In a special report, A.M. Best said the MPL segment’s results were hampered by declines in underwriting and investment income and a reduction in realized capital gains.
Read more: Cheap car insurance for new drivers
In A.M. Best’s opinion, the continued strong capitalization and profitable, albeit lower, operating performance of the MPL sector, as well as the prospect for continued positive earnings in the mid-term, favors a stable outlook. In addition, while the ratings agency expects soft market pricing to continue along with modest increases in claims severity, its analysts believe lower claims frequency trends and reserve redundancies should continue to offset.
According to the report, MPL carriers face multiple challenges including changes in healthcare delivery, changes in tort reform, new medicines and surgical procedures, migration of solo practicing physicians to group or hospital employment, cyber security, an influx of insureds into the healthcare system, strong competitive market pressure and low interest rates are putting more emphasis on enterprise risk management (ERM) techniques.
A.M. Best expects competition in MPL to remain strong and merger and acquisition activity to continue. Smaller companies are most at risk as they see their margins shrink from prolonged soft-market pricing, low investment yields and lower releases of excess reserves. Capital and surplus growth is expected to be minimal in the near term due to lower anticipated earnings and continued give back of excess capital to stakeholders. However, according to the ratings agency, continuation of these trends could result in an outlook change in the not too distant future.
Read more: How to get cheap insurance for young drivers
Decade of Success
For nearly a decade, MPL specialty companies have produced some of the best underwriting and overall operating results when compared to other insurance sectors or the broader U.S. property/casualty marketplace, according to the A.M. Best report. Over this period, profitability measures for MPL insurers have remained strong and continue to largely be influenced by significant prior year reserve releases, as claim frequency trends remain at bay and tort reform laws continue to be relatively favorable.
The Best’s Special Report, titled, “Strong But Declining Profitability in 2015 for Medical Professional Liability Sector,” also cites better risk management practices and adequate pricing as key drivers. Companies within the MPL segment were thus able to organically grow surplus through earnings, while at the same time maintain conservative reserving practices. Despite the financial crisis in 2008 and record low investment yields, MPL insurers remain steadfast in their asset selection and vigilant in not going too far astray in terms of credit quality or extending their duration. Assets remain conservatively invested and overall balance sheet strength remains sound, A.M. Best said.
Read more: How to get the best car insurance deals