A.M. Best has upgraded the financial strength rating (FSR) to A (Excellent) from A- (Excellent), the issuer credit rating to "a" from "a-" and the Mexico National Scale Rating to "aaa.MX" from "aa+.MX" of Dentegra Seguros Dentales, S.A. (DSD) (Mexico) in tandem with its group's rating upgrade. The outlook for each of these ratings has been revised to stable from positive.
The ratings reflect DSD's good risk-adjusted capitalization, as measured by Best's Capital Adequacy Ratio (BCAR), overall strong operating performance, conservative investment strategy and strong underwriting practices. The ratings also recognize DSD's affiliation to its ultimate parent, Delta Dental of California (DDC), a leading dental insurer in the United States, which provides synergies and operating efficiencies to its Mexico subsidiary.DDC's ratings upgrade on July 8, 2016 reflects its improved capitalization, an economic shift to a higher level of earnings and the execution of business expansion strategies, resulting in an FSR of A (Excellent) and the ICR of "a". Offsetting these positive rating factors are DSD's relatively small size within Mexico's insurance industry and its concentration in two products within dental and vision insurance. The stable outlook for DSD's ratings reflects the same outlook assigned to DDC based on improved risk-adjusted capitalization, an economic shift to a higher level of earnings and the execution of business strategies.
DSD initiated operations in Mexico in 2007, and as a result of successfully implementing its strategy achieved its breakeven point within five years. The company underwrites dental insurance and ranked as a market leader in this line of business in 2015. DSD operates through a network of independent agents, local brokers and other insurance companies as a complement of their medical expense plans. The company holds commercial relationships with more than 4,400 dentists in more than 260 cities in Mexico.
DSD's historical risk-adjusted capitalization is good, as measured by BCAR. The Mexican subsidiary is mainly susceptible to underwriting risk as it retains 100% of its premiums. However, the company's demonstrated strong underwriting practices have resulted in positive technical performance and positive bottom line results in recent years, which translated into solid and improving profitability that were reflected in a 19.2% return on equity in 2015. The company's investment policies are conservative and in line with local and group guidelines and provide a steady flow of revenues to back its positive operating results. Moreover, the company benefits from being integrated into the group, gaining operational leverage through common systems, procedures and enterprise risk management practices. The group has historically demonstrated its support to DSD in terms of capital injections in order to fund growth opportunities.
A.M. Best expects DSD to maintain adequate capitalization levels supported by good underwriting practices and reinvestment of earnings in the subsidiary. If there are positive rating actions taken on DDC, the global scale ratings on DSD will move in tandem and trigger a positive rating action in the Mexico National Scale Rating. Likewise, if there are negative rating actions taken on DDC, the ratings on DSD will mirror the same adjustments. Additionally, key factors that could lead to negative rating actions include diminished parental support, as well as deteriorating operating performance that leads to substantial weakening of its risk-adjusted capitalization.
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:
- A.M. Best's Ratings on a National Scale
- Analyzing Insurance Holding Company Liquidity
- Evaluating Country Risk
- Insurance Holding Company and Debt Ratings
- Rating Members of Insurance Groups
- Risk Management and the Rating Process for Insurance Companies
- Understanding Universal BCAR
View a general description of the policies and procedures used to determine credit ratings. Also in accordance with Mexican regulations, the following is a link to required disclosures A.M. Best America Latina Supplementary Disclosure.
- Previous Rating Date: December 10, 2015
- Date of Financial Data Used: December 31, 2015
This press release relates to rating(s) that have been published on A.M. Best's website. For additional 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 see A.M. Best's Recent Rating Activity web page.
A.M. Best's credit ratings are independent and objective opinions, not statements of fact. A.M. Best is not an Investment Advisor, does not offer investment advice of any kind, nor does the company or its Ratings Analysts offer any form of structuring or financial advice. A.M. Best's credit opinions are not recommendations to buy, sell or hold securities, or to make any other investment decisions. View our entire notice for complete details.
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