AM Best

A.M. Best Revises Outlooks to Positive for Texas Hospital Insurance Exchange


Sharon Pereira Marks
Senior Financial Analyst
+1 908 439 2200, ext. 5477

Charles M. Huber
+1 908 439 2200, ext. 5122

Christopher Sharkey
Manager, Public Relations
+1 908 439 2200, ext. 5159

Jim Peavy
Director, Public Relations
+1 908 439 2200, ext. 5644


OLDWICK - OCTOBER 25, 2016 09:16 AM (EDT)
A.M. Best has revised the outlooks to positive from stable and affirmed the Financial Strength Rating of B+ (Good) and the Long-Term Issuer Credit Rating of “bbb-” of Texas Hospital Insurance Exchange (THIE) (Austin, TX).

The revision of the outlooks to positive reflect THIE’s strengthened risk-adjusted capitalization and improved underwriting leverage in 2015 as a result of a decline in loss reserves, which drove significant growth in profitability and policyholders’ surplus. The decline in reserves was due primarily to favorable prior-year loss reserve development as a result of a change in reserving methodology, resulting in a significant decrease in incurred but not reported reserves.

Balance sheet strength is evidenced by THIE’s strong risk-adjusted capitalization, history of favorable loss reserve development, organic surplus growth and strong liquidity measures. Organic surplus growth was driven by favorable operating performance, despite an above-average expense posture and decreased net investment income. Favorable performance during the prior five-year period was due largely to the release of prior-accident year reserve redundancies that have supplemented declining net investment income as a result of the continued low interest rate environment.

Partially offsetting these positive rating factors are THIE’s limited business profile and narrow spread of risk, with a primary focus on writing workers’ compensation and medical professional liability (MPL) for small, rural hospitals in Texas. The dynamics of the MPL marketplace remain challenged by the prolonged soft market and consolidations occurring within hospital organizations, which may present challenges to maintaining and growing the company’s customer base and lowering its high expense structure. Additionally, given their workers’ compensation writings, THIE’s terrorism risk exposure is high on a gross basis, although concerns are somewhat mitigated by the reinsurance protection afforded from the Terrorism Risk Insurance Program Reauthorization Act (TRIPRA). Given the temporary nature of TRIPRA, A.M. Best will continue to monitor this exposure over time, as it relates to the company’s risk management practices and overall capacity.

Positive rating action could result from continued favorable underwriting and operating performance, while maintaining conservative reserving practices and strong risk-adjusted capitalization. Although risk-adjusted capitalization is supportive of the ratings, negative rating action could result from adverse underwriting performance, due to significant accumulation of claims or inadequate loss reserves, which leads to deterioration in risk-adjusted capitalization.

This press release relates to Credit Ratings 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 see A.M. 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.

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AMB# Company Name
003650 Texas Hospital Insurance Exchange