STATE OF UTAH INSURANCE DEPARTMENT

REPORT OF FINANCIAL EXAMINATION

of

TOTAL DENTAL ADMINISTRATORS OF UTAH, INC.

of

Salt Lake City, Utah

as of

December 31 , 2015

TABLE OF CONTENTS

SALUTATION ................................................................................................................... 1 SCOPE OF EXAMINATION .......................................................................................... 1 SUMMARY OF SIGNIFICANT FINDINGS AND RECOMMENDATIONS ........... 2 COMPANY HISTORY .................................................................................................... 2 General ................................................................................................................................ 2 Dividends and Capital Contributions .................................................................................. 2 Mergers and Acquisitions ................................................................................................... 2 MANAGEMENT & CONTROL INCLUDING CORPORATE GOVERNANCE .... 3 Board of Directors ............................................................................................................... 3 Audit Committee ................................................................................................................. 4 Holding Company Organization Chart ............................................................................... 4 Transactions and Agreements with Affiliates ..................................................................... 5 TERRITORY AND PLAN OF OPERATION ............................................................... 5 REINSURANCE ............................................................................................................... 6 COMPANY GROWTH .................................................................................................... 6 MORTALITY AND LOSS EXPERIENCE ................................................................... 7 ACCOUNTS AND RECORDS ........................................................................................ 7 FINANCIAL STATEMENTS .......................................................................................... 8 BALANCE SHEET ............................................................................................................ 9 STATEMENT OF REVENUE AND EXPENSES ........................................................... 10 RECONCILIATION OF CAPITAL AND SURPLUS ..................................................... 11 ANALYSIS OF CHANGES IN FINANCIAL STATEMENTS ................................. 12 COMMENTS ON FINANCIAL STATEMENT ITEMS ............................................ 12 SUBSEQUENT EVENTS ............................................................................................... 12 ACKNOWLEDGEMENT .............................................................................................. 12

May 31,2016

Honorable Todd E. Kiser, Commissioner Utah Insurance Department 3110 State Office Building Salt Lake City, Utah 84114

Commissioner:

Pursuant to your instructions and in compliance with statutory requirements, an examination, as of December 31, 2015, has been made of the financial condition and business affairs of:

Total Dental Administrators of Utah, Inc. Salt Lake City, Utah

hereinafter referred to in this report as the "Company" or "TDAU" and the following report of examination is respectfully submitted.

SCOPE OF EXAMINATION

The last financial examination of the Company was completed as of December 31, 2010. The current examination is a full scope examination covering the period from January 1, 2011 through December 31, 2015, including any material transactions or events occurring subsequent to the examination date and noted during the course of the examination.

The purpose of this examination is to assess the financial condition of the Company and its holding company system. The examination was conducted by representatives of the Utah Insurance Department ("Department") at the Company's office in Salt Lake City, Utah.

We conducted our examination in accordance with the risk-focused examination approach as prescribed by the National Association of Insurance Commissioners ("NAIC") Financial Condition Examiners Handbook ("Handbook"). The Handbook requires that we plan and perform the examination to evaluate the financial condition and identify prospective risks of the Company by obtaining information about the Company's corporate governance, identifying and assessing inherent risks within the Company, and evaluating internal controls, policies, and procedures used to mitigate those risks. An examination also includes assessing the principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation, management's compliance with Statutory Accounting Principles and annual statement instructions, when applicable to domestic state regulations.

1

Workpapers of the Company's independent auditor, Squire & Company, PC, were reviewed and relied upon whenever possible and applicable to assist in the completion of examination procedures.

SUMMARY OF SIGNIFICANT FINDINGS AND RECOMMENDATIONS

There were no significant findings for inclusion in the examination report.

COMPANY HISTORY

General

The Company was incorporated as Safeguard Health Plans, Inc. on June 17, 1986. The Company was granted a certificate of authority to transact business as a limited health plan and commenced writing dental insurance on March 20, 1987.

