AM Best Revises Outlooks to Negative, Affirms Credit Ratings of Delta Dental of Minnesota Group Members

AM Best has revised the outlooks to negative from stable and affirmed the Financial Strength Rating of A (Excellent) and the Long-Term Issuer Credit Rating of "a" (Excellent) of Delta Dental of Minnesota (DDMN) (Minneapolis, MN) and Delta Dental of Nebraska (DDNE) (Omaha, NE), which are members of Delta Dental of Minnesota Group.

The ratings reflect Delta Dental of Minnesota Group's balance sheet strength, which AM Best assesses as strongest, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management.

The negative outlooks reflect deterioration in the group's operating performance in recent years, primarily driven by administrative expenses related to systems implementation costs, which started in 2016, along with losses on the government programs business, which the company began supporting in mid-2017. The systems project, completed in 2019, resulted in a substantial increase in the administrative expense ratio, significantly impacting operating results in the four years ending in 2020. Underwriting performance has been impacted negatively by the company's decision to supplement the government programs business that has resulted in ongoing losses from government programs, which has continued into 2021. Government programs are considered part of the company's social mission to which the organization remains committed. While implementation costs and government programs have resulted in a trend of operating and net losses, the core individual and group dental businesses have remained profitable. Due to the continued impact of COVID-19, DDMN has also experienced elevated utilization of dental benefits through the first nine months of 2021, which when combined with the government programs, has resulted in continued losses.

Delta Dental of Minnesota Group's Best Capital Adequacy Ratio (BCAR) remains assessed as strongest despite the trend of operating and net losses, as well as dividend payments to its parent, Stratacor. Delta Dental of Minnesota Group has very strong liquidity above 400% and access to funds at its parent should it be necessary. Delta Dental of Minnesota Group's investment portfolio is managed conservatively and is composed of high quality and liquid invested assets.

Delta Dental of Minnesota Group operates in Minnesota and Nebraska with strong brand recognition, solid market share and access to the national Delta Dental network. While the group's business is concentrated in dental insurance, a vision product was added to its portfolio over the past few years. However, AM Best does acknowledge that the Delta Dental of Minnesota Group operates in a competitive market with many other insurers vying for business.

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