AM Best Affirms Credit Ratings of ProAssurance Group Members and ProAssurance Corp.

March 17, 2021 by matray

AM Best has affirmed the Financial Strength Rating (FSR) of A (Excellent) and the Long-Term Issuer Credit Ratings (Long-Term ICR) of "a+" of the members of ProAssurance Group. The outlook of the FSR is stable while the outlook of the Long-Term ICR is negative. Concurrently, AM Best has affirmed the Long-Term ICR of "bbb+" and the Long-Term Issue Credit Ratings (Long-Term IR) of ProAssurance Corporation (PRA) (headquartered in Birmingham, AL). The outlook of the Credit Ratings (ratings) is negative. All companies are indirect subsidiaries of PRA. (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).

Risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), remains at the strongest level, but has declined in recent years. The group’s adequate operating performance assessment reflects a deterioration in underwriting performance in its medical professional liability (MPL) business in recent accident years and calendar years with results that no longer outperform industry averages. The management team has taken corrective actions, including the implementation of significant rate increases and re-underwriting the entire book of business. The group’s 2020 operating results improved over 2019; however, the effects of a large national MPL account activating a tail policy while non-renewing with ProAssurance largely muted this improvement. The same large national MPL account contributed $51 million in losses to ProAssurance’s 2019 results.

The ratings also consider the ProAssurance 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. The planned NORCAL Group (NORCAL) acquisition will likely increase the group’s operational scale and strengthen its market position in the long term. These ratings also acknowledge the depth and breadth of the group’s ERM programs and policies.

The negative Long-Term ICR outlook reflects the decline in risk-adjusted capitalization, as measured by BCAR, driven by lower underwriting profits and reduced embedded equity in loss reserves. Uncertainty with regards to reserve development, as well as the execution risks associated with the planned acquisition of NORCAL, which is expected to close in the second quarter of 2021, and the ensuing integration of the acquired entity also are factors in the negative outlook.

The FSR of A (Excellent) and the Long-Term ICRs of "a+" have been affirmed with a stable FSR outlook and a negative Long-Term ICR outlook for the following members of the ProAssurance Group:

• ProAssurance Casualty Company
• ProAssurance Indemnity Company, Inc.
• ProAssurance Specialty Insurance Company, Inc.
• Medmarc Casualty Insurance Company
• Noetic Specialty Insurance Company
• Podiatry Insurance Company of America
• ProAssurance American Mutual, A Risk Retention Group
• Allied Eastern Indemnity Company
• Eastern Advantage Assurance Company
• Eastern Alliance Insurance Company

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

ProAssurance Corporation— --"bbb+" on $250.0 million 5.30% 10-year senior unsecured notes, due 2023

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

ProAssurance Corporation—
-- "bbb+" on senior unsecured debt
-- "bbb" on senior subordinated debt
-- "bbb-"on preferred stock