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MAINE DENTAL SERVICE CORPORATION
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| Kevin C. Baack, PH. D | Fred Bechard, D.Ed. |
| Christie D. Harding | Martha M. Lawrence, DDS |
| Jeffrey B. Doss, DDS | Charles E. Brown, DDS |
| Walter L. Higgins, Jr., DMD | Gary E. Whitney |
| William C. Caddoo, DMD | George K. Joseph |
| Barry C. Saltz, DDS | Diane Bailey |
| Merle A. Davis | Clifford B. Larlee, Jr., DMD |
| Douglas C. Terp |
In accordance with Title 13-B M.R.S.A. § 710, the following lists the Officers elected by the Board of Directors and serving as of December 31, 2004:
| Name | Position |
|---|---|
| Thomas Raffio | President & Chief Executive Officer |
| Donald A. Kopp, Esq | Clerk |
| Gary E. Whitney | Treasurer |
| Helen T. Biglin | Senior Vice President |
The Company’s Articles of Incorporation, Bylaws and Minutes of the Board of Directors’ meetings held during the period under examination were reviewed. Review of these records indicates that the Company is operating in accordance with its Articles and Bylaws.
Fidelity Bond and Other Insurance
The Company is protected as a named insured under a blanket fidelity bond in the amount of $1,000,000. The bond amount was tested with regard to NAIC standards and was determined to be adequate. All insurance coverage was reviewed and was written by companies that are authorized in the State of Maine.
The Company is a nonprofit, tax-exempt organization under Title 24 M.R.S.A. which was established to provide dental benefit programs for employers and individuals through a network of participating member dentists in the State of Maine. Dental services are provided under written contracts and benefits are paid up to a maximum amount per covered individual, as defined by the various programs. The Company also provides dental service plan administration for other groups.
The Company utilizes Great Plains software for recording and reporting its financial, statistical data. As of November 2004, the Company implemented its new DCS2000 system for claims adjudication and premium determination. All processing of transactions and current record-keeping is performed in the Concord, N.H. office.
Effective July 1, 1997, the Company entered into a reinsurance agreement with DDPNH that is titled A Quota Share Reinsurance Agreement. The agreement only applies to the Maine State Employee Health Insurance Program groups underwritten by the Company. During the period of examination and up until June 30, 2005, the Company reinsured 20% of the State of Maine account through this agreement with DDPNH. Effective June 30, 2005, this agreement was terminated.
The Company is incorrectly reporting reinsurance balances payable net (premium balances payable less losses recoverable) as part of General Expenses Due or Accrued. The Company should be reporting a premium balance payable and a paid loss recoverable. (See Comment and Recommendation #2)
The Company has not reduced its claim reserves for the amount ceded to its reinsurers; instead, the amount was recorded as a receivable from the reinsurer. Policy reserves should be reduced by the amount ceded to reinsurers. (See Comment and Recommendation #3)
A review of legal confirmations furnished by outside legal counsel disclosed that the Company is not involved in any actual, pending or threatened litigation that would result in a material judgment against the Company.
The Company made an additional capital contribution of $45,000 in 2005 to its affiliate, NEDA, in which the Company has a one-third ownership interest.
In 2005, the Company made commitments to fund Dental Hygienist scholarships at two schools in Maine for a total of $50,000 per year through 2009 (total commitment: $250,000). The first payments were made in March 2005 and an accounts payable was recorded for the remaining $200,000.
The following Financial Statements show the results of the Company’s operations for the year ended December 31, 2004 as determined by this examination.
| BALANCE SHEET | |
| DECEMBER 31, 2004 | |
| ASSETS | |
| Bonds (Note 1) | $8,801,185 |
| Common stock (Note 2) | 4,188,166 |
| Cash equivalents and short-term investments (Note 3) | 4,036,124 |
| Investment income due and accrued | 104,122 |
| Uncollected premiums | 1,183,450 |
| Aggregate write-ins for invested assets (Note 4) | 17,346 |
| Amounts receivable relating to uninsured plans (Note 5) | 290,834 |
| Total Assets | $18,621,227 |
| LIABILITIES AND SURPLUS | |
| Claims unpaid (Note 6) | $2,419,200 |
| Unpaid claims adjustment expense (Note 6) | 346,000 |
| Premiums received in advance | 428,585 |
| General expense due and accrued | 448,984 |
| Amounts withheld/retained for others | 384,371 |
| Liability for uninsured accident and health plans | 98,640 |
| Total Liabilities | 4,125,780 |
| Unassigned funds (surplus) (Note 7) | 14,495,447 |
| Total Liabilities and Surplus | $18,621,227 |
INCOME STATEMENT
AND
CAPITAL & SURPLUS ACCOUNT
YEAR ENDED DECEMBER 31, 2004
Income Statement
| Net premium income | $46,759,941 |
| Underwriting deductions | |
| Other professional services | 37,796,851 |
| Claims adjustment expenses | 2,087,809 |
| General administrative expenses | 5,223,924 |
