Best’s News & Research Service - May 08, 2014 04:14 PM (EDT)
A.M. Best Affirms Ratings of Delta Dental of California and Delta Dental of Pennsylvania
Oldwick //BestWire// - A.M. Best has affirmed the financial strength rating (FSR) of A- (Excellent) and the issuer credit ratings (ICR) of "a-" of Delta Dental of California (DDC) (San Francisco, CA) and its affiliate, Delta Dental Insurance Company (DDIC) (Wilmington, DE).
Concurrently, A.M. Best has affirmed the FSR of B++ (Good) and the ICRs of "bbb" of Delta Dental of Pennsylvania (DDP) (Mechanicsburg, PA) and its affiliate, Delta Dental of New York (DDNY) (New York, NY). The outlook for all ratings is stable.
DDC, DDP and DDIC, together with their affiliate companies and DDNY, form one of the largest dental benefits systems in the country ultimately controlled by Dentegra Group, Inc. (Dentegra). Dentegra is a non-profit Delaware holding company, formed by DDC and DDP, whose purpose is to oversee and coordinate the strategic activities of both entities and their affiliates.
The rating affirmations for DDC and DDIC reflect the group's dominant market position, strong earnings results in 2013 (mainly as a consequence of higher risk revenue retention rates) and an improved level of administrative efficiency. Additionally, overall enrollment continued to grow despite a few setbacks. The organization also benefited from reimbursement services from uninsured plans, which significantly lowered administrative expenses. Together, these improvements resulted in a sharp increase in risk-adjusted capital. Moreover, to optimize efforts in the area of healthcare reform, the organization has filed both Delta Dental and Dentegra branded, ACA-compliant, pediatric dental products that have been approved both inside and outside of 26 state exchanges.
The rating affirmations for DDP and DDNY recognize their improved profitability, sound capitalization and the strength of the Delta Dental brand. A.M. Best notes fluctuating membership at DDP over the last five years (albeit up in first quarter 2014) and that the New York dental insurance market is highly competitive.
Partially offsetting these positive rating factors are the organization's high concentration in government-sponsored business, challenges in markets outside of the core regions and significant price competition in the commercial segment, which tempered earnings.
Factors that could result in upward ratings movement include strong diversification in membership outside of the primary market of California; sustained operating performance that exceeds A.M. Best expectations and optimization of the Enterprise Streamline Project system to reduce administrative costs. Factors that could result in downward ratings pressure include deterioration in the organization's operating performance; substantial decline in its risk-adjusted capital; unfavorable changes in government-sponsored programs; or the inability to diversify profitably outside of its core regions.
A.M. Best deviated from its "Rating Members of Insurance Groups" criteria report because full rating enhancement was afforded to DDNY despite the lack of ownership between DDP and DDNY. However, DDP and DDNY share financial support agreements, common management and a common mission. As such, A.M. Best expects that the Boards of Directors would act to support both entities within the group.
The methodology used in determining these ratings is Best's Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best's rating process and contains the different rating criteria employed in the rating process. Best's Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
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