A.M. Best Upgrades Ratings of ProAssurance Group, Its Members and ProAssurance Corporation

A.M. Best Co. has upgraded the financial strength rating (FSR) to A (Excellent) from A- (Excellent) and issuer credit ratings (ICR) to “a” from “a-” of ProAssurance Group (ProAssurance) and its group rated members. A.M. Best also has upgraded the ICR to “bbb” from “bbb-” of ProAssurance’s parent holding company, ProAssurance Corporation (PRA) (NYSE: PRA). The outlook for these ratings has been revised to stable from positive.

Concurrently, A.M. has upgraded the ICR to “bbb+” from “bbb” and affirmed the FSR of B++ (Good) of ProAssurance National Capital Insurance Company (ProAssurance National) (Washington, DC). In addition, A.M. Best has affirmed the FSR of A- (Excellent) and ICR of “a-” of ProAssurance Wisconsin Insurance Company (ProAssurance Wisconsin) (Madison, WI).

At the same time, A.M. Best has affirmed the FSRs of A- (Excellent) and ICRs of “a-” of The PICA Group, its member and PACO Assurance Company, Inc. (Illinois), which were recently acquired. The outlook for these ratings is stable. (See below for a detailed list of the companies and ratings.)

These rating actions follow the positive outlook, which was assigned to ProAssurance in June 2008 and takes into consideration the group’s consistently strong operating performance over the last several years. The rating upgrades further reflect ProAssurance’s excellent risk adjusted capitalization, conservative reserving and investing practices and its business position as one of the leading writers of medical professional liability insurance in the United States.

A.M. Best also recognizes the additional geographical and line of business diversification that PRA has achieved through three acquisitions in 2009. With the additions of The PICA Group, Georgia Lawyers Insurance Company and Mid-Continent General Agency, PRA has added to the number of states in which it writes, while considerably expanding its reach into the medical professional liability, lawyer professional liability and ancillary healthcare lines. PRA’s strong management team has extensive experience in the merger and acquisition arena, which largely mitigates any integration concerns. Furthermore, the integration risk of The PICA Group is minimal, as it will operate as a stand-alone subsidiary.

Additionally, the ratings consider the financial flexibility that PRA provides to the operating companies. PRA’s financial leverage (total debt/total capital) was a modest 2.4% at year-end 2008, following the redemption of over $107 million in convertible senior debentures in July 2008 and the reacquisition of $23 million in outstanding notes in December 2008. PRA’s interest coverage remains exceptionally strong, and it currently holds a substantial amount of cash and short-term investments outside of its insurance subsidiaries, which is available for use without regulatory approval.

Partially offsetting these rating strengths are the inherent challenges associated with the medical professional liability insurance sector as it relates to price competition, legislative (tort) reform, loss cost trends and regulatory challenges. An additional factor is the history of moderate fluctuations in ProAssurance’s earlier operating results, driven by adverse reserve development in older accident years. However, more recent reserve development has been favorable, reflecting management’s corrective actions and general market conditions.

The FSR has been upgraded to A (Excellent) from A- (Excellent) and the ICRs to “a” from “a-”for ProAssurance Group and its following members:

  • ProAssurance Indemnity Company, Inc.
  • ProAssurance Casualty Company
  • ProAssurance Specialty Insurance Company, Incorporated

The FSR of A- (Excellent) and ICRs of “a-” have been affirmed for The PICA Group and its member, Podiatry Insurance Company of America.

For Best’s Credit Ratings, an overview of the rating process and rating methodologies, please visit www.ambest.com/ratings.

The principal methodologies used in determining these ratings, including any additional methodologies and factors that may have been considered, can be found at www.ambest.com/ratings/methodology.

Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers. For more information, visit www.ambest.com.

Contacts:

A.M. Best Co.
Analysts
Greg Williams, 908-439-2200, ext. 5815
greg.williams@ambest.com
or
Henry Witmer, 908-439-2200, ext. 5097
henry.witmer@ambest.com
or
Public Relations
Jim Peavy, 908-439-2200, ext. 5644
james.peavy@ambest.com
or
Rachelle Morrow, 908-439-2200, ext. 5378
rachelle.morrow@ambest.com

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