(The following statement was released by the rating agency)
CHICAGO, May 01 (Fitch) Fitch Ratings has affirmed ProAssurance
(PRA) Issuer Default Rating (IDR) at 'BBB+'. Fitch has also
affirmed the Insurer
Financial Strength (IFS) ratings of PRA's primary insurance
(listed below) at 'A'. The Rating Outlook for all ratings is
KEY RATING DRIVERS
Fitch's rating actions consider the solid capital position of
subsidiaries, as well as their consistent profitability,
and experienced management team. In addition, PRA has a track
record of prudent
use of financial leverage, claims management, and reserve
characteristics are generally supportive of a higher rating per
Partially offsetting these positives is the company's status as
monoline company that primarily operates in the volatile medical
liability (MPLI) line of business, which limits the upside of
While not anticipated by Fitch over the ratings horizon, Fitch
believes PRA, as
a specialty largely monoline company, is highly exposed to
adverse changes in
the MPLI market conditions or other industry dynamics.
The MPLI market's underwriting results outperformed other major
segments on a calendar year basis. However, more recently, MPLI
have risen significantly.
The broader commercial lines market has experienced premium rate
for the last two years in response to weaker underwriting
losses. The MPLI
segment has lagged in this pricing recovery and is unlikely to
near-term rate improvement due to the market presence of many
writers that experienced strong capital growth in the last hard
market but have
limited underwriting opportunities outside of MPLI.
PRA reported a calendar year GAAP combined ratio of 57.1% for
full year 2012, a
4.6 percentage point deterioration over the comparable period in
year combined ratios for the past several years have been helped
favorable reserve development. While favorable reserve
indicates reserve strength it can mask deterioration in current
On an accident year basis the company reported a 106.5% combined
ratio a modest
improvement relative to the 110.1% same period in 2011. Fitch
current loss ratio estimates incorporate a reasonable but
conservative view for
future claims reserves.
Fitch views PRA's loss reserve position as modestly redundant
and notes that the
company has a history of favorable prior accident year reserve
$272 million of favorable reserve development reported for full
primarily related to accident years 2005 through 2009.
In particular, loss reserves are critically important for a MPLI
company as the
liability duration is amongst the highest in the
with potential for reserve volatility due to changes in the
environment and inflation over time. After one year
approximately 13% of all
known claims are closed and after five years approximately 90%
of claims are
As of Dec. 31, 2012 the company had a very strong debt-to- total
of 6% and as a result, extremely strong earnings based interest
Fitch's longer term rating expectations incorporate a view that
managements longer-term financial strategies, at some point PRA
financial leverage to 20-25% range and fixed charge coverage
will normalize at
7.0 times (x) or greater.
Fitch has extended its group IFS rating to Medmarc Casualty
and Noetic Specialty Insurance Company which were recently
acquisition gives PRA a presence in products liability for
medical devices and
the life sciences industry in addition to increasing PRA's
liability book of business for attorneys. PRA's 2012 pro forma
accounting for this acquisition increase life sciences and
approximately 10% of total premiums.
While medical device product liability is outside of the
traditional MPLI scope
of PRA's business the risk is somewhat offset by the modest size
relative to PRA
in addition to the fact of PRA's successful efforts of
integration of past
mergers and retention of key management figures.
Within Fitch's rating rationale are multiple rating triggers. If
PRA were to
materially deviate from any of these items, especially for an
the ratings could be affected.
While PRA's quantitative metrics are more consistent with a
category, Fitch's current view of the risk characteristics of
the MPLI industry
is constraining PRA's ratings given PRA's largely monoline
believes that a ratings upgrade in the near term is unlikely,
barring a change
in Fitch's broad view of the risks inherent in the MPLI
The following is a list of triggers that could lead to a
--Material adverse reserve development;
--An increase in the company's operating leverage, as defined by
premiums to policyholder surplus, of 1.0x or higher;
--A Prism capital model score below 'Strong' (currently
--An increase in tangible financial leverage above 25% or
decline in operating
earnings-based coverage below 7x.
Fitch affirmed the following ratings with a Stable Outlook:
--IDR at 'BBB+'.
Fitch has affirmed the IFS rating of the following companies at
'A' with a
--ProAssurance Indemnity Company, Inc.
--ProAssurance Casualty Company
--ProAssurance Specialty Insurance Company
--Podiatry Insurance Company of America;
--PACO Assurance Company, Inc.
--Independent Nevada Doctors Insurance Company
Fitch has assigned an IFS rating to the following companies of
'A' with a Stable
--Medmarc Casualty Insurance Company;
--Noetic Specialty Insurance Company.
Gerald Glombicki, CPA
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
Jim Auden, CFA
Mark Rouck, CFA, CPA
Media Relations: Brian Bertsch, New York, Tel: +1 212-908-0549,
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Insurance Rating Methodology' (Jan. 11, 2013).
Applicable Criteria and Related Research
Insurance Rating Methodology â€” Amended
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