OLDWICK, N.J.--(BUSINESS WIRE)--A.M. Best has affirmed the financial strength rating (FSR) of A (Excellent) and the issuer credit ratings (ICR) of “a” for Delta Dental Plan of Michigan, Inc. (DDMI) (Okemos, MI) and its affiliates, Delta Dental Plan of Ohio, Inc. (DDOH) (Dublin, OH) and Delta Dental Plan of Indiana, Inc. (DDIN) (Indianapolis, IN).
Concurrently, A.M. Best has affirmed the FSR of A- (Excellent) and the ICR of “a-” of DDMI’s stand-alone rated affiliate, Renaissance Life & Health Insurance Company of America (RLHICA) (Indianapolis, IN). The outlook for all ratings is stable.
The rating affirmations for DDMI and its affiliates reflect a history of favorable operating performance, significant market share in their respective states and strong levels of risk-adjusted capitalization. With the exception of 2009, when the organization was impacted by the downturn in the economy, DDMI has reported significantly improved financial results which are attributable to its large provider networks, strong retention levels, low utilization levels, disciplined pricing and operational efficiency.
The combination of underwriting performance and investment income has led to growth in capital, which has outpaced the growth in premiums written. These companies provide coverage to more than 3.6 million subscribers of employers based in the tri-state area, with significant market share in each state, especially for employer groups in excess of 1,000 lives. In 2006, DDMI and several other Delta Dental plans established Renaissance Holding Company, which offers non-branded dental coverage through its subsidiary, RLHICA, which provides earnings diversification for the enterprise.
Partially offsetting these positive rating factors is A.M. Best’s concern with the organization’s asset allocation strategy, and its operating in a highly competitive market with a challenging economic environment. A.M. Best believes the organization maintains an aggressive asset allocation strategy for a health insurance company with approximately 61 percent of invested assets represented by common stock and nearly 20 percent in real estate. However, a significant portion of the reported common stock is comprised of bond mutual funds—mitigating some of the risk— and the real estate investment is property-owned and occupied by DDMI. A.M. Best notes that the economic conditions in Michigan remain unfavorable with unemployment higher than the national average and limited business growth. Furthermore, these factors combined with the highly competitive dental market, could impact enrollment growth.
The affirmation of the ratings for RLHICA acknowledges its important role to develop new opportunities and offers Renaissance branded products beyond the state markets of the various Delta Dental plans within the organization. As such, RLHICA receives support from the Delta Dental plan owners, of which DDMI is the majority owner. The company’s continued profitable operations have bolstered its capital position.
RLHICA has a similar investment strategy to DDMI, and holds a relatively high allocation of common stock; however, bond mutual funds comprise a large portion of the equity investments, somewhat mitigating the risk. Additionally, the company may be challenged by regulators and uncertainties of participating in various health insurance exchanges. Moreover, RHLICA is involved in the competitive dental market on a national basis, which could impact growth.
Given the stable outlook, A.M. Best believes that a positive rating action for DDMI, DDOH and DDIN is unlikely in the near to medium term. Factors that could lead to negative rating actions include sizeable losses in membership, a significant decline in the organization’s operating performance or a substantial deterioration in its level of risk-adjusted capitalization.
Factors that could lead to a positive rating action for RHLICA include favorable premium and earnings trends. Factors that could lead to a negative rating action include significant deterioration in its operating performance, a decline in its risk-adjusted capital or any decrease in parental support.
A.M. Best deviated from its “Rating Members of Insurance Groups” criteria report because full rating enhancement was afforded to DDOH despite the lack of ownership between DDMI and DDOH. However, DDMI provides DDOH 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.
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