A.M. Best Company downgraded the financial strength rating (FSR) of The PHICO Group of Mechanicsburg, Pennsylvania, from “B++” to “B.” The rating outlook is negative.
The rating action applies to the PHICO Group’s three pool members, led by PHICO Insurance Company and including Bermuda affiliate, PHICO Re Ltd., which is provided reinsurance protection through a separate agreement with the lead company.
A.M. Best stated that the rating action reflects the group’s recent poor operating performance and a resulting weak capitalization. The group experienced significant premium growth in prior years in a soft market by expanding into new, unfamiliar jurisdictions and underwriting new, larger and more complex types of accounts. The PHICO Group has also been adversely impacted by an increase in claims severity which has evolved in medical malpractice.
In 2000, factors contributing to unfavorable results included an increase in IBNR reserves; the reduction in accrual for contingent commissions from reinsurers; and the interest charged for funds withheld under a retroactive reinsurance agreement entered into in 1999.
Offsetting these negative factors is a strengthened reserve base and continued actions taken by management to improve overall operations. However, uncertainties related to future reserve adequacy, profitability and financial strength remain. The PHICO Group writes professional liability, general liability and workers’ compensation coverages for hospitals and physicians. It ranks among the 20 largest writers of medical professional liability insurance in the U.S.
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