A.M. Best Upgrades Ratings of Delta Dental of California and Delta Dental of Pennsylvania

A.M. Best Co. has upgraded the financial strength rating (FSR) to A- (Excellent) from B++ (Good) and issuer credit ratings (ICR) to "a-" from "bbb+" of Delta Dental of California (DDC) (San Francisco, CA) and its affiliate, Delta Dental Insurance Company (DDIC) (Wilmington, DE). The outlook for these ratings is stable.

Concurrently, A.M. Best has upgraded the FSR to B++ (Good) from B+ (Good) and ICRs to "bbb" from "bbb-" of Delta Dental of Pennsylvania (DDP) (Mechanicsburg, PA) and its affiliate, Delta Dental of New York (DDNY) (New York, NY). The outlook for these ratings is being revised to stable from positive.

The rating upgrades for DDC and DDIC reflect continued earnings improvement in 2011, which included expenditures for the Enterprise Streamlining Project, strengthening in risk-adjusted capital and organizational leadership in the dental insurance industry and dominant market share in California.

The rating upgrades for DDP and DDNY recognize favorable operating results, including consistent underwriting performance and improved investment income returns. These positive outcomes have enhanced the group's capitalization and increased its working capital ratios.

Partially offsetting these positive rating factors is the organization's business concentration risk in the public sector, where Delta Dental's customer list includes military, federal, state and local agency members. A.M. Best acknowledges that the organization is working to further build its commercial segment without sacrificing its government-sponsored business.

A.M. Best believes that the companies are well positioned at their current ratings.

Factors that could result in downward rating pressures include a significant deterioration in the organization's operating performance; substantial decline in its risk-adjusted capital; significant changes in the funding formula of government programs; or challenges in expanding its provider network.

A.M. Best deviated from its "Rating Members of Insurance Groups" methodology because full rating enhancement was afforded to DDNY despite the lack of ownership between DDPA and DDNY. However, DDPA and DDNY share financial support agreements, common management and a common mission. As such, A.M. Best expects that the representative Boards of Directors would act to support both entities within the group.

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: "Understanding BCAR for Life/Health Insurers"; "Risk Management and the Rating Process for Insurance Companies"; "Rating Members of Insurance Groups"; and "A.M. Best's Ratings & the Treatment of Debt." Best's Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.

Founded in 1899, A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com

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Contacts:

A.M. Best Co.
Senior Financial Analyst
David Mitchell, 908-439-2200, ext. 5556
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or
Sally Rosen, 908-439-2200, ext. 5280
Managing Senior Financial Analyst
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or
Senior Manager, Public Relations
Rachelle Morrow, 908-439-2200, ext. 5378
[e-mail]
or
Jim Peavy, 908-439-2200, ext. 5644
Assistant Vice President, Public Relations
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