Total Dental Administrators, Inc. (TDA) acquired Safeguard Health Plans, Inc. on August 30, 2002. The Articles of Incorporation were amended on October 28, 2002, to change the Company's name to Total Dental Administrators of Utah, Inc. (TDAU). The Company was granted authority to transact business in the State of Utah as a Limited Health Plan effective October 2, 2002.

TDAU is wholly owned by Companion Life Insurance Company, a South Carolina insurance corporation and a wholly-owned subsidiary of Blue Cross Blue Shield of South Carolina (BlueCross).

Dividends and Capital Contributions

During the period of the examination no dividends were declared or paid nor were there any capital contributions made.

Mergers and Acquisitions

On January 31,2011, BlueCross purchased TDA, Dental Management Administrators, and its related insurance subsidiaries including Total Dental Administrators of Utah, Inc. (TDAU) and Total Dental Administrators Health Plan of Arizona (TDAZ).

Immediately upon acquisition, BlueCross transferred both insurance entities TDAU and TDAZ to its wholly-owned subsidiary Companion Life Insurance Company.

TDA and its non-insurance subsidiary Dental Management Administrators were immediately transferred to another BlueCross wholly-owned subsidiary Companion Capital Management, Inc.

2

MANAGEMENT & CONTROL INCLUDING CORPORATE GOVERNANCE

Board of Directors

The Company's bylaws state that the number of directors shall be four (4). The following persons served as directors of the Company as of December 31, 2015.

~arne and Location ~itle and Principle Occupation rrrescott N. Hinton, Jr. ~ppointed Member (Chair) Columbia, South Carolina !President & CEO, Companion Life Insurance Company udith M. Davis f'\ppointed Member

Columbia, South Carolina ~lue Cross Blue Shield of South Carolina Legal Officer ane Ann Morrison Appointed Member

Sandy, UT TDAU President & CEO Nancy F. Lambert Appointed Member Sandy, UT Business Owner, Jerry Lambert Automotive, Inc.

Officers

The Company's bylaws state that the officers of the Company shall be a President and Chief Executive Officer, Vice Presidents, Secretaryffreasurer, and there may be a Chairman of the Board and Vice-Chairman of the Board.

The officers as of December 31, 2015 were as follows:

Name and Location Title and Principle Occupation ane Ann Morrison President

Sandy, Utah Michael J. Mizeur Treasurer Columbia, South Carolina DuncanS. Mcintosh Secretary Camden, South Carolina rrrescott N. Hinton, Jr. Vice President Columbia, South Carolina ~eremy J. Spencer !Vice President !Phoenix, Arizona

3

Jane Ann Morrison, President, retired on December 31, 2015, and was replaced by Jeremy J. Spencer.

Audit Committee

The Company had an audit committee comprised of the following members.

~arne and Location tfitle and Principle Occupation ohn G. Foos ~ppointed Member (Chair)

fl.tlanta, Georgia bFO of Independence Blue Cross [Helen E. Clawson Columbia, South Carolina

!Appointed Member ~Iue Cross Blue Shield of South Carolina Legal Officer

Mer! F. Code Appointed Member Columbia, South Carolina Blue Cross Blue Shield of South Carolina Legal Officer Elizabeth A. Fleming, Ph.D. Appointed Member Spartanburg, South Carolina President of Converse College, Ph.D. E. Erwin Maddrey Appointed Member Columbia, South Carolina Blue Cross Blue Shield of South Carolina Board Member ~inor M. Shaw ~ppointed Member Columbia, South Carolina ~Iue Cross Blue Shield of South Carolina Board Member oseph F. Sullivan ~ppointed Member

boJumbia, South Carolina ~Iue Cross Blue Shield of South Carolina Board Member

Holding Company Organization Chart

The Company is part of a holding company system as shown below:

Blue Cross Blue Shield of South Carolina (BlueCross)

CoCode 38520

100%

I Companion Life Insurance Company

CoCode 77828

100%

I Total Dental Administrators of UT, Inc.

