Fitch: Medical Professional Liability Insurance Underwriting Performance Expected to Decline

Link to Fitch Ratings' Report: Medical Professional Liability Insurance Market Update
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=678539

The medical professional liability insurance (MPLI) market remains one of the most profitable segments of the U.S. property/casualty industry, although a deeper look into the segment reveals a somewhat less positive performance, and operating challenges going forward according to a Fitch Ratings report.

MPLI, a specialty segment that represents approximately 2% of the U.S. property and casualty (P&C) insurance industry's written premiums, has posted significantly better underwriting results than other long tail commercial lines segments with an average calendar year combined ratio of 85.3% from 2007 - 2011. This outperformance is a function of more attractive competitive fundamentals in MPLI, as well as stable loss trends in recent years driven by declining claims frequency and the impact of litigation reforms in numerous states.

Significantly more favorable reported prior period reserve development in MPLI relative to other lines was a major factor contributing to this difference in performance. Fitch believes that MPLI segment loss reserves remain significantly redundant at yearend 2011, in contrast to an overall deteriorating industry loss reserve position.

Looking at results on an accident year basis the claims made MPLI segment, which represents approximately 75% of MPLI industry premium, entered the soft phase of the underwriting cycle later than other market segments. However, this segment has shifted to a material underwriting loss in the 2010 and 2011 accident years.

MPLI specialty writers have reported very strong earnings and capital growth over the last five years, but face considerable profitability challenges going forward. MPLI net written premium volume has shrunk by 16% since year-end 2006, attributable to declining premium rates and the impact on insured exposures from movement of individual physicians to employment within hospitals or larger medical practice groups.

While other commercial lines segments are currently experiencing significant premium rate increases in response to poorer underwriting experience, Fitch expects future MPLI rates are more likely to remain flat to down modestly, leading to further deterioration in near term underwriting performance.

The full report 'Medical Professional Liability Market Update' is available at 'www.fitchratings.com.'

Additional information is available at 'www.fitchratings.com.'

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