statutory capital for the organization.
Offsetting rating factors for ODS include premium growth and favorable operating results in the company’s dental business and non-insurance operations. ODS is the largest provider of dental benefits in Oregon and Alaska, and its premiums has grown materially due to enrollment gains from the sale of individual dental products offered on health care exchanges and the inclusion of Medicaid dental business. Operating performance of the company’s dental business remains favorable and is supplemented by non-insurance operations, including its pharmacy operations.
The ratings of Moda Health reflect operating and net losses and a low level of risk-adjusted capital, as well as regulatory and operational challenges due to considerable losses. Over the past two years, Moda Health has reported material operating and net losses driven mostly by its individual health business. The company has been challenged with its individual business due to a high level of utilization from this population and a lack of risk-corridor payments. The company has implemented changes in its strategy to moderate this exposure in 2016 and 2017. Risk-adjusted capital is low based on capital strain from enrollment growth in the individual segment, net losses and substantial negative adjustments due to the reduction of the risk-corridor receivable. Additionally, the company’s capital is mostly composed of surplus notes. As a result of concerns by regulators in Oregon and Alaska regarding the financial condition of Moda Health, the company was briefly placed under supervision, which was subsequently replaced by a consent order, for a portion of 2016. After the execution of a capital plan to stabilize Moda Health, the regulators lifted the consent order.
Offsetting rating factors for Moda Health include its strategic role within the organization and capital support from ODS. Moda Health’s insurance portfolio creates business diversification beyond the Delta Dental business written by ODS. Moda Health’s insurance business contributes more than two-thirds of consolidated revenue for the organization. As part of the capital plan executed by the organization, considerable capital contributions have been made to Moda Health to offset losses and maintain the company above regulatory capital requirements.
This press release relates to Credit Ratings that have been published on A.M. Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see A.M. Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Understanding Best’s Credit Ratings.
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