CoCode 11560

4

Transactions and Agreements with Affiliates

Effective June 1, 2011, BlueCross entered into an administrative services agreement with TDAU to provide services including the following:

• Administrative services including information technology support, and human resource services;

• Compliance review services;

• Accounting services including corporate allocation review, statutory filing review, audit services, and assistance with budgeting and forecasting;

• Underwriting oversite and risk analysis services; and • Claims processing and claims auditing.

Presently, TDAU is occupying space at the Salt Lake City location leased by an affiliated company, TDA. Although TDAU is not a party to this lease, it contributes approximately 50% of the lease expense via a cost sharing arrangement. Additionally, TDA allocates other administrative costs in ratios as determined by the management of TDAU.

BlueCross and its subsidiaries file a consolidated federal income tax return under terms of a written tax-sharing agreement approved by the Board of Directors. BlueCross collects from or refunds to the subsidiary companies the amount of taxes or benefits based upon each companies' proportionate shares of the consolidated federal income tax liability computed as if the companies filed separate returns.

TERRITORY AND PLAN OF OPERATION

The Company was established for the purpose of providing prepaid dental coverage in the State of Utah. The Company negotiates annual contracts with a network of dentists within the state, which provide dental services to its subscribers and their eligible dependents. Members renew their coverage with the Company annually, on a prepaid basis, with co-payments based on a fee schedule, or to a usual, customary and reasonable fee schedule for procedures not covered under the negotiated contracts with the network dentist.

The Company primarily uses outside, independent agents and brokers to market its product. Participating dentists are paid a capitation fee each month based on the number of members that have selected a specific dentist's facility.

5

REINSURANCE

The Company does not cede or assume reinsurance

COMPANY GROWTH

During the examination period total capital and surplus have increased slightly. Revenue experienced a gradual and steady decrease until 2015 when it increased to a level above that of 2011. The Company continues to remain well funded.

Total Admitted Assets, Liabilities, Capital and Surplus

800,000

700,000

600,000

500,000

Assets 400,000

• Liabilities

300,000 Cap. & Surpl.

200,000

100,000

2011 2012 2013 2014 2015

Source: 2015 through 2011 Annual Financial Statements

6

Total Revenues

2,000,000

1,800,000

1,600,000 --,...-----., .--------,

~

1,400,000 '--- 11---

1,200,000 - --1,000,000

800,000

- --;I - --

600,000 f-- ~

400,000

200,000

,___

R :------

- r--

I

2011 2012 2013 2014 2015

Source: 2015 through 201 1 Annual Financial Statements

MORTALITY AND LOSS EXPERIENCE

The exalllination actuary reviewed the Company's mortality and loss experience, as well as pricing and underwriting practice. The examination actuary concluded that the Company's reserve methodology and assumptions were reasonable. No significant deficiency was noted in the Company' s unpaid claims and other actuarial liability reserves.

ACCOUNTS AND RECORDS

The Company' s accounting systems were maintained on a local area network. The basic accounting records and supporting documentation provide a verifiable audit trail.

Squire & Company, PC, an independent certified public accounting firm, audited the Company's records during the period covered by this exalllination. Audit reports generated by the auditors for the years 2011 through 2015 contained unqualified opinions and were made available for purpose of the exalllination.

An Information Technology (IT) Specialist performed a review of the Company's IT system controls for purposes of reliance by the exallliners.

7

FINANCIAL STATEMENTS

The following financial statements are based on the statutory financial statements filed by the Company with the Department and present the financial condition of the Company for the period ending December 31, 2015. The accompanying comments on financial statements reflect any examination adjustments to the amounts reported in the annual statement and should be considered an integral part of the financial statements.

