AM Best Removes Under Review With Developing Implications, Affirms Credit Ratings of NORCAL Group’s Members

OLDWICK, N.J.--(BUSINESS WIRE)--AM Best has removed the under review with developing implications and affirmed the Financial Strength Rating (FSR) of A- (Excellent) and the Long-Term Issuer Credit Ratings (Long-Term ICR) of “a-” (Excellent) for the members of NORCAL Group (NORCAL). The outlook of these Credit Ratings (ratings) is stable. (See below for a detailed listing of the companies.)

The ratings reflect NORCAL’s balance sheet strength, which AM Best assesses as very strong, as well as its marginal operating performance, neutral business profile and appropriate enterprise risk management (ERM). The ratings also reflect rating enhancement provided by the ProAssurance Group.

The ratings receive support from the group’s relationship with its new ultimate parent, ProAssurance Corporation [NYSE:PRA], which acquired NORCAL on May 5, 2021, as part of a sponsored demutualization. Rating enhancement provided to NORCAL reflects the integration of the company into the ProAssurance organization and the operational and expense synergies to be realized, as well as explicit support from a Parental Guaranty provided by ProAssurance for the $191 million of converted contribution certificates upon NORCAL’s demutualization, should NORCAL be unable to pay principal and interest at maturity.

Despite capitalization at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR), balance sheet strength is at the low level of a very strong assessment when considering the continued decline in surplus and additional reserve charges from older accident years. Operating performance has been assessed at marginal as the group has underperformed the medical professional liability (MPL) composite, on average, during the prior five-year period and into the second quarter of 2021. Underwriting losses reflect reserve deterioration following changes to reserving protocol, which led to higher loss severities compared with historical patterns. Additional unfavorable reserve development is expected to continue in the near term.

The stable outlooks reflect the expectation that NORCAL's rating fundamentals will remain unchanged over the intermediate term. Risk-adjusted capitalization is expected to remain supportive while ongoing strategic initiatives implemented by ProAssurance are expected to stabilize operating performance and strengthen the group’s ERM.

The FSR of A- (Excellent) and the Long-Term ICRs of “a-” (Excellent) have been removed from under review with developing implications and affirmed with assigned outlooks of stable for the following members of NORCAL Group:

• NORCAL Insurance Company
• NORCAL Specialty Insurance Company
• Medicus Insurance Company
• FD Insurance Company
• Preferred Physicians Medical Risk Retention Group, a Mutual Insurance Company

This press release relates to Credit Ratings that have been published on AM 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 AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best’s Credit Ratings. For information on the proper use of Best’s Credit Ratings, Best’s Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best’s Ratings & Assessments.

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