S&P Affirms Pennsylvania Dental Serv Corp 'BBB-' Rtgs

Business Wire, Oct 2, 2000

Business Editors

NEW YORK--(BUSINESS WIRE)--Standard & Poor's

Oct. 2, 2000-- Standard & Poor's today affirmed its triple-'B'-minus counterparty credit and financial strength ratings on Pennsylvania Dental Service Corp. (d/b/a Delta Dental of Pennsylvania) (DDP), a dental benefits company based in Mechanicsburg, Penn., and a member of the Delta Dental Plans Association.

At the same time, Standard & Poor's affirmed its triple-'B'-minus counterparty credit and financial strength ratings on DDP's affiliates, Delta Dental of New York (DDNY), Delta Dental of Delaware Inc. (DDDE), Delta Dental of West Virginia (DDWV), and Delta Dental of District of Columbia (DDDC). The outlook is stable.

The ratings are based on good market share, capital adequacy, and liquidity, offset by a low earnings level and some concentration of business in a single group. The ratings also reflect the explicit support from Delta Dental Plan of California.

Major Rating Factors:

-- DDP has a market share estimated at 17% of the dental insurance market in Pennsylvania, which is considered good. Its market share has shown steady growth over the past 15 years.

-- With its affiliates in New York, Delaware, West Virginia, and the District of Columbia, the DDP group of companies is diversified geographically, covering 2.1 million members as of Dec. 31, 1999. In addition, DDP holds the Delta Dental license and markets its products in Maryland. Its dental insurance market share in the adjacent states varies from about 3% to 11%. As a member of the Delta Dental Plans Association, the group benefits from the Association's nationwide networks and interplan agreements governing national programs.

-- DDP has a single cost-plus customer of about 17% of total 1999 revenue.

-- DDP's capital adequacy ratio of 102.9%, as measured by Standard & Poor's model, is considered good but is only slightly above marginal levels. Financial flexibility is enhanced by a strong relationship with Delta Dental Plan of California (DDPCA), the largest member of the Delta Dental Plans Association (financial strength rating single-'A'-plus).

-- DDPCA has provided explicit financial support for DDP. Strengthening the business position of DDP and its affiliates is considered strategically important for DDPCA.

-- Earnings are considered relatively weak for the rating, with a Standard and Poor's earnings adequacy ratio of 75%, which is considered marginal. Relatively low earnings levels are partly offset by low administrative expenses and insurance risks that are less volatile than those of medical insurance.

-- Investments are considered conservative.

-- Liquidity is considered good, with a liquidity ratio of 109.8%, as measured by Standard & Poor's model. Financial flexibility is somewhat limited because of the company's inability to issue stock or raise equity capital, but DDP has demonstrated some limited ability to access capital through joint ventures with DDPCA.

-- The ratings on DDP's affiliates, DDNY, DDDE, DDWV, and DDDC, are based on a guarantee by DDP.

Pennsylvania Dental Service Corp., Delta Dental of New York, Delta Dental of Delaware Inc., Delta Dental of West Virginia, and Delta Dental of District of Columbia are Security Circle insurers, which means that they voluntarily underwent Standard & Poor's most comprehensive analysis and were assigned ratings in one of the top four categories for financial security.

OUTLOOK: STABLE

Although competition from for-profit dental insurance and managed dental care carriers is expected to increase in the states in which DDP and its affiliates operate, the company's competitive advantages are expected to allow it to strongly grow its position and market share in 2000 and 2001. Earnings are expected to gradually improve but be relatively weak for the next two years. The capital adequacy ratio, as measured by Standard & Poor's model, for the consolidated group is expected to remain in the range considered good (100%-124%), Standard & Poor's said. ---CreditWire