5 August 2016USA analysis

AM Best assigns ratings to MedChoice and affirms Physicians Insurance

Rating agency AM Best has assigned MedChoice Risk Retention Group with a financial strength rating of A-.

The rating agency also affirmed the FSR of A- of mutual insurer Physicians Insurance. The two companies comprise Physicians Insurance Mutual Group.

The rating affirmations of Physicians Insurance Mutual Group are based on its strong risk adjusted capitalisation and profitable operating performance.

The ratings also demonstrate the group’s expertise in writing medical professional liability (MPL) insurance for healthcare providers and hospital professional liability insurance in multiple states, as well as its market leadership position in Washington.

Partially offsetting these positive rating factors is the group’s predominantly specific concentration in underwriting MPL lines, primarily in Washington and Oregon.

Furthermore, competition in the MPL sector is strong, pricing is soft and significant changes in healthcare delivery show challenges to achieving underwriting profitability.

To counter them, the group offers medical stop-loss and provider excess lines of business, along with reinsurance, while also generating more non-risk income from its subsidiaries.

The ratings given to MedChoice RRG take into account the challenges associated with it being a start-up insurer offset by its strong partnership with PI, as well as board membership and the material explicit support provided by PI through a 95 percent intercompany quota share reinsurance agreement, the maximum allowed by Vermont regulators.

The ratings also take into account the strategic role MedChoice RRG plays as an affiliate of PI and the synergies provided by PI through captive management services through the PI family of companies.

Positive rating action for the group could result and a sustained favourable earnings trend. In addition, positive rating action could result from continued capital strengthening.

However, negative rating action could occur following an unfavourable earnings trend, or if there is a material reduction in risk-adjusted captilasation.