OLDWICK, N.J.--(BUSINESS WIRE)--A.M. Best has downgraded the Financial Strength Rating to B++ (Good) from A- (Excellent) and the Long-Term Issuer Credit rating to “bbb” from “a-” of Mountain States Healthcare Reciprocal Risk Retention Group (MSH) (Billings, MT). The outlook of the Credit Ratings (ratings) has been revised to negative from stable.
The rating downgrades are the result of deterioration in the company’s risk-adjusted capitalization and operating performance in 2016, following significant adverse loss reserve development on prior accident years, primarily 2015 and 2012. As a result, policyholder surplus declined 31.6% at year-end 2016. The rating actions further reflect the challenges faced by MSH to return underwriting results back to historical profitable levels, despite management’s corrective actions, which include select rate increases and increasing reserve levels on older accident years for conservatism. In addition, A.M. Best is concerned with the possibility of additional deterioration in risk-adjusted capitalization if operating performance does not improve in 2017, and the company continues with its required payments of subscriber savings accounts to departed members, as indicated to A.M. Best.
The ratings reflect MSH’s balance sheet strength and market position as one of the top providers of medical professional liability (MPL) insurance in Montana and other Rocky Mountain states. These positive rating factors are offset by deterioration in operating performance in recent years, the inherent challenges associated with having a concentration of underwriting risk in hospital and MPL insurance, and an above-average risk profile with regard to high policy limits relative to surplus and elevated common stock leverage, which was in excess of 100% of surplus at year-end 2016.
Positive rating action could result from a trend of favorable earnings and capital appreciation, while maintaining strong risk-adjusted capitalization, as the company manages through the current challenging market cycle. Negative rating action could result if risk-adjusted capitalization were to weaken further or if additional adverse development were to emerge on prior accident year loss reserves, leading to a weakening of loss experience relative to similarly rated peers.
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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