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FOR IMMEDIATE RELEASE
OLDWICK, N.J. - JUNE 01, 2012 12:00 AM (EDT)
A.M. Best Co. has affirmed the financial strength rating of A- (Excellent) and issuer credit rating of “a-” of Attorneys Liability Protection Society, Inc., A Risk Retention Group (ALPS) (Missoula, MT). The outlook has been revised to negative from stable.
The ratings of ALPS are reflective of its good risk-adjusted capital position, high policyholder retention, established relationships with various State Bar Associations and its geographic spread of risk. The company’s pre-tax operating performance has been positive on an overall basis over the latest five-year period, as prior year loss reserves have developed favorably. These positive rating factors are derived from ALPS’ re-focused operating strategies, aggressive claims handling and customer driven management philosophy. Also, management has tightened its underwriting criteria in recent years, resulting in some rate increases and the non-renewal of unprofitable firms. ALPS’ premium rates were further increased in 2012, which is expected to improve underwriting performance.
These positive rating factors are partially offset by ALPS’ concentration risk as a one line writer, poor underwriting results that included sizeable losses in 2009 and 2011, variability in surplus levels, its high common stock leverage and volatility in operating performance during the difficult market cycle currently being experienced by the professional liability sector in general.
Loss reserve development has stabilized with a recording of reserve redundancies on an annual basis since 2007. Despite the recent improvement in ALPS’ reserve adequacy, A.M. Best will continue to closely monitor its loss reserve development over the near term given its historical volatility.
A.M. Best’s revised outlook for ALPS is reflective of its adverse underwriting results over the latest five-year period, which includes elevated defense costs, resulting in an unexpected operating loss and a decline in surplus in 2011.
While early 2012 operating results appear positive, ALPS’ ratings could be downgraded if its underwriting performance declines from elevated loss costs due to claim severity and/or inadequate loss reserves, or a decline in premium revenue. Additionally, if capitalization were to decline from poor operating results, which could include investment losses, a downgrade would be possible.
Positive rating actions could occur from favorable results stemming from initiatives put in place to restore the company’s underwriting performance to profitability while demonstrating less volatility in operating profitability going forward and maintaining supportive capitalization.
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. Key criteria utilized include: “Risk Management and the Rating Process for Insurance Companies” and “Understanding BCAR for Property/Casualty Insurers.” Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
Founded in 1899, A.M. Best Company is the world’s oldest and most authoritative insurance rating and information source.