AM Best Affirms Credit Ratings of ProAssurance Corp. and Core Members of ProAssurance Group; Upgrades Credit Ratings of NORCAL Insurance and Its Subsidiaries

May 23, 2023 by matray

AM Best has affirmed the Financial Strength Rating (FSR) of A (Excellent) and the Long-Term Issuer Credit Ratings (Long-Term ICRs) of “a+” (Excellent) of the core members of ProAssurance Group. Concurrently, AM Best has upgraded the FSR to A (Excellent) from A- (Excellent) and the Long-Term ICRs to “a+” (Excellent) from “a-” (Excellent) of NORCAL Insurance Company (NORCAL) (San Francisco, CA) and its subsidiaries, which are now part of ProAssurance Group. At the same time, AM Best has affirmed the Long-Term ICR of “bbb+” (Good) and all existing Long-Term Issue Credit Ratings (Long-Term IR) of ProAssurance Corporation (PRA) (headquartered in Birmingham, AL). All companies are indirect subsidiaries of PRA. The outlook of these Credit Ratings (ratings) is stable. (See below for a detailed listing of the companies’ ratings.)

The ratings of ProAssurance Group reflect its balance sheet strength, which AM Best assesses as strongest, as well as its adequate operating performance, favorable business profile and appropriate enterprise risk management (ERM).

The group’s balance sheet strength assessment continues to reflect the strongest level of risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), as well as the strength of its reserves and quality of investments. The ratings also consider ProAssurance Group’s operating performance, which continues to be adequate as results benefited from the complete reunderwriting of its book of business and its strong rate gains, although loss costs in its medical professional liability (MPL) book of business remain pressured by the impacts of social inflation and the increasing frequency of excess verdicts, as seen in the first quarter of 2023. The ratings also consider the group’s market position as one of the leading MPL insurers in the United States, as well as its diversification across multiple disciplines, geographic areas and in its other lines of business. These ratings also acknowledge the depth and breadth of the group’s ERM programs and policies.

The rating upgrades of NORCAL and its subsidiaries reflect their status as members of ProAssurance Group due to the implicit and explicit support provided by the group following management’s integration efforts since its acquisition of NORCAL in 2021. Also considered is NORCAL and its subsidiaries’ strategic importance to the group, common management, and significant earnings contributions.

The ratings also benefit from the financial flexibility provided by PRA, the ultimate parent. PRA’s financial leverage is modest, with strong interest coverage, and holds a significant amount of cash and short-term investments outside of the insurance operating companies that are available for use without regulatory approval or other restriction. Nevertheless, the group has reported limited surplus growth over the most recent five-year period due to significant payments of dividends to PRA, which the parent has utilized for company stock repurchases and payment of shareholders’ dividends. Management remains committed to maintaining capital at its rated entities at levels commensurate with their ratings.

The stable outlooks for the Long-Term ICRs of ProAssurance Group members reflect the group’s continued strongest level balance sheet strength assessment, supported by effective capital management and financial flexibility afforded by it parent, while ongoing insurance operating initiatives implemented by management are expected to maintain its stable operating performance.

The FSR of A (Excellent) and the Long-Term ICRs of “a+” (Excellent) have been affirmed, with stable outlooks for the following members of ProAssurance Group:

  • ProAssurance Casualty Company

  • ProAssurance Indemnity Company, Inc.

  • ProAssurance Specialty Insurance Company

  • Medmarc Casualty Insurance Company

  • ProAssurance Insurance Company of America

  • ProAssurance American Mutual, A Risk Retention Group

  • Allied Eastern Indemnity Company

  • Eastern Advantage Assurance Company

  • Eastern Alliance Insurance Company

The FSR has been upgraded to A (Excellent) from A- (Excellent) and the Long-Term ICRs to “a+” (Excellent) from “a-” (Excellent) with stable outlooks for the following new members of ProAssurance Group:

  • NORCAL Insurance Company

  • NORCAL Specialty Insurance Company

  • Medicus Insurance Company

  • FD Insurance Company

  • Preferred Physicians Medical Risk Retention Group, a Mutual Insurance Company

The following Long-Term IRs have been affirmed with stable outlooks:

ProAssurance Corporation--“bbb+” (Good) on $250 million 5.30% 10-year senior unsecured notes, due 2023

The following indicative Long-Term IRs under the shelf registration have been affirmed with stable outlooks:

ProAssurance Corporation
-- “bbb+” (Good) on senior unsecured debt
-- “bbb” (Good) on senior subordinated debt
-- “bbb-” (Good) on preferred stock

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