STATE OF OREGON DEPARTMENT OF CONSUMER & BUSINESS SERVICES INSURANCE DIVISION

Transcription

1 STATE OF OREGON DEPARTMENT OF CONSUMER & BUSINESS SERVICES INSURANCE DIVISION REPORT OF QUALIFYING FINANCIAL EXAMINATION OF NEXDENT DENTAL PLANS, INC. PORTLAND,OREGON AS OF JULY 31, 2014

2 STATE OF OREGON DEPARTMENT OF CONSUMER AND BUSINESS SERVICES INSURANCE DIVISION REPORT OF QUALIFYING FINANCIAL EXAMINATION NEXDENT DENTAL PLANS, INC. PORTLAND,OREGON AS OF JULY 31, 2014

3 TABLE OF CONTENTS SALUTATION... 3 SCOPE OF EXAMINATION... 4 COMPANY DESCRIPTION... 4 CAPITALIZATION... 5 CORPORATE RECORDS... 6 Articles of Incorporation... 6 Bylaws... 6 MANAGEMENT AND CONTROL... 6 Board of Directors... 6 Officers... 7 Conflict Of Interest... 7 HOLDING COMPANY SySTEM... 8 FIDELITY BOND AND OTHER INSURANCE... 9 TERRITORY AND PLAN OF OPERATIONS... 9 REINSURANCE Ceded and Assumed ACCOUNTS AND RECORDS FINANCIAL STATEMENTS ASSETS LIABILITIES, SURPLUS AND OTHER FUNDS STATEMENT OF INCOME NOTES TO FINANCIAL STATEMENTS Note 1 -Invested Assets SUMMARY OF FINDINGS CONCLUSION ACKNOWLEDGMENT AFFIDAVIT... :... 18

4 SALUTATION October 17,2014 Honorable Laura N. Cali, Commissioner Department of Consumer Business and Services State of Oregon 350 Winter Street NE Salem, Oregon Dear Commissioner: In accordance with your instructions and guidelines in the National Association of Insurance Commissioners (NAIC) Examiners Handbook, pursuant to ORS and , respectively, we have examined the business affairs and financial condition of NEXHKNT DENTAL PLANS, INC NE Glisan Street, 3 rd Floor Portland, Oregon hereinafter referred to as the "Company." The following report is respectfully submitted. 3

5 SCOPE OF EXAMINATION We have perfonned our qualifying examination of NexDent Dental Plans, Inc. The examination was conducted to detennine if the Company is qualified to obtain a certificate of authority to conduct business as a limited health care service contractor pursuant to Chapter 750 of the Oregon Revised Statutes. The primary focus was to verify' assets, liabilities, capital and surplus, and to confirm that minimum capital and surplus requirements have been met. ORS (3) requires that applicants for an initial certificate of authority to conduct business as a limited health care service contractor possess capital and surplus of at least $1,500,000. In addition to a verification of the Company's financial position, the following matters were reviewed: Company description Conflicts of interest Fidelity bond and other insurance protection Accounts and records Reserving Management and control Corporate documents Statement reporting Investments: confinns/custodial reinsurance The examination was conducted in compliance with the Oregon Insurance Code as well as in accordance with procedures promulgated by the National Association of Insurance Commissioners. COMPANY DESCRIPTION The Company was originally incorporated in the State of Washington on April 23, 2012, as a for-profit corporation. It received its Washington domestic certificate of registration on March 25,2013. During the subsequent rates and fonns filing process, the Company began the process of applying for its foreign certificate of authority in Oregon. The Company discovered that it would be subject to a reciprocity requirement which required it to have three years of operational history in Washington before pursuing a certificate of authority in 4