| Total underwriting deductions | 45,108,584 |
| Net underwriting gain | 1,651,357 |
| Net investment income earned | 483,467 |
| Net realized capital gain | 96,928 |
| Net investment gain | 580,395 |
| Aggregate write-ins for other expense | (7,429) |
| Net income before income taxes | 2,224,323 |
| Provision for income taxes | 0 |
| Net Income | $2,224,323 |
| Capital & Surplus Account | |
| Capital and surplus, at December 31, 2003 | $12,167,761 |
| Changes during the year | |
| Net income | 2,224,323 |
| Net unrealized capital gain | 81,000 |
| Change in nonadmitted assets | 22,363 |
| Net change in capital and surplus | 2,327,686 |
| Capital and surplus, at December 31, 2004 | $14,495,447 |
| Note 1 - Bonds | $8,801,185 | |||
| Cost | Par Value | Market Value | Amortized or Statement Value |
|
|---|---|---|---|---|
| U.S. Government | $ 4,598,899 | $ 4,559,110 | $ 4,652,812 | $ 4,591,721 |
| MBS/ABS | 349,118 | 340,269 | 347,975 | 343,478 |
| Public Utilities | 563,881 | 550,000 | 602,134 | 554,466 |
| Industrial & Misc. | 3,332,057 | 3,287,000 | 3,423,831 | 3,311,520 |
| TOTALS | $ 8,843,955 | $ 8,736,379 | $ 9,026,752 | $ 8,801,185 |
The Company amortizes bonds using the straight-line method and therefore is noncompliant with SSAP #26, paragraph 6. (See Comment and Recommendation #4)
The Company has a custodial agreement with HM Payson’s for their portfolio of investments. The custodial agreement was not in compliance with thirteen of the provisions outlined in the Examiners Handbook. (See Comment and Recommendation #5)
| Note 2 - Common Stocks | $4,188,166 |
| Actual Cost | Statement Value | |
|---|---|---|
| Banks, Trusts and Insurance | $ 246,688 | $ 376,652 |
| Industrial & Misc. | 2,688,539 | 3,219,414 |
| Mutual Fund Fixed Income | 600,000 | 592,100 |
| TOTALS | $ 3,535,227 | $ 4,188,166 |
In accordance with procedures prescribed by the NAIC, stocks are stated at market value.
| Note 3 - Cash and Short-term Investments | $4,036,124 |
| Petty Cash | $ 200 |
| Cash in Bank | 2,658,173 |
| Total Cash | 2,658,373 |
| Short-term Investments | 1,377,751 |
| Total Cash and Short-term Investments | $ 4,036,124 |
Investments with maturities of one year or less from the date of acquisition are classified as short-term investments. “Cash in Bank” in the main checking account is swept overnight to a sweep/repurchase investment vehicle. The Company is not complying with the provisions of Maine Statute Title 33, Chapter 41 “Uniform Unclaimed Property Act” with regard to reporting abandoned property. (See Comment and Recommendation #6)
| Note 4 - Aggregate Write-in for Invested Assets | $ 17,346 |
The $17,346 write-in represents the Company’s investment in NEDA in which the Company has a one-third ownership interest. The investment is properly reported using the equity method; however, due to unrealized losses in each of the four years under review, an adjustment for an “other than temporary impairment” should be made. (See Comment and Recommendation #7)
| Note 5 – Amounts Receivable Relating to Uninsured Plans | $ 290,834 |
The Company’s uninsured accident and health plans include both Administrative Service Only (ASO) and Administrative Service Contracts (ASC) plans; however, in the Notes to the Annual Statement, all uninsured plans are reported as ASC plans. (See Comment and Recommendation #8)
| Note 6 - Claims and Claims Adjustment Expenses Unpaid | $2,419,200 $346,000 |
The Company’s methodology for estimating and reporting claims and claims adjustment expense reserves appear reasonable in all material respects.
| Note 7 – Unassigned Funds | $14,495,447 |
The Company is required to maintain equity in the Corporation at 150% of the Health Organization’s Risk Based Capital, Company Action Level. At December 31, 2004, the Company’s unassigned funds exceeded this required level of equity.
The Company’s financial condition, as disclosed by this examination, is reflected in statements and supporting exhibits contained in this report. The basis of preparation of such statements conforms to laws, rules and regulations prescribed and/or permitted by the Maine Bureau of Insurance.
Acknowledgement of cooperation and assistance extended to the examiners by all Company personnel is hereby expressed.
STATE OF MAINE
COUNTY OF KENNEBEC, SS
James C. Williams, CPA, CFE, being duly sworn according to law, deposes and says that, in accordance with the authority vested in him by Alessandro A. Iuppa, Superintendent of Insurance, pursuant to the Insurance Laws of the State of Maine, he has made an examination of the conditions and affairs of
MAINE DENTAL SERVICE CORPORATION
of Saco, Maine as of December 31, 2004 and that the foregoing report of examination, subscribed to by him is true to the best of his knowledge and belief. The following examiners from the Bureau of Insurance assisted:
Graham S. Payne
Jill C. Tobey, CPA, CFE
______________________________
James C. Williams, CPA, CFE
Director of Financial Affairs and Solvency
Subscribed and sworn to before me
This _____ day of _____________, 2006
________________________________
Notary Public
My commission expires:
Last Updated: July 16, 2008
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