October 17, 2019 by matray

AM Best has downgraded the Financial Strength Rating (FSR) to B++ (Good) from A- (Excellent) and the Long-Term Issuer Credit Ratings (Long-Term ICRs) to “bbb+” from “a-” of Kansas Medical Mutual Insurance Company, and its subsidiary, KAMMCO Casualty Company, Inc. These companies are referred to collectively as Kansas Medical Mutual Group (the group). The outlook of the FSR has been revised to stable from negative, while the outlook of the Long-Term ICRs remains negative. Both companies are domiciled in Topeka, KS.

The ratings reflect the group’s balance sheet strength, which AM Best categorizes as very strong, as well as its marginal operating performance, limited business profile and appropriate enterprise risk management (ERM).

The rating downgrades reflect the change in the company’s operating performance assessment to marginal from adequate. Although the group produced strong earnings historically, results in recent years have been far less favorable, driven largely by underwriting losses and below average investment returns. As a result, the group’s profitability metrics are significantly below the medical professional liability (MPL) composite averages in each of the past five years. The disparity between recent and historical earnings further amplifies the group’s concentration risk in MPL lines, primarily in Kansas. Recent changes in Kansas law, which redefined who is a covered medical professional under the group’s policies, contributed to an increase in claims in 2017, although down slightly in 2018. A recent judicial ruling that resulted in the removal of non-economic damage caps in Kansas also is causing headwinds for the group, and subsequently, reserves are being recalculated, as increased litigation is expected. Compounding this has been the decline in written premium over the past five years and decrease in net investment income from the low interest rate environment.

The negative outlook of the Long-Term ICRs reflects the pressure being placed on the group’s overall ERM from continued adverse underwriting results and lack of demonstrated effective actions to control and mitigate the operating performance declines in recent years, as well as the significant challenges and uncertainties management is facing associated with the MPL industry in Kansas and the recent judicial ruling that could impact the group negatively. The revised FSR outlook to stable reflects the group’s very strong balance sheet.