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A.M. Best Downgrades Ratings of Oregon Dental Service and Its Subsidiaries and Removes Ratings From Under Review


CONTACTS:

Bridget Maehr
Senior Financial Analyst—L/H
(908) 439-2200, ext. 5321
bridget.maehr@ambest.com

Angelo Lozano
Financial Analyst—P/C
(908) 439-2200, ext. 5169
angelo.lozano@ambest.com

Christopher Sharkey
Manager, Public Relations
(908) 439-2200, ext. 5159
christopher.sharkey@ambest.com

Jim Peavy
Assistant Vice President, Public Relations
(908) 439-2200, ext. 5644
james.peavy@ambest.com

FOR IMMEDIATE RELEASE

OLDWICK - DECEMBER 01, 2015 03:53 PM (EST)
A.M. Best has downgraded the financial strength rating to B+ (Good) from B++ (Good) and the issuer credit ratings to “bbb-” from “bbb” for Oregon Dental Service (ODS) and its subsidiaries: Moda Health Plan, Inc. (Moda Health), Dentists Benefits Insurance Company (DBIC) and Northwest Dentists Insurance Company (NORDIC). All companies are domiciled in Portland, OR with the exception of NORDIC, which is domiciled in Bothell, WA. Additionally, A.M. Best has removed these ratings from under review with negative implications. The outlook assigned to all ratings is negative.

The downgrade of the ratings follows the reporting of third-quarter results, which included a significant decline in both absolute and risk-adjusted capital due to a negative adjustment for the proration for the risk corridors receivables to a fraction of what was originally recorded on Moda Health’s balance sheet for the 2014 receivable and all of the 2015 receivable. The risk corridors program was one of three programs established through the Affordable Care Act to provide stability to the individual and small group markets since market reforms and health insurance exchanges began in 2014. The program was expected to be budget neutral or self-funded. For the 2014 program year, risk corridors collections were considerably lower than risk corridors payments submitted by health insurers for their individual and small group health business. As a result, the Centers for Medicare & Medicaid Services (CMS) announced that payments to insurers will be prorated to 12.6% of submission. Furthermore, the National Association of Insurance Commissioners adopted guidance for the impairment and non-admission of risk corridors receivables beyond the 12.6% for the 2014 program announced by CMS and for the 2015 program year receivable effective for the third quarter of 2015. Partially offsetting this adjustment are a moderation in operating losses reported by Moda Health in the third quarter, additional capital contributed to Moda Health through surplus notes, and a change in business strategy that should help to decrease the capital strain Moda Health’s individual health business has created for the organization.

The negative outlook reflects the decreased financial flexibility of the organization due to the write down of Moda Health’s risk corridors receivables. Additionally, although losses have moderated, Moda Health continues to report a net loss through the third quarter of 2015. The revised business strategy includes the shrinking of Moda Health’s geographic footprint by exiting Washington’s individual and group markets, as well as an expectation of a decline in individual enrollment in its core markets. Additional losses or higher enrollment than projected could further strain risk-adjusted capital.

The downgrade of DBIC’s and NORDIC’s ratings is driven by Moda Health’s decreased financial flexibility and strain on capital, which could put additional pressure on the balance sheet strength of these subsidiaries due to the increased potential to provide capital to Moda Health. The current ratings of DBIC and NORDIC acknowledge their supportive risk-adjusted capitalization driven by low underwriting leverage, sound balance sheet liquidity and their respective leadership positions in Oregon and Washington, providing professional liability coverage primarily to dentists. Partially offsetting these positive rating factors are their geographic and product line concentration in their respective states and NORDIC’s historical underwriting volatility.

Positive rating movement could occur if Moda Health reports a trend of favorable operating results for its health business, improves its level of absolute and risk-adjusted capital through organic earnings retention or if there are positive developments related to the risk corridor receivable, which materially impacts its balance sheet. Negative rating movement could occur if the organization continues to report a trend of operating and net losses for its health business or if there is additional deterioration of its capitalization.

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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