December 10, 2019 by matray

A.M. Best has placed under review with negative implications the Financial Strength Rating of A (Excellent) and the Long-Term Issuer Credit Ratings of “a” of the members of NORCAL Group (NORCAL). (See below for a detailed listing of the companies.)

The under review status follows NORCAL’s third-quarter 2019 results, which included $30 million of adverse loss reserve development, significantly deviating from projections. These reserve charges predominantly impact accident years 2016 through 2018, and reflect significantly higher claim settlements following operational process changes initiated by the group in 2017, which is also causing an increase in the 2019 accident-year loss ratio relative to expectations.

Following the reserve increases and the resultant decline in policyholders’ surplus, NORCAL’s risk-adjusted capitalization declined but remained in the strongest category. However, these actions raise questions regarding internal controls and oversight of operational processes, as well as price adequacy, underwriting practices and the potential for future reserve strengthening. A review of full-year 2019 results, including the associated reserve analysis, as well as a number of management’s operational and strategic initiatives, is necessary to provide AM Best with sufficient information to resolve the under review status. The FSR of A (Excellent) and the Long-Term ICRs of “a” have been placed under review with negative implications for the following members of NORCAL Group:

• NORCAL Mutual Insurance Company
• NORCAL Specialty Insurance Company
• Medicus Insurance Company
• FD Insurance Company
• Preferred Physicians Medical Risk Retention Group, a Mutual Insurance Company