6 Oregon. Between Washington and Oregon, the Company expects that 80% of its business will come from Oregon employers. The Company therefore determined it would apply for a domestic certificate of authority in Oregon pursuant to a UCAA primary application and withdraw its Washington certificate of registration. After receiving its Oregon certificate of authority, the Company intends to apply for foreign status in Washington after three years of operations in Oregon, satisfying Washington's seasoning requirement. The Company withdrew its Washington Certificate of Registration effective December 13, A new company, also called NexDent Dental Plans, Inc., was incorporated in Oregon on December 5,2013. The Washington entity, no longer an insurance entity, merged with and into the Oregon entity effective January 30, 2014, with the Oregon entity being the surviving entity. All outstanding shares of common stock in the Washington entity were converted into and became shares of common stock in the Oregon entity. CAPITALIZATION The Company has authorized one htmdred thousand (100,000) shares of common stock, $0.01 par value, and has issued 40,000 shares to stockholders. The Company recorded $400 as the value of its common capital stock at July 31, In addition, $1,599,600 was recorded as the paid-in capital amount. Shareholders are as follows: Name L. Theodore Van Eerden Dany Y. Tse, DMD Master Dental Institute, Inc. Kevin Boie Jerry Willbur Total Shares 17,080 11,400 5,680 4,000 1,840 40,000 Percentage 42.7% 28.5% 14.2% 10.0% 4.6% 100.0% The Company reported no dividends or distributions to shareholders. 5

7 CORPORATE RECORDS Articles o(incorporation The Articles of Incorporation, effective December 5, 2013, were reviewed. The stated pnrpose of the Articles is to transact business as a health care service contractor with authority to issue prepaid dental care service benefits, which conform to the provisions of ORS Bvlaws The examiners reviewed the corporate Bylaws, effective January 30, The Bylaws stipulate that the business affairs and property of the corporation shall be managed under the direction of a Board of Directors. The number of the directors of the corporation shall be three. At least one third of the directors shall be representatives of the public who are not practicing doctors or employees or trustees of a participant hospital. The directors shall be elected by the shareholders at each annual shareholders meeting or at a special meeting called for such purpose. Board o(directors MANAGEMENT AND CONTROL The following directors served the Company as of July 31, 2014: Name Principal Affiliation Representation (Dany) Yui Sing Tse Chairman Ownership Vancouver, Washington NexDent Dental Plans, Inc. L. Theodore Van Eerden President Ownership Ridgefield, Washington NexDent Dental Plans, Inc. Timothy J. Cooper Benefit Consultant Public Beaverton, Oregon Beecher, Carlson 6

8 Officers Pursuant to the Bylaws, Section 3, the officers of the corporation shall consist of such officers and assistant officers as may be designated by resolution of the Board of Directors. The officers shall hold office at the pleasure of the Board of Directors. None of the officers of the corporation need to be a director. Any two or more offices may be held by the same person. The principal officers serving at July 31, 2014, were as follows: L. Theodore Van Eerden Kevin W. Boie (Dany) Yui Sing Tse President/Secretary Chief Financial Officer/Treasurer Chainnan Conflict Of Interest The Company's conflict of interest policy states that no covered person may engage in any transaction or arrangement or undertake positions with other organizations that involve a conflict of interest, except in compliance with their policy. Every covered person shall (i) disclose all actual and potential conflicts; and (ii) recuse himlherself from voting on any transaction or arrangement in which helshe has a potential conflict of interest, and, if so requested by the Chair, not be present when such vote is taken. Every covered person shall promptly and fully disclose all material facts of every actual or potential conflict of interest (i) existing at the time when helshe becomes a covered person; (ii) that arises while helshe is a covered person, at the time such actual or potential conflict arises; and (iii) annually through the annual conflict of interest questionnaire. 7

9 The conflict of interest policy has been written and approved. However, to date, no statements have been signed; this will be completed at the inception of business operations in Oregon. Therefore, to date, no individual has reported a material conflict. HOLDING COMPANY SYSTEM The Company will become a member of an insurance company holding system upon obtaining a Certificate of Authority and will be required to file a Form B - Holding Company Registration Statement pursuant to OAR The organization chart is as follows: DanyYTse L. Theodore Van Kevin W. Boie Jerald L. Willbur an individual Eerden an individual an individual an individual 100% I 28.5% 42.7% 10% I 4.6% Master Dentist Institute, Inc. a W A corporation 14.2% I NexDent Dental Plans, Inc. an OR for-profit corporation Dental Service, LLC a W A limited liability corporation 100% I I 100% T3K,LLC Access Dental Plan, LLC a W A limited liability corp. an OR limited liability corp. Master Dentist Institute, Inc. is a Washington corporation formed on July 15, It is a holding company formed to hold an ownership interest in Dental Service, LLC, located in Vancouver, Washington, and owned 100% by DanyY. Tse. Dental Service, LLC ("DSLLC"), formed in Washington on hme 5, 2003, currently provides practice management services to a group of nine dental offices in the Portland and Vancouver metropolitan areas, which generated approximately $16 million in patient revenue in

