News Column

Fitch Affirms The Doctors Company Group's Ratings; Outlook Stable

June 19, 2014

CHICAGO--(BUSINESS WIRE)-- Fitch Ratings has affirmed the 'A' Insurer Financial Strength (IFS) ratings on The Doctor's Company, an Inter-Insurance Exchange (Doctors) and its wholly owned insurance subsidiaries (see list below), collectively referred to as The Doctors Company Group (TDC). Fitch has also published the 'A-' long-term Issuer Default Rating (IDR) of Doctors. The Rating Outlook for all ratings is Stable.

KEY RATING DRIVERS

TDC's ratings are based on above-average underwriting performance and profitability relative to medical professional liability insurance (MPLI) peers, favorable loss reserve levels, strong statutory capital position, and an experienced management team that employs a conservative operating strategy that is focused on long-term underwriting profitability.

Partially offsetting these positives is the company's status as a monoline company that primarily operates in the volatile medical professional liability (MPLI) line of business, which limits the upside of TDC's ratings. While not anticipated by Fitch over the ratings horizon, Fitch believes TDC, as a specialty largely monoline company, is exposed to adverse changes in the MPLI market conditions or other industry dynamics.

The MPLI market's underwriting results outperformed other major commercial lines segments on a calendar year basis. However, more recently, MPLI accident year combined ratios have risen significantly.

The broader commercial lines market has experienced premium rate improvements for the last two years in response to underwriting losses. The MPLI segment has lagged in this pricing recovery and is unlikely to show material near-term rate improvement due to the market presence of many monoline MPLI writers that experienced strong capital growth in the last hard market but have limited underwriting opportunities outside of MPLI.

TDC reported a statutory calendar year and accident year combined ratio of 92.9% and 112.0% respectively for full year 2013 compared to full year 2012 calendar and accident year combined ratios of 93.2% and 105.4% respectively.

Fitch notes that TDC's calendar year underwriting results have been influenced by sizeable favorable reserve development for several years and thus analyzes underwriting results more so on an accident year basis to reduce the influence of reserve development when looking at profitability.

TDC has a history of favorable prior accident year reserve development. The $137 million of favorable reserve development reported for full year 2013 primarily related to accident years 2006 through 2010. Fitch's analysis of the company's loss reserve indicates a potential for further favorable reserve development going forward.

In particular, loss reserves are critically important for a MPLI company as the liability duration is amongst the highest in the property/casualty universe, with potential for reserve volatility due to changes in the litigation environment and inflation over time. After one year approximately 13% of all known claims are closed and after five years approximately 90% of claims are closed.

TDC has strong operating leverage at year end 2012 of 0.4x and a Risk Based Capital (RBC) ratio of 448%. Financial leverage is modest at approximately 12% as of March 31, 2014. Fitch notes that these ratios have persisted for several years showing management's discipline to balance sheet strength.

Within Fitch's rating rationale are multiple rating triggers. If TDC were to materially deviate from any of these items, especially for an extended period, the ratings could be affected.

RATING SENSITIVITIES

While TDC's quantitative metrics are more consistent with a higher rating category, Fitch's current view of the risk characteristics of the MPLI industry is constraining TDC's ratings given TDC's monoline status. Fitch believes that a ratings upgrade in the near term is unlikely, barring a change in Fitch's broad view of the risks inherent in the MPLI industry.

The following is a list of triggers that could lead to a downgrade:

--An increase in the company's operating leverage, as defined by net written premiums to policyholder surplus, of 1.0x or higher.

--Material adverse reserve development.

--A Prism capital model score below 'Strong' (currently 'Very Strong');

Fitch has affirmed the 'A' IFS ratings of the following TDC insurance subsidiaries with a Stable Outlook:

--Doctors Company, An Interinsurance Exchange;

--TDC Specialty Insurance Company (formerly known as Professional Underwriters Liability Insurance Company);

--Underwriter for the Professions Insurance Company (UPIC);

--OHIC Insurance Company (OHIC);

--American Physicians Assurance;

--First Professional Insurance Company

Fitch has published the following IDR due to new surplus notes issuance on Oct. 8, 2013:

Doctors Company, An Interinsurance Exchange

--IDR 'A-'

Fitch has also affirmed the following debt issue:

Doctors Company, An Interinsurance Exchange

--$200 million 6.5% due 2023 'BBB+'.

Fitch has withdrawn the following entities as they no longer exist as they were merged into existing entities:

--SCPIE Indemnity Company

--Advocate MD Insurance of the Southwest, Inc.

--Anesthesiologists Professional Assurance Company

--Intermed Insurance Company

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Insurance Rating Methodology' (Nov. 13, 2013).

Applicable Criteria and Related Research:

Insurance Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=723072

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=835460

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.



Fitch Ratings

Primary Analyst

Gerald Glombicki, CPA, +1 312-606-2354

Director

Fitch Ratings, Inc.

70 W. Madison Street

Chicago, IL 60602

or

Secondary Analyst

Jim Auden, CFA, +1 312-368-3146

Managing Director

or

Committee Chairperson

Mark Rouck, CFA, CPA, +1 312-368-2085

Senior Director

or

Media Relations:

Brian Bertsch, +1 212-908-0549

brian.bertsch@fitchratings.com

Source: Fitch Ratings


For more stories on investments and markets, please see HispanicBusiness' Finance Channel



Source: Business Wire


Story Tools






HispanicBusiness.com Facebook Linkedin Twitter RSS Feed Email Alerts & Newsletters