Ratings Recap: ProAssurance, Lawyers Mutual
November 15th, 2009
Standard & Poor’s Ratings Services revised its outlook on ProAssurance Corp. (PRA) to positive from stable and affirmed its ‘BBB-’ credit rating on the counterparty company.
“The outlook revision reflects our view of the improved leverage of PRA and operating performance that were enhanced by strong support and fixed parameters of interest coverage and leverage ratios low,” explains credit analyst Damien Magarelli. S & P said the credit rating of the counterparty ERP reflects the strong competitive position of the company, which has further improved after the acquisition of PICA Group, Mid-Continent General Agency Inc., and Georgia Lawyers Insurance Co., and the solid operating performance, but the premiums and prices continue to fall. The rating also reflects the strong financial flexibility of PRA and the limited leverage because the company has managed to convert 107.6 million in convertible debentures to equity in 2008 and completed other programs of debt reduction over the last two years. “These positive factors are however partially” offset by a modest geographic concentration of the company by the State Although the ERP is diversified nationally, “said S & P. The rating agency also noted that the ERP has a concentration “in the niche business of medical malpractice (even if it diversifies slowly), which subjects the company to systematic risk as a result of regulatory reform and changes in industry trends that may have a significant impact on the underwriting results business. The company also faces some inherent business risks, such as the lack of potential reserves and capital associated with recent acquisitions.
AM Best Co. has downgraded the financial strength rating “A-” (Excellent) from ‘A’ (Excellent) and issuer credit rating of credit to “A-” from “a” of Lawyers Mutual Liability Insurance Company of North Carolina (LML), but also revised the outlook for both ratings to stable from negative. Best explained that the actions listed have been taken “because of the deteriorating operating performance LML during its most recent five years. The company was penalized by a significant increase in the frequency of claims from the end of 2007 in 2009, driven by losses in several areas of legal practice, particularly real estate. Best also noted that “LML has posted a net underwriting loss in four of the last five years. Reserve development associated with undesirable reactive management of the contribution rate has a negative impact on current operations of the company. Partially offsetting these rating factors was favorable investment results of the company helps to generate a combined net income of $ 3.7 million over the past five years. “On a more positive note the best ratings indicated that LML is supported by continued” strong risk adjusted capitalization for its rating level, a position of market dominance in lawyer malpractice in North Carolina and its consistently high customer rates retention. These factors are derived from a thorough knowledge of corporate legal practice and constant dedication to provide superior service to its customers. “Best added that the stable outlook recognizes” LML capitalization and management commitment to return the company to profitability through technical staff appropriate actions. “
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