A.M. Best Downgrades MLMIC Group, Princeton and OHIC Ratings

A.M. Best Co. announced that it has downgraded the financial strength rating to B (Fair) from B++ (Very Good) of the New York-based MLMIC Group, removed the rating from under review, and assigned a “negative” outlook.

Best also said it has downgraded the financial strength rating to ‘B-‘ (Fair) from ‘B’ (Fair) of the independently-rated Princeton Insurance Company of Princeton, NJ, as well as its rating of OHIC Insurance Company, based in Columbus, Ohio, to ‘B’ (Fair) from ‘B++’ (Very Good). Both companies were removed from review status and assigned negative outlooks. Standard & Poor’s recently announced that it had lowered its ratings on Princeton. (See IJ Web site June 6)

“The rating action of MLMIC Group reflects its marginal capitalization following capital enhancing efforts that did not meet A.M. Best’s expectations,” said the bulletin. “It also recognizes further deterioration in its operating performance during the fourth quarter of 2002 from additional strengthening of prior accident years’ reserves.”

Best noted that “Overall, the group experienced a decline in policyholders’ surplus of more than 30% during the year, driven by the strengthening of prior years’ loss reserves by a total of $433 million, and the increase in non-admitted assets. Also, MLMIC discounts its loss and loss adjustment expense reserves, as permitted by the New York Department of Insurance, which at year-end 2002 was $522 million or more than 50% of policyholders’ surplus.”

Concerning Princeton, the rating agency said the downgrade “reflects its marginal capitalization and further deterioration in operating performance during the fourth quarter of 2002 from additional strengthening of prior accident years’ reserves.” Best noted that the company had “strengthened prior years’ reserves by a total of $118 million for the year, which minimized the benefit of the additional capital contribution of $40 million from its parent.”

Princeton’s difficulties have been “compounded by strong gross premium growth of more than 40%, comprised of rate increases and new physician business in New Jersey,” said Best. This has resulted in a “decline in surplus of approximately 25%, net and gross leverage measures are more than double that of the industry composite.”

The report noted that “to restore overall capitalization and profitability, the company commenced the withdrawal from all states other than New Jersey and completed the withdrawal from its Small Risk Workers’ Compensation Program with the sale of the renewal rights to this business and the Princeton Insurance Agency to AmTrust Financial Services.” Best also observed that Princeton has “secured the loss portfolio transfer/adverse development cover on loss and unearned premium reserves on this business.”

It also considered the fact that the insurer has “filed a Company Action Level Risk-Based Capital Plan with the New Jersey Department of Banking and Insurance and is focusing on restoring profitability through re-underwriting initiatives, including expense reduction and rate increases and the securing of additional reinsurance protection.” Best hat it expects “operating profitability to be restored over the mid term, barring further strengthening of loss reserves.”

The “rating action of OHIC Insurance Company follows the downgrading of the parent’s rating, given its dependence on the financial support of its parent over the years with the contribution of capital totaling $33 million and reinsurance protection,” said Best. “Furthermore, there is a concern over the quality of capital at OHIC, given that more than half of its surplus is comprised of surplus notes issued to its parent, Medical Liability Mutual Insurance Company. Moreover, OHIC’s own overall capitalization has weakened due to adverse