A.M. Best Co. has upgraded the financial strength rating (FSR) to
B++ (Good) from B+ (Good) and issuer credit rating (ICR) to "bbb" from
"bbb-" of ODS Health Plan, Inc. (ODSHP), a subsidiary of Oregon
Dental Service. A.M. Best also has affirmed the FSRs of B++ (Good) and
ICRs of "bbb" of Oregon Dental Service (ODS) as well as Dentists
Benefits Insurance Company (DBIC) and Northwest Dentists
Insurance Company (NORDIC) (Bothell, WA), the property/casualty
subsidiary of the group. The outlook for all ratings is stable. All
companies are domiciled in Portland, OR, unless otherwise specified.
The upgrading of the ratings for ODSHP reflects the continued
improvement in its operating results and the stabilization of its
risk-based capital levels. Operating results turned positive for ODSHP
in 2010 and showed additional improvement in 2011, with underwriting
income and net income reaching its highest level in the last five years.
The favorable trend for operating results is anticipated to continue in
2012. Due to the favorable operating results, the risk-adjusted capital
level of ODSHP has stabilized and shown incremental growth over the last
two years. The ratings also consider the strategic and operational
importance this entity plays as part of ODS, as well as its integration
with and the explicit support it has received over the years from ODS,
thereby providing rating enhancement.
The rating affirmations of ODS recognize its improved operating results,
capital growth, business diversification and strong market share.
Underwriting and net income reported by ODS was positive in 2011, after
incurring net losses in the previous two years, and showed continued
improvement in 2011. Operating results are projected to remain positive.
The favorable operating results have contributed to strengthening of
risk-adjusted capitalization for ODS. ODS has developed a fairly diverse
revenue and earnings stream through its subsidiaries, which offer
products in multiple lines of business. ODS is the Delta Dental plan in
Oregon and has a little more than half of the dental insurance market in
Oregon far ahead of its competitors.
Positive rating movement could occur if ODS continues to experience
favorable trends in earnings and capitalization, reports significant
premium growth while enhancing its level of risk-adjusted capital or if
its business becomes more diversified through product, market segment or
geographic expansion. Key rating factors that could result in negative
rating actions include a significant decline in membership, premium
revenue, reporting of large operating losses or the company experiences
a drastic decline in its risk-adjusted capital.
The affirmation of DBIC's ratings acknowledges its strong capitalization
driven by low underwriting leverage, favorable long-term operating
performance and its leadership position providing professional liability
coverage to Oregon dentists. Partially offsetting these positive rating
factors are DBIC's geographic and product line concentration, as well as
recent increases in claim frequency and severity that led to
deteriorating underwriting results. Slight improvement was recognized in
2011.
The affirmation of NORDIC's ratings reflects its solid capitalization,
adequate liquidity and its dominant market position in providing dental
liability insurance coverage to dentists in Washington. Partially
offsetting these positive rating factors is the variable underwriting
performance attributable to increased claim severity prior to results
improving somewhat in 2011. In addition, NORDIC exhibits significant
geographical and product line concentration risks. A.M. Best expects
efforts undertaken by both DBIC and NORDIC will stabilize their
underwriting performance, which should avert further negative rating
pressure.
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. Key criteria
utilized include: "Risk Management and the Rating Process for Insurance
Companies"; "Understanding BCAR for Life/Health Insurers"; "Rating
Members of Insurance Groups"; "Understanding BCAR for Property/Casualty
Insurers"; and "Assessing Country Risk." Best's Credit Rating
Methodology can be found at www.ambest.com/ratings/methodology.