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Best’s Special Report: Myriad Challenges Test the Mettle of Medical Professional Liability Writers

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05/10/2018 | 05:42pm CEST

Despite a second-straight year of underwriting losses, the U.S. medical professional liability insurance sector's net income rose 50% year over year as realized capital gains increased threefold, according to a new A.M. Best report.

The Best’s Special Report, titled, “Myriad Challenges Test the Mettle of Medical Professional Liability Writers,” notes that continuing changes in health care delivery, the migration of private practice physicians to large physician networks and hospitals and mergers and acquisitions among physician groups and hospital systems are just some of the issues impacting this segment. As a result, A.M. Best assigned a market segment outlook of negative for the medical professional liability (MPL) market.

The report also stated that slumping demand and competitive pricing resulted in a decline in the segment’s 2017 premiums. Direct premiums written (DPW) for the composite of carriers whose primary line is medical or hospital professional liability insurance was down 1.9% in 2017 to $6.8 billion, following a 1.8% drop in 2016. Demand continues to decline owing to the increased consolidation, and in certain instances, business is being fronted and then passed on to the alternative risk transfer market. Larger groups and hospitals tend to self-insure and use alternative risk transfer options.

Despite the current challenges being faced by MPL insurers, recent operating history has been favorable. The MPL composite reported a marginal net underwriting loss in 2017, even though the combined ratio improved to 100.1 from 101.6 in 2016. However, realized gains increased more than threefold, and investment income was relatively stable. As a result, net income increased to more than $1.1 billion from $764 million in 2016, despite the tough market dynamics and deteriorating profit margins.

A large number of MPL insurers have amassed substantial amounts of capital on their balance sheets in the last decade and are trying to find ways to deploy that capital in the marketplace, seeking new opportunities to combat a declining core client base. The expansion of operations beyond established jurisdictions and extending into other product lines, in some cases through the formation of risk retention groups or mergers and acquisitions, are among the ways MPL insurers have been reacting to market conditions in recent years. With a health care system still in flux amid a continuing opioid epidemic, along with persistently competitive pricing and shrinking profit margins, MPL insurers are navigating very choppy waters.

To access the full copy of this special report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=273402.

For a video on the special report with A.M. Best Director Charles M. Huber, please visit http://www.ambest.com/v.asp?v=mplireport518.

A.M. Best is the world’s oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

Copyright © 2018 by A.M. Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.


© Business Wire 2018
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