OLDWICK, N.J.--(BUSINESS WIRE)--A.M. Best has assigned a Financial Strength Rating (FSR) of B++ (Good) and a Long-Term Issuer Credit Rating (Long-Term ICR) of “bbb” to MedMal Direct Insurance Company (MedMal Direct) (Jacksonville, FL). The outlook assigned to these Credit Ratings (ratings) is stable. MedMal Direct is a wholly owned subsidiary of Physicians Trust, Inc., which is also based in Jacksonville.
MedMal Direct was formed in 2010 to become a direct distribution medical professional liability (MPL) insurer, writing coverage for approximately 2,500 physicians and allied health care professionals. MedMal Direct is licensed and admitted in 12 states and insures all clinical subspecialties though approximately one half of its writings are for primary care providers and solo practitioners.
These ratings reflect MedMal Direct’s supportive balance sheet strength, positive earnings in each of the last four years and strong claims management. Capitalization was bolstered significantly in late-2015 with an equity capital raise from its parent. Management has stressed closing claims quickly in order to reduce overall costs. This has helped to produce small underwriting gains in each of the last four years and to supplement investment gains to achieve positive overall returns.
These positive rating factors are partially offset by the company’s limited business profile, relatively short track record in writing a single, long-tailed line of business, and below-average profitability. In addition, enterprise risk management is not yet fully developed and there have been some changes to the senior management team in recent months. The company’s single line MPL focus creates an above-average risk due to changes in market dynamics, with physician employment by hospitals increasing and the soft MPL market persisting. MedMal Direct also is highly concentrated in Florida and has plans to expand organically to other states in the Southeast and Mid-Atlantic over time. Though the company continues to remain profitable, its profitability measures fall below industry averages. Expense ratios are high as the company has not yet achieved the premium scale it desires. Loss and loss adjustment expense ratios also are higher than the MPL composite average.
In addition, it is possible that the company could become exposed to significant leverage at the parent as debt components of its capital raise mature in the medium term and require repayment, refinancing or recapitalization if the parent does not have sufficient sources for coverage.
Positive rating actions could occur if the company can demonstrate a prolonged trend of favorable overall earnings performance through all phases of the underwriting cycle while maintaining or improving upon its risk-adjusted capitalization. Negative rating actions could occur if the company’s capital adequacy declines materially or if operating performance becomes unprofitable. This may result from inadequate pricing, adverse development or increases in claims frequency and severity. Negative rating action also could occur if financial leverage at the ultimate parent were to increase and put pressure on the capital of the operating insurance company.
This press release relates to Credit Ratings that have been published on A.M. Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see A.M. Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Understanding Best’s Credit Ratings.
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