AM Best revises outlook to negative for Coverys member companies

AM Best revised the outlook to negative from stable, while affirming the financial strength rating (FSR) of A (excellent) and long-term issuer credit ratings (long-term ICRs) of ‘a’ (excellent ) of the Boston Medical Company. Professional Mutual Insurance Co. and the members of its rating unit, collectively known as the Coverys Companies.

The ratings reflect the strength of Covery’s balance sheet, which AM Best rates as “strongest,” as well as “marginal operating performance, neutral business profile and adequate management of enterprise risk.”

AM Best said the negative outlook reflected pressure on Coverys’ balance sheet valuation from “increased volatility” in loss adjustment expense reserves as the group continues to report a modest negative performance in reserves over the past few years. AM Best said this was a “clear departure” from a previous more conservative booking practice, with a steady development of favorable reserves.

The rating agency noted that as of the end of 2023, the crash years 2016-2019 continued to develop negatively, partially offset by large reserve releases in 2021-2022, which AM Best said “may be premature , given the long tail’ nature of the medical professional liability (MPL) field of activity.

AM Best warned that due to increased reserve volatility, the group’s balance sheet strength rating, while still at its strongest today, could potentially be downgraded.

AM Best said it rates Coverys’ operating performance as marginal, as its underwriting and profitability metrics lag behind its MPL peer and the wider property/debt industry.

According to rating analysts, over the past few years, the group’s calendar year underwriting results have shown some improvement following “comprehensive operational reviews” by the new management team. However, due to the long-tailed nature of the MPL line and the more recent weakening of reserve strength, AM Best said it will have more confidence in these results as the years mature.

Analysts said a negative rating action could occur if negative reserve development has a material impact on future earnings and/or capital formation. Negative rating actions could also occur if the group’s risk-adjusted capitalization were to weaken significantly, which could result from a significant deterioration in operating performance, an increase in the frequency or severity of claims, or the unfavorable development of reserves.

“Although unlikely in the near term, the ratings may be positively impacted by sustained improvement in underwriting and overall operational performance, providing support for the strongest level of Coverys balance sheet strength,” AM Best added.

The FSR of A (Excellent) and Long-Term ICRs of ‘a’ (Excellent) were affirmed, with the outlook revised to negative from stable for the following members of the Coverys Companies rating unit:

• Medical Professional Mutual Insurance Co.
• ProSelect Insurance Co.
• Preferred Professional Insurance Co.
• Coverys Specialty Insurance Co.
• Coverys Risk Retention Group, Inc.
• Coverys Limited
• Coverys International Insurance Company Designated Activity Co.

Source: AM Best

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