18 April 2017Analysis

Mountain States Healthcare RRG receives downgrades

Ratings agency AM Best has downgraded the financial strength rating of Montana-based Mountain States Healthcare (MSH) Reciprocal Risk Retention Group (RRG) from A- (Excellent) to B++ (Good).

The downgrades reflect a deteroriation in the company's risk-adjusted capitalisation and operating performance in 2016, following significant adverse loss reserve development on prior accident years, primarily 2015 and 2012. This had resulted in policyholder surplus declining 31.6 percent a the end of 2016.

The rating action also reflects challenges faced to return underwriting results back to historical profitable levels, despite management's corrective actions, which include select rate increases and increasing reserve levels on older accident years for conservatism.

AM Best has also raised the possibility of further deterioration in risk-adjusted capitalisation if operating performance does not improve in 2017.

"The ratings reflect MSH’s balance sheet strength and market position as one of the top providers of medical professional liability (MPL) insurance in Montana and other Rocky Mountain states," said AM Best.

"These positive rating factors are offset by deterioration in operating performance in recent years, the inherent challenges associated with having a concentration of underwriting risk in hospital and MPL insurance, and an above-average risk profile with regard to high policy limits relative to surplus and elevated common stock leverage, which was in excess of 100 percent of surplus at year-end 2016."

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