AM Best has revised the outlooks to negative from stable while affirming the Financial Strength Rating (FSR) of A (Excellent) and the Long-Term Issuer Credit Ratings (Long-Term ICRs) of “a” (Excellent) of Boston-based Medical Professional Mutual Insurance Co., and its rating unit members, collectively known as Coverys Companies.
The ratings reflect Coverys’ balance sheet strength, which AM Best assesses as “strongest,” as well as its “marginal operating performance, neutral business profile and appropriate enterprise risk management.”
AM Best said the negative outlooks reflect pressure on Coverys’ balance sheet strength assessment from “increased volatility” in loss and loss adjustment expense reserves as the group continues to report modest adverse reserve development in the past few years. AM Best said this a “clear departure” from an earlier practice of more conservative reserving with consistently favorable reserve development.
The ratings agency noted that as of year-end 2023, accident years 2016-2019 continued to develop adversely, partially offset by large reserve releases in 2021-2022, which AM Best said “may be premature given the long-tailed nature” of the medical professional liability (MPL) line of business.
AM Best cautioned that due to the increased volatility of reserves, the assessment of the group’s balance sheet strength, while still at the strongest level currently, could be lowered potentially.
AM Best said it assesses Coverys’ operating performance as marginal, as its underwriting and return metrics lag its MPL peers and the broader property/casualty industry.
According to the rating analysts, in the past few years, the group’s calendar-year underwriting results showed some improvement from “comprehensive operational overhauls” by the new management team. However, due to the long-tailed nature of the MPL line and the more recent weakening of reserve strength, AM Best said it will have more confidence in these results when the years mature.
The analysts said negative rating action could occur if adverse reserve development materially impacts earnings and/or future capital formation. Negative rating action also could occur if the group’s risk-adjusted capitalization were to weaken materially, which could result from significant deterioration of operating performance, an increase in claims frequency or severity, or from adverse reserve development.
“While unlikely in the near term, the ratings may be positively affected through sustained improvement in underwriting and overall operating performance providing support for the Coverys’ strongest level of balance sheet strength,” AM Best added..
The FSR of A (Excellent) and the Long-Term ICRs of “a” (Excellent) have been affirmed with the outlooks revised to negative from stable for the following members of the Coverys Companies rating unit:
- Medical Professional Mutual Insurance Co.
- ProSelect Insurance Co.
- Preferred Professional Insurance Co.
- Coverys Specialty Insurance Co.
- Coverys Risk Retention Group, Inc.
- Coverys Limited
- Coverys International Insurance Company Designated Activity Co.
Source: AM Best
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