8

TOTALDENTALADMINISTRATORS OF UTAH, INC. BALANCE SHEET

as of December 31,2015

Assets

Net Admitted Assets

Cash and short-term investments $ 684,612 ----..::-=-~==-

Subtotals, cash and invested assets 684,612 Uncollected premiums and agents' balances 33,179 Current federal and foreign income tax recoverable and interest 606 Net deferred tax asset 9,694 Electronic data processing equipment and software 268 Aggregate write-ins for other-than-invested assets 5,185 Total assets $ ____ ...;7..::3.::.3,:.:::5...:44..:....

Liabilities

Claims unpaid Unpaid claims adjustment expenses Premiums received in advance General expenses due or accrued Amounts withheld or retained for the account of others Amounts due to parent, subsidiaries and affiliates Total liabilities

Capital and Sumlus

Aggregate write-ins for special surplus funds Common capital stock Gross paid in and contributed surplus Aggregate write-ins for other than special surplus funds Unassigned funds (surplus) Total capital and surplus Total liabilities, capital and surplus

9

$

$

$

89,649 2,689

100,876 176,795

16 9,309

379,334

37,363 1,000

71,168 (2,872)

247,551

$ -----=3=-=574,"='271 o,_

$ __ _..:.;73::.::;3.:.:;,5..:..44;_

TOTAL DENTAL ADMINISTRATORS OF UTAH, INC. STATEMENT OF REVENUE AND EXPENSES

For the fiscal year ended December 31, 2015

Member months

Net premium income Total revenues

Hospital and Medical: Other professional services Total hospital and medical

Less: Claims adjustment expenses General administrative expenses Total underwriting deductions Net underwriting gain or (loss)

Net investment income earned Net investment gains (losses)

Net income (loss) after capital gains tax and before all other federal income taxes Federal and foreign income taxes incurred Net income (loss)

10

145,881

$ ---::1-'-::, 8:-::-2':-'1 ''::-'9 5'::':5:-1,821,955

1,136,664 1,136,664

(269) 647,415

1,783,810 38,145

173 173

38,318 26,287

$ __ _:1.:::2,"'-03:::..:1:..._

TOTAL DENTAL ADMINISTRATORS OF UTAH, INC. RECONCILIATION OF CAPITAL AND SURPLUS

For the fiscal years of 2011 through 2015

Per Exam 2011 2012 2013 2014 2015

Capital and surplus prior reporting year $ 291,045 353,681 310,378 321,431 340,671 Increase (decrease) in common stock

Increase (decrease} in contributed capital

Net Income (or loss) 69,125 (53,415) 9,777 21,772 12,031 Change in net deferred income tax (2,315) 1,639 (64) 1,120 1,761

Change in non-admitted assets (5,852) 6,796 1,340 (3,652) (253) Dividends to stockholders

Aggregate write-ins gains (losses) in surplus 1,678 1,677

Net change in capital and surplus 62,636 (43,303) 11,053 19,240 13,539 Capital and surplus end of reporting year $ 353,681 310,378 321,431 340,671 354,210

11

ANALYSIS OF CHANGES IN FINANCIAL STATEMENTS

No financial adjustments were made to the financial statements.

COMMENTS ON FINANCIAL STATEMENT ITEMS

There are no comments concerning non-compliance, adverse findings or material changes to the financial statements.

SUBSEQUENT EVENTS

There are no significant subsequent events identified through the date of the examination report.

ACKNOWLEDGEMENT

David Reimer, FSA, MAAA and Kemi Akinyemi, FSA, MAAA of Risk and Regulatory Consulting, LLC performed the actuarial review portion of the examination. Kristina M. Gaddis CFE, CISA, AES of AGI Services, performed the information technology review. Malis Rasmussen, CFE, supervised the examination. In addition, Cory Starley, of Utah Insurance Department participated in the examination. They join the undersigned in acknowledging the assistance and cooperation extended during the course of the examination by officers and representatives of the Company.

12