AM Best Revises Issuer Credit Rating Outlook to Stable for Members of Kansas Medical Mutual Group
November 8, 2021by
AM Best has revised the outlook of the Long-Term Issuer Credit Ratings (Long-Term ICR) to stable from negative and affirmed the Financial Strength Rating of B++ (Good) and the Long-Term ICRs of “bbb+” (Good) 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 outlook of the FSR is stable. Both companies are domiciled in Topeka, KS.
The ratings reflect Kansas Medical Mutual Group’s balance sheet strength, which AM Best assesses as very strong, as well as its marginal operating performance, limited business profile and appropriate enterprise risk management (ERM).
The revised Long-Term ICR outlook to stable reflects actions taken by the group to stabilize operating performance and capital levels in recent years. These actions have demonstrated the effectiveness of the group’s risk management capabilities through improvements in operational efficiencies, adaptation to recent tort reform events and executing its strategy to refocus on its core medical professional liability (MPL) business. AM Best considers the group’s ERM framework appropriate with a defined risk appetite and tolerances as well as stress test scenarios for critical risks that could impact the group.
The group’s balance sheet strength is supported by the strongest level of risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), partially offset by declining level of policyholders’ surplus and other balance sheet metrics over the prior five-year period. During the earlier portion of the prior five-year period, the group reported significant weakening of earnings and reduced surplus due to higher-than-expected underwriting losses and diminished investment returns. These factors, along with several one-off charges, including the write-off of its KAMMCO Health Solutions subsidiary, which had generated significant operating losses and strained liquidity, culminated in a significant loss in 2019.
Performance improved in 2020 and through the first six months of 2021, with the group reporting modest organic surplus growth, due to the impacts of expense reductions, modest annual rate actions and reduced frequency.
The group’s limited business profile reflects its monoline concentration of risk in the MPL sector and heavy geographic concentration in Kansas. A 2019 judicial ruling resulted in the removal of noneconomic damage caps on personal injury cases in Kansas; however, uncertainty remains as to whether this applies to medical malpractice actions until further clarification from the Kansas Supreme Court. The group has taken proactive measures by modifying its reserving procedures for noneconomic damages, and reviewed all outstanding cases and increased reserves accordingly.