Fitch Affirms ProAssurance's IFS at 'A'; Outlook Stable

CHICAGO--()--Fitch Ratings has affirmed ProAssurance Corporation's (PRA) Issuer Default Rating (IDR) at 'BBB+'. Fitch has also affirmed the 'A' Insurer Financial Strength (IFS) ratings of PRA's primary insurance operating companies (listed below). The Rating Outlook for all ratings is Stable.

Fitch's rating actions consider the solid capital position of PRA's operating subsidiaries, as well as their consistent profitability, financial and operating flexibility, and experienced management team. Partially offsetting these positives is the potential volatility the company is exposed to as a monoline company that operates in one of the industry's most unpredictable lines of business.

PRA reported a calendar year GAAP combined ratio of 74.2% for the nine months ended Sept. 30, 2011 -- a 10.1 percentage point improvement over the comparable period in 2010. Calendar year combined ratios for the past four to five years have been helped by large favorable reserve development. While favorable reserve development typically indicates reserve strength it can mask problems in current underwriting results. On an accident year basis the company reported a 109.5% combined ratio virtually unchanged relative to the same period in 2010.

Fitch views PRA's loss reserve position as adequate and notes that the company has a history of favorable prior accident year reserve development. The $142 million of favorable reserve development reported in the first nine months of 2011 primarily related to accident years 2004 through 2009.

As of Sept. 30, 2011 the company had a very strong debt-to-tangible capital ratio of less than 3% and earnings based interest coverage of greater than 80 times (x) for the nine month period ended Sept. 30, 2011. Fitch's longer-term rating expectations anticipate that tangible financial leverage will return to the mid 20% range and that coverage will be in the 4 times (x) to 7x range.

Within Fitch's rating rationale are multiple rating triggers. If PRA were to materially deviate from any of these items, especially for an extended period, the ratings could be affected.

Fitch believes that a ratings upgrade in the near term is less likely given the company's narrow product focus in a highly volatile line of business.

The following is a list of triggers that could lead to a downgrade:

--An increase in the company's operating leverage, as defined by net written premiums to policyholder surplus, of 1.0x or higher.

--An increase in tangible financial leverage above 30% or decline in operating earnings-based coverage below the 4x-5x range.

--Material adverse reserve development.

--Failure to maintain pricing discipline in a softening rate environment.

Fitch has affirmed the following ratings with a Stable Outlook:

ProAssurance Corporation

--IDR at 'BBB+'.

ProAssurance Indemnity Company, Inc.

ProAssurance Casualty Company

ProAssurance National Capital Insurance Company

ProAssurance Specialty Insurance Company

ProAssurance Wisconsin Insurance Company

Podiatry Insurance Company of America;

PACO Assurance Company, Inc.

--IFS at 'A'.

Fitch has also withdrawn its 'A' IFS rating for American Physicians Insurance Company as it no longer exists.

Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

Applicable Criteria and Related Research:

--'Insurance Rating Methodology' (Aug. 13, 2010)

Applicable Criteria and Related Research:

Insurance Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=651018

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Contacts

Fitch Ratings
Brian Bertsch, +1-212-908-0549
Media Relations, New York
brian.bertsch@fitchratings.com
or
Primary Analyst:
Gerald Glombicki, CPA, +1-312-606-2354
Director
Fitch, Inc.
70 W. Madison Street
Chicago, IL 60602
or
Secondary Analyst:
Jim Auden, CFA, +1-312-368-3146
Managing Director
or
Committee Chairperson:
Mark Rouck, CFA, +1-312-368-2085
Senior Director

Sharing

Contacts

Fitch Ratings
Brian Bertsch, +1-212-908-0549
Media Relations, New York
brian.bertsch@fitchratings.com
or
Primary Analyst:
Gerald Glombicki, CPA, +1-312-606-2354
Director
Fitch, Inc.
70 W. Madison Street
Chicago, IL 60602
or
Secondary Analyst:
Jim Auden, CFA, +1-312-368-3146
Managing Director
or
Committee Chairperson:
Mark Rouck, CFA, +1-312-368-2085
Senior Director