Press Release - SEPTEMBER 26, 2019
AM Best Revises Outlooks to Negative for ProAssurance Corporation and Certain Subsidiaries
FOR IMMEDIATE RELEASE
OLDWICK - SEPTEMBER 26, 2019
All companies are indirect subsidiaries of ProAssurance Corporation (PRA) (headquartered in Birmingham, AL) [NYSE: PRA].
Along with these rating actions, AM Best has revised the outlooks to negative from stable and affirmed the Long-Term ICR of “a-” of PRA and the Long-Term Issue Credit Rating (Long-Term IR) of “a-” on PRA’s $250.0 million 5.30% 10-year senior unsecured notes, due 2023. AM Best also has affirmed the indicative Long-Term IRs under the shelf registration of “a-” on the senior unsecured debt, “bbb+” on the senior subordinated debt and “bbb” on the preferred stock of PRA.
The ratings of ProAssurance Group reflect its balance sheet strength, which AM Best categorizes as strongest, as well as its strong operating performance, favorable business profile and appropriate enterprise risk management (ERM).
The negative outlooks reflect the negative trend in the ProAssurance Group’s operating performance in recent years, which has resulted in underwriting and operating metrics falling to a level that, although still solid, is more in-line with its peers in the medical professional liability (MPL) industry, instead of out-performing them. While the group continues to report favorable prior period reserve development, the magnitude of favorable development has declined in recent years and AM Best expects this trend to continue, especially given concerns with regard to rising loss costs in the MPL industry.
The group’s balance sheet strength assessment continues to reflect its strongest level of risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), as well as the strength of its reserves and the quality of its investments. The ratings also consider the ProAssurance Group’s market position as one of the leading MPL insurers in the United States, as well as its diversification across multiple disciplines, geographic areas and in its other lines of business. These ratings also acknowledge the depth and breadth of the group’s ERM programs and policies. In addressing challenges in a prolonged soft MPL market, management has leveraged its talent, knowledge base and market position to introduce innovative alternatives.
The upgrade of the Eastern Alliance Insurance Company and its affiliates reflect their status as members of the ProAssurance Group due to their strategic importance as successful specialty workers compensation writers, common management and significant earnings contributions.
The ratings of PACO reflects its balance sheet strength, which AM Best categorizes as very strong, as well as its adequate operating performance, limited business profile and appropriate ERM. The ratings also reflect lift from the lead rating unit, ProAssurance Group, based on implicit support.
PACO’s ratings reflect its strongest risk-adjusted capital position and generally improved operating performance since being acquired by PRA in 2009. The company’s underwriting has been modestly profitable, benefiting from favorable industry trends in claims and losses in a lower-risk line of business during a softening market. PACO broadens PRA’s MPL lines of business to include chiropractors and acupuncturists, another niche medical specialty with favorable loss parameters.
Each of the rating units discussed above also benefits from the financial flexibility provided by PRA, the ultimate parent. PRA’s financial leverage is conservative, its interest coverage is solid and it holds cash and short-term investments outside of the insurance operating companies that are available for use without regulatory approval. At the same time, surplus growth at most rating units has been limited over the past five years by the payment of significant dividends to PRA, which they have utilized to pay shareholders’ dividends and repurchase company stock. Nonetheless, management remains committed to maintaining capital at the rated entities at levels commensurate with their ratings.
The outlooks have been revised to negative from stable and the FSR of A+ (Superior) and the Long-Term ICR of “aa-” have been affirmed for the following members of the ProAssurance Group:
The FSR has been upgraded to A+ (Superior) from A (Excellent) and the Long-Term ICRs to “aa-” from “a+” with the outlooks revised to negative from stable for Eastern Alliance Insurance Company and its affiliates:
This press release relates to Credit Ratings that have been published on AM 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 see AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Understanding Best’s Credit Ratings. For information on the proper media use of Best’s Credit Ratings and AM Best press releases, please view Guide for Media - Proper Use of Best’s Credit Ratings and AM Best Rating Action Press Releases.
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