Best’s News & Research Service - November 25, 2015 09:23 AM (EST)
A.M. Best Revises Outlook to Negative for Members of the NORCAL Group
- November 25, 2015 09:23 AM (EST)
Oldwick //BestWire// - A.M. Best has revised the outlook to negative from stable and affirmed the financial strength rating of A (Excellent) and the issuer credit ratings of “a” of NORCAL Mutual Insurance Company (San Francisco, CA) and its wholly owned subsidiaries, PMSLIC Insurance Company (Mechanicsburg, PA) and Medicus Insurance Company (Austin, TX), which are all members of the NORCAL Group (NORCAL).
The ratings reflect the group’s strong balance sheet, historically positive operating performance and sound business profile as one of the leading providers of medical professional liability (MPL) insurance in the United States. These positive rating factors are partially offset by a decline in operating performance, diminishing favorable reserve development and a concentration of underwriting risk in MPL insurance lines. In addition, interest rates remain low keeping investment returns down and creating pressure on underwriting profitability.
The outlook reflects the group’s trend of deteriorating operating performance including four-plus years of underwriting losses through the first nine months of 2015. Over this period, the pure loss ratio has increased significantly, and the loss adjustment expense ratio remains elevated. The 2014 and 2013 losses were driven by challenging market dynamics and company fundamentals before policyholder dividends were paid, while the 2012 and 2011 losses resulted from payment of the policyholder dividends, which were discretionary.
NORCAL was the ninth largest writer of MPL insurance in the United States and ranked second in its major markets of California and Pennsylvania based on 2014 direct premium written. The group provides MPL insurance coverage, primarily on a claims-made basis, to physicians, hospitals and other healthcare institutions in twelve states. The members of the group share each other’s risks through intercompany pooling and quota share reinsurance.
Separately, NORCAL entered a definitive agreement on Nov. 18, 2015, to acquire FD Insurance Company, a mono-line carrier underwriting MPL insurance coverage for approximately 2,200 healthcare providers in Florida and Georgia through independent agents. The announcement of the acquisition, which is expected to close in December 2015, had no impact on the rating decision.
Negative rating actions could occur if the balance sheet was to significantly weaken as measured by Best’s Capital Adequacy Ratio (BCAR) model or should operating performance and underwriting results continue to trend unfavorably.
This press release relates to rating(s) that have been published on A.M. Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please visit A.M. Best’s Ratings & Criteria Center.
A.M. Best Company is the world’s oldest and most authoritative insurance rating and information source.