A.M. Best Co. has downgraded the financial strength rating to B++ (Very Good) from A- (Excellent) of FPIC Insurance Group Inc. (Jacksonville, Fla.).
The rating action applies to the group’s four pool members: First Professionals Insurance Company Inc., Anesthesiologists Professional Assurance Company (both of Florida), Interlex Insurance Company and Intermed Insurance Company (both of Missouri). The rating outlook is stable.
The rating action reflects ongoing concerns by A.M. Best. The concerns relate to the quality of capital in terms of reinsurance dependence, the adequacy of loss reserves – taking into account the volatile medical malpractice sector – and the ability of FPIC’s capital to support its recently expanded book of business following two consecutive years of reserve strengthening, significant premium and policyholder growth.
Furthermore, A.M. Best believes the holding company has limited financial flexibility and certain debt service requirements that could conflict with the capital needs of the insurance subsidiaries capital.
During the second half of 2002, FPIC has taken several actions to enhance the capital position of the insurance subsidiaries. These actions included issuing a moratorium on new business, securing a finite reinsurance agreement with two Hannover Re reinsurers and selling the lawyer liability renewal rights of Interlex’s book of business. The holding company has also increased the capital of the insurance subsidiaries through the contribution of internally generated funds. These actions have provided moderate short-term capital relief. Nevertheless, the rapid expansion of FPIC’s book of business has added to the pre-existing concerns by A.M. Best regarding its ability to withstand adverse changes in underwriting and economic conditions given the current and overall volatile environment associated with the medical malpractice industry.
Despite the downgrade, FPIC’s capital adequately supports the current B++ (Very Good) secure rating, and its earnings have improved. Additionally, enhanced rates and sustained policyholder retention levels have combined to solidify FPIC’s position as the recognized leader in its core market for medical malpractice liability.
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