A.M. Best Co. has affirmed the financial strength rating of A (Excellent) of Lawyers’ Professional Indemnity Company (LAWPRO) (Ontario, Canada). The rating outlook is stable.
The rating and outlook reflect LAWPRO’s underwriting and operating strength, excellent capitalization and a skilled management team. Partially offsetting these positive rating factors is substantial self-insurance of the insurance program and the exposure to fraud-related claims. Underwriting losses reported in recent years stem from a return of premiums to the Law Society of Upper Canada (Law Society) rather than adverse underwriting experience.
LAWPRO, a wholly-owned subsidiary of the Law Society, is a successful niche writer of legal professional liability insurance and title insurance. Historically strong operating results are supported by the company’s use of a risk-based underwriting model, which provides greater control over matching risk factors to the cost of insurance.
Further supporting underwriting experience is conservative yet consistent investment income. Operating experience has supported growth in capital and the current capital strength. In addition, LAWPRO has access to additional capital sources held by the Law Society, which is the governing body of Ontario lawyers.
Partially offsetting these positive rating factors is the change in potential exposure stemming from LAWPRO’s strategic decision to forgo quota share reinsurance coverage on its Ontario liability program at the end of 2002. However, this potential exposure has been mitigated by management through self-insurance arrangements in conjunction with the Law Society and a stop-loss reinsurance arrangement.
In recent years, LAWPRO has reported underwriting losses. These are primarily due to a return of premiums pursuant to retrospective premium rating terms in the professional liability insurance contract with the Law Society, rather than a deterioration in underwriting experience. LAWPRO has strengthened reserves for one recent accident year to address the incidence of fraud related claims. On a calendar year basis, claims development continues to be favorable and reflects management’s conservative approach to reserving.
Overall, A.M. Best believes that LAWPRO’s disciplined management, strong financial results and excellent capital position will ensure its ability to assume the liability program without compromising its financial strength.
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