OLDWICK, N.J.--(BUSINESS WIRE)--A.M. Best has upgraded the financial strength rating (FSR) to A (Excellent) from A- (Excellent) and the issuer credit rating (ICR) to “a” from “a-” of Renaissance Life & Health Insurance Company of America (RLHICA) (Indianapolis, IN), an affiliate of Delta Dental Plan of Michigan, Inc. (DDMI) (Okemos, MI).
Concurrently, A.M. Best has affirmed the FSR of A (Excellent) and the ICR of “a” for DDMI and its affiliates, Delta Dental Plan of Ohio, Inc. (DDOH) (Dublin, OH) and Delta Dental Plan of Indiana, Inc. (DDIN) (Indianapolis, IN). The outlook for all ratings is stable.
The rating affirmations for DDMI and its group rated affiliates reflect the dominant market share in the tri-state region, maintenance of strong risk-adjusted capitalization levels and trend of favorable earnings. The organization’s significant market share is attributable to its large provider networks, strong Delta Dental brand, advanced technological platform and high quality service.
Historically, the combination of underwriting performance and investment income has led to growth in capital, which has outpaced growth in premiums written. These companies provide coverage to more than 4 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. Additionally, Renaissance Holding Company (RHC) was established by DDMI and several other Delta Dental plans in 2006. Through DDMI’s affiliate, RLHICA, non-branded dental coverage is offered to provide earnings diversification for the enterprise.
Partially offsetting these positive rating factors is DDMI’s recent decline in earnings, a competitive dental market and the organization’s asset allocation strategy. The 2014 operating results remained profitable; however, the high utilization of primarily two contracts negatively impacted results compared to the prior year. The organization has taken action and expects results to improve in the latter half of 2015. Additionally, the market has experienced aggressive pricing pressure from competitors, which may further impact earnings.
Moreover, A.M. Best believes the organization maintains an aggressive asset allocation strategy for a dental benefits company. Invested assets are comprised of approximately 55 percent equities and nearly 18 percent in real estate. However, some of this risk is mitigated by a significant portion of the reported equities that is comprised of bond mutual funds and a real estate investment that is owned and occupied by DDMI.
The upgrade of RLHICA’s ratings acknowledges its continued favorable financial results and strong risk-adjusted capital. In addition, RLHICA plays an important role in the development of new opportunities and offers Renaissance-branded products beyond the state markets of the various Delta Dental plans within the organization. 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 improved its product diversification through a partnership offering a vision product and a joint marketing agreement to combine life and disability with its dental and vision in one package.
RLHICA has a similar investment strategy to DDMI, maintaining a relatively high exposure to common stock; however, the risk is somewhat mitigated as bond mutual funds comprise a large portion of the equity investments. RHLICA has increased its participation in additional exchanges, and the company may be challenged by regulators and uncertainties of participating in various health insurance exchanges. Furthermore, RHLICA operates in the competitive dental market on a national basis, which could impact enrollment growth.
A.M. Best believes that a positive rating action for DDMI and its affiliates is unlikely in the near to medium term. Factors that could lead to a negative rating action include sizable membership losses, a significant decline in the organization’s operating performance or a substantial deterioration in the group's risk-adjusted capitalization.
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, common management exists between the two companies, licensing requirements and it role in the group. 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 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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