10 DSLLC has five owners, four individuals and one corporation. DSLLC has two subsidiaries, as follows: T3K. LLC was formed in Washington on August 30, It is an insurance producer licensed in both Oregon and Washington. Kevin Boie is the licensed producer for T3K. Access Dental Plan LLC is an Oregon limited liability corporation created on September 17, It writes dental business for the Oregon Health Plan administered by the Division of Medical Assistance Programs (DMAP). Additional entities not included in the chart are DS Property Holdings, LLC, and DS Property Holdings 2, LLC, both Washington limited liability corporations. Both are owned by the four individuals that own the Company; 42.7% by L. Theodore Van Eerden, 42.7% by DanyY Tse, 10% by Kevin Boie, and 4.6% by Jerald L. Willbur. FIDELITY BOND AND OTHER INSURANCE The Company has obtained general business insurance coverage. Other insurance coverages proposed included employment practices liability, general liability and property insurance. The examination of insurance coverages involved a review of adequacy of limits and retentions. The Company has not, however, obtained fiduciary liability or crime coverage. See the Slunmary of Findings on page 15 of this report. TERRITORY AND PLAN OF OPERATIONS The dental offices managed by DSLLC participate as providers in a number of preferred provider organizations (PPO), including NexDent, a commercial dental insurance product. The following entities partner to offer N exdent to employer group market: 9

11 Madison National Life Insurance ("MNLI") functions as both the insurance underwriter and claims administrator for NexDent. Gentech Dentist is a PPO for NexDent with participating providers in Portland, Oregon and Vancouver, Washington metro areas. Dentemax is a PPO for N exdent, with participating providers throughout Washington and Oregon. T3K, LLC (a Washington State LLC and wholly owned subsidiary of DSLLC) is a licensed insurance producer in Washington State and Oregon, and the general agent / insurance producer ofnexdent. Kevin Boie, Chief Financial Officer of DSLLC and T3K, is a licensed insurance producer in both Washington State and Oregon, and has an affiliation with T3K, LLC. Beecher Carlson Insurance Agency, LLC is the exclusive outside sales representative for N exdent. DSLCC owns the trademark "NexDent" and combinations of three word phrases which include the word "NexDent." The operations of the Company will be managed by DSLLC, an affiliated entity. DSLLC is a management company that has experience in managing health related entities, including Gentech Dentist. The Company has executed a management agreement with DSLLC, effective January 1, The following functions will be managed by DSLLC: Underwriting Master policy issuance Policy cancellations AccOlTIlting TP A oversight Internal controls Cash management Investments Accounts payable The Company and its producers will focus on employer groups headquartered in the Portland, Oregon metro market, with the ability to serve those groups' employees located outside of the metro market via Dentemax' s participating providers throughout both 10

12 Washington and Oregon. In the event employees are located outside of Washington and Oregon or choose not to access participating providers, those employees will have access to out-of-network providers. REINSURANCE Ceded and Assumed The Company does not currently have, nor does it plan to obtain, reinsurance coverage. As a limited health care service contractor providing dental services, the maximmn annual benefits per enrollee is less than 10% of the Company's capital and surplus. ACCOUNTS AND RECORDS In general, the Company's records and source documentation supported the amounts presented in its unaudited July 31, 2014, financial statement and were maintained in a manner by which the financial condition was readily verifiable pursuant to the provisions of ORS FINANCIAL STATEMENTS The following financial statements show the unaudited financial condition of NexDent Dental Plans, Inc., as of July 31, 2014: 11

13 NEXDENT DENTAL PLANS, INC. ASSETS As of July 31,2014 ASSETS Balance per Company Examination Adjustments Balance per Examination Notes Cash and Cash Equivalents Aggregate write-ins Total current assets Total Assets $1,507,720 $ $ $ $1,507,720 $ $1,507,720 $ $1,507,720 12

