AM Best

MAY 04, 2015 11:11 AM (EDT)

A.M. Best Special Report: U.S. Medical Professional Liability Segment Produces Ninth Straight Year of Underwriting Profit

 David Blades
Senior Financial Analyst
(908) 439-2200, ext. 5422

Charles M. Huber
Managing Senior Financial Analyst
(908) 439-2200, ext. 5644
Christopher Sharkey
Manager, Public Relations
(908) 439-2200, ext. 5159

Jim Peavy
Assistant Vice President, Public Relations
(908) 439-2200, ext. 5644


OLDWICK - MAY 04, 2015 11:11 AM (EDT)
The companies that specialize in medical professional liability (MPL) insurance achieved an overall underwriting profit for a ninth consecutive year in 2014, according to a new special report by A.M. Best. The Best's Special Report, titled, "Medical Professional Liability Segment Produces Ninth Straight Year of Underwriting Profit," also finds that 2014 represented another year since 2003 of positive net income and the 11th year out of the last 12 of positive surplus growth (the outlier being 2008 due to the financial market collapse).

The report states that the key to these positive profitability measures has been conservative reserving practices and the ability to release loss reserves on prior accident-year claims. This has been especially true during the last five years when investment returns have been dismal as a result of conservative investing and perpetuation of the low interest rate environment.

Most companies within the U.S. MPL segment are also considered to be very well capitalized; however, the strong capitalization is not a product of earnings and cash flow alone. For several years, premium and reserve risks have been declining as well. This is due to several factors, in particular: private practice physicians giving up their practices for employment in hospitals (many of which are self-insured); small physician groups merging or being acquired by larger groups or hospitals; and declining claim counts and fewer claims going to trial.

The report also states that while it isn't possible to quantify the benefits of tort reform on claims frequency and severity, caps on non-economic damages, restrictions on joint and several liabilities, affidavits of merit, non-admissibility of apologies, shortened statutes of limitations and reductions in vicarious liabilities, these do not appear to have had a positive impact in the various states that have adopted these reforms.

While insurer balance sheets and the environment in general have improved dramatically over the last 10 years, major issues and challenges confronting MPL insurers include the emergence of cyber liability, medical device malfunction, shortages of independent physicians, increased roles for physician extenders and nurse practitioners, changes in the delivery of health care, the continued uncertainty around the Patient Protection and Affordable Care Act and ongoing challenges to tort reform. While any or all of these may result in more claims, more lawsuits, greater claims frequency and severity and accident year reserves developing higher than expected, the effects of these challenges are yet to be seen in the numbers. Furthermore, a company that covers only private practice physicians and small physician groups could find that its biggest competitor is a self-insured hospital.

Despite these issues, A.M. Best believes that the MPL sector is stable. This is primarily due to the sector's strong risk-adjusted capitalization, continued better-than-average profitability, significant redundancy in loss reserves and A.M. Best's expectation that this will continue in the near to midterm.

For a full copy of this special report, please visit: .

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