Best’s News & Research Service - May 29, 2013 02:42 PM (EDT)
A.M. Best Upgrades Ratings of Kansas Medical Mutual Insurance Company
OLDWICK, N.J. //BestWire// - A.M. Best Co. has upgraded the financial strength rating to A (Excellent) from A- and the issuer credit rating to “a” from “a-” of Kansas Medical Mutual Insurance Company (KaMMCO) (Topeka, KS). The outlook for both ratings has been revised to stable from positive.
The ratings of KaMMCO are reflective of its very strong capitalization, long-term and consistent record of profitable underwriting and overall earnings performance, and its dominant market position in providing medical professional and hospital professional liability insurance in the state of Kansas. These positive rating factors are primarily derived from the company's long-term pricing and underwriting discipline, strong retained earnings and sound capital management.
Partially offsetting these positive factors are KaMMCO's restricted geographic spread of risk (i.e., being essentially a single state writer) and the potential for market fluctuations caused by the cyclicality inherent in the medical professional liability (MPL) line of business. Furthermore, competition and rate reductions have caused premiums to decline over recent years, which impacted cash flow beginning in 2011.
As a leading MPL insurance provider in Kansas, KaMMCO's profitability also is a by-product of the state's relatively conservative judicial and legislative climate and its favorable tort reform environment (including caps on non-economic damages). This includes the recent ruling in 2012 by the Kansas Supreme Court, which upheld the constitutionality of caps on non-economic damages. KaMMCO also benefits from the existence of the Health Care Stabilization Fund (HCSF), which assumes a risk layer for Kansas losses incurred by physicians and hospitals.
The outlook acknowledges the maintenance of solid capitalization and continuation of strong operating profits, driven by the company's focus on underwriting discipline.
Positive rating action for KaMMCO could result from the continued long-term favorable performance on both an underwriting and operating basis, and the consistent generation of surplus and maintenance of strong capitalization under a stable market environment.
The ratings/outlook could be lowered as a result of adverse underwriting performance due to significant claims and inadequate loss reserves, a change to the operating climate within the state, a sizeable change in KaMMCO’s exposure growth or an investment loss that could cause the level of capitalization to decline.
The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.