14 NEXDENT DENTAL PLANS, INC. LIABILITIES, SURPLUS AND OTHER FUNDS As of July 31, 2014 LIABILITIES AND NET WORTH Balance per Company Examination Adjustments Balance per Examination Notes Current Liabilities General payables Aggregate write-ins Total Current Liabilities $ $ $ Long-Term Liabilities Aggregate write-ins Total long-term liabilities Total Liabilities $ $ $ NET WORTH Common capital stock Gross Paid In and Contributed Surplus Accumulated retained earnings Total Net Worth $ 400 1,599,600 (92,280).-ldQ7,720 $ $ 400 1,599,600 (92,280) 1,507,720 Total Liabilities and Net Worth $1,507.12Q $

15 NEXDENT DENTAL PLANS, INC. STATEMENT OF INCOME For the Period Ended July 31, 2014 Balance per Examination Balance per Income Company Adjustments Examination Premium revenue $ $ $ Other revenue Total revenues Expenses Insurance expenses Operating expenses 92,280 92,280 Total Expenses 92,280 92,280 Net income $ (22,28Q) $ 0 $ (92,280) 14

16 Note I-Invested Assets NOTES TO FINANCIAL STATEMENTS The examiner verified the balances in the investment and cash accounts were held in the name of the Company, and confirmed the balances held with the respective custodians and banks. No procedures were performed by the examiner to determine the accuracy of reporting, pricing, or valuation. Procedures were limited to determination of ownership and existence of cash and securities. The Company provided a draft of a custody agreement with U.S. Bank. The agreement contains none of the relevant protections described in OAR (4)(a) to (1). See the Summary of Findings below. SUMMARY OF FINDINGS Subsequent to the completion of examination field work but prior to the publication of this examination report, the Company performed the following: 1. As of the date of this examination report, the Company did not have fidelity or crime coverage per the requirements ofors (6) and the NArc Financial Condition Examiners Handbook. Nor did the Company have the management liability coverage. Policies were purchased on September 9, 2014, and the declaration pages were reviewed by the examiner to confrrm coverage. 2. The Company did not have a custodial agreement in place with US Bank N.A. that included the protections required per the provisions of OAR (4)(a) to (1). The Company provided an agreement with US Ban1e N.A. effective October 20,2014, that satisfied the provisions of OAR (4)(a) to (1). 15

17 3. The administrative services agreement with A&I Benefit Plan Administrators, Inc., stated that the Company is organized and existing tmder the laws of the state of Washington, with its principal place of business in Vancouver, Washington. It also quotes State of Washington code sections. The Company amended this agreement to replace Washington with the laws of the State of Oregon and moved its principal place of business, home office and related accotmts and records to Oregon in accordance with the provisions ofors CONCLUSION At July 31, 2014, NexDent Dental Plans, Inc., reported net assets of$i,507,720, liabilities of $0, and total equity of $1,507,720 (unaudited), as determined by this financial examination. The Company met the minimum capital and surplus requirements of ORS (3) to possess a Certificate of Authority. 16

18 ACKNOWLEDGMENT The cooperation and assistance extended by the officers and employees of the N exdent Dental Plans, Inc., during the examination process are gratenilly acknowledged. In addition to the undersigned, Mark Giffin, CFE, financial examiner for the State of Oregon, Department of Consumer and Business Services, Insurance Division, participated in this examination. Respectfully submitted, Department of Consumer and Business Services State of Oregon 17

19 AFFIDAVIT STATE OF OREGON ) County of Marion ) ) ss Heather 1. DeShores, MP A, MAFM, being duly sworn, states as follows: 1. I have authority to represent the state of Oregon in the examination of N exdent Dental Plans, Inc., Portland, Oregon. 2. The Insurance Division of the Department of Consumer and Business Services of the state of Oregon is accredited under the National Association of Insurance Commissioners Financial Regulation Standards and Accreditation. 3. I have reviewed the examination work papers and examination report. The examination of N exdent Dental Plans, Inc. was performed in a manner consistent with the standards and procedures required by the Oregon Insurance Code. The affiant says nothing further. Department of Consumer and Business Services State of Oregon Subscribed and sworn to me this;z3 day of ~A..--,2014. ot ry Public for) e Sta of Oregon My Commission Expires: :7;2.;2/.,;2 0 {l OFFICIAL SEAL LINDA J ROTHENBERGER NOTARY PUBlIC.OREGON COMMISSION NO MY COMMISSION EXPIRES MARCH 22,