Best’s News & Research Service - January 20, 2015 02:32 PM (EST)
A.M. Best Affirms Ratings of Delta Dental of Minnesota and Affiliate
Oldwick //BestWire// - A.M. Best has affirmed the financial strength rating of A (Excellent) and the issuer credit ratings (ICR) of "a" of Delta Dental of Minnesota (DDMN) (Minneapolis, MN) and Delta Dental of Nebraska (DDNE) (Omaha, NE). The outlook for all ratings is stable.
The rating affirmations for DDMN and DDNE reflect their trend of profitability, strong levels of risk-adjusted capitalization and solid market profile. Underwriting results have remained favorable over the medium term driven by operating margins, and high retention measures in the mid to large employer group segment add to the strength of DDMN's operating profile. DDMN's net income has been further aided by investment income and periodic realized capital gains over the past few years. Both dental organizations maintain robust risk-adjusted capital levels for their insurance and investment risks. DDMN also has a strong position within the dental insurance market in Minnesota, which is reflective of its high business retention and new sales achieved via competitive pricing, a wide array of products, strong brand recognition and reputation for superior customer service.
Partially offsetting factors include near-term expense increases and the challenges of operating in a highly competitive dental market. While the company has remained profitable, near-term earnings have been negatively affected by higher selling general and administration expenses, which reflect the trend of increased commissions and benefit costs of a greater share of risk business. Furthermore, the companies are challenged by a highly competitive dental market, particularly among small employer groups in metropolitan areas.
A.M. Best believes positive rating movement is unlikely in the near to medium term. Factors that may negatively affect the ratings include an adverse trend of revenue and/or earnings or a substantial decline in risk-adjusted capitalization falling below A.M. Best's expectations.
A.M. Best deviated from its "Rating Members of Insurance Groups" criteria report because full rating enhancement was afforded to DDNE despite the lack of ownership between DDMN and DDNE. DDMN provides DDNE with operational and distribution support, and common management exists between the two companies. 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.
Key insurance criteria reports utilized:
- Rating Members of Insurance Groups
- Risk Management and the Rating Process for Insurance Companies
- Understanding BCAR for U.S. and Canadian Life/Health Insurers
This press release relates to rating(s) 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 visit A.M. Best's Ratings & Criteria Center.
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