AM Best


A.M. Best Affirms and Assigns Ratings to Preferred Professional Insurance Company;Revises Outlook to Positive


CONTACTS:

Analyst(s)

Gregory Williams

(908) 439-2200, ext. 5815

gregory.williams@ambest.com

Joseph Roethel

(908) 439-2200, ext. 5630

joseph.roethel@ambest.com

Public Relations

Jim Peavy

(908) 439-2200, ext. 5644

james.peavy@ambest.com

Rachelle Morrow

(908) 439-2200, ext. 5378

rachelle.morrow@ambest.com


FOR IMMEDIATE RELEASE

OLDWICK, N.J. - JUNE 07, 2007 12:00 AM (EDT)
A.M. Best Co. has affirmed the financial strength rating (FSR) of B++ (Good) and assigned an issuer credit rating (ICR) of "bbb+" to Preferred Professional Insurance Company (PPIC) (Omaha, NE). The outlook for the FSR has been revised to positive from stable, and the outlook assigned to the ICR is positive.

These ratings reflect PPIC's improved risk-adjusted capitalization, good geographic spread of risk, more stringent underwriting standards and strong policyholder retention. PPIC's superior level of retention is derived from its high level of customer service provided to its 19 owner systems, 18 of which are directly involved in the delivery of health care. The capitalization of PPIC is primarily determined by the owners' utilization of the company and shareholder agreements are in place, which specify the maximum net premium written to surplus ratio owners may maintain. If these thresholds are exceeded, the agreements require the affected owner institution(s) to provide a capital infusion into PPIC, thereby correcting this out of balance situation.

The rating outlook reflects PPIC's underwriting focus, enhanced capitalization process and improved operating performance. In 2006, PPIC benefited from an over $18 million release of prior year loss reserves and should continue to benefit from its conservative reserve position in the future. The inclusion of profitability provisions in recent reinsurance contracts should also enhance future operating results. Critical to this outlook is PPIC's cycle management capabilities and ability to sustain its improved levels of risk-adjusted capitalization.

Partially offsetting these positive rating factors is PPIC's limited operating profitability. However, this limitation is by design as PPIC's primary operating goal is to maintain insurance pricing levels that, after consideration of investment income, provide slightly better than breakeven financial performance measures for the exclusive benefit of its tax-exempt corporate owners. Other offsetting rating factors include product concentration of risk, which increases PPIC's susceptibility to adverse economic, competitive, regulatory or legislative changes and high ceded reinsurance leverage. Much of the ceded reinsurance leverage is derived from business written on a fronted basis with 100% quota share reinsurance treaties with captives of PPIC shareholders. The reserve recoverables from the captives are collateralized by letters of credit and/or assets pledged to PPIC.

For Best's Ratings, an overview of the rating process and rating methodologies, please visit Best's Rating Center.

Founded in 1899, A.M. Best Company is a full-service credit rating organization dedicated to serving the financial services industries, including the banking and insurance sectors. For more information, visit www.ambest.com.

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AMB# Company Name
003699 Preferred Professional Insurance Company