Medical Professional Liability Insurers’ Profits Decline But Outlook Stable: A.M. Best

May 11, 2016

The specialty medical professional liability (MPL) insurance industry remained profitable in 2015, however its net income fell nearly 36.6 percent to almost $1.1 billion in 2015.

In a special report, A.M. Best said the MPL segment’s results were hampered by declines in underwriting and investment income and a reduction in realized capital gains.

Despite the deterioration in profitability in 2015, the MPL segment continued to experience favorable development on prior accident year reserves. The amount of redundancy recognized on prior accident years continues to decline. Moreover, recent accident years do not appear to be developing as favorably as in years prior, which is not surprising given the impact of the prolonged soft market, according to A.M. Best analysts.

In A.M. Best’s opinion, the continued strong capitalization and profitable, albeit lower, operating performance of the MPL sector, as well as the prospect for continued positive earnings in the mid-term, favors a stable outlook. In addition, while the ratings agency expects soft market pricing to continue along with modest increases in claims severity, its analysts believe lower claims frequency trends and reserve redundancies should continue to offset.

Facing Challenges

According to the report, MPL carriers face multiple challenges including changes in healthcare delivery, changes in tort reform, new medicines and surgical procedures, migration of solo practicing physicians to group or hospital employment, cyber security, an influx of insureds into the healthcare system, strong competitive market pressure and low interest rates are putting more emphasis on enterprise risk management (ERM) techniques.

A.M. Best expects competition in MPL to remain strong and merger and acquisition activity to continue. Smaller companies are most at risk as they see their margins shrink from prolonged soft-market pricing, low investment yields and lower releases of excess reserves. Capital and surplus growth is expected to be minimal in the near term due to lower anticipated earnings and continued give back of excess capital to stakeholders. However, according to the ratings agency, continuation of these trends could result in an outlook change in the not too distant future.

Decade of Success

For nearly a decade, MPL specialty companies have produced some of the best underwriting and overall operating results when compared to other insurance sectors or the broader U.S. property/casualty marketplace, according to the A.M. Best report. Over this period, profitability measures for MPL insurers have remained strong and continue to largely be influenced by significant prior year reserve releases, as claim frequency trends remain at bay and tort reform laws continue to be relatively favorable.

The Best’s Special Report, titled, “Strong But Declining Profitability in 2015 for Medical Professional Liability Sector,” also cites better risk management practices and adequate pricing as key drivers. Companies within the MPL segment were thus able to organically grow surplus through earnings, while at the same time maintain conservative reserving practices. Despite the financial crisis in 2008 and record low investment yields, MPL insurers remain steadfast in their asset selection and vigilant in not going too far astray in terms of credit quality or extending their duration. Assets remain conservatively invested and overall balance sheet strength remains sound, A.M. Best said.

Latest Comments

  • May 13, 2016 at 1:28 pm
    BS says:
    Actually, the Med Mal market is, and has been soft for quite a while now. Right now, the Med Mal market has a glut of carriers. And with the major health systems merging and/o... read more
  • May 12, 2016 at 4:28 pm
    Agent says:
    Good one Yogi. Nowadays after Obamacare, the cattle are lining up hoping to be seen. By the way, why are the doctors standing around when there are patients to be seen. When m... read more
  • May 12, 2016 at 7:04 am
    Yogi Polar Berra says:
    Only 3 patients waiting in the background in the picture? That pic must have been taken before the implementation of The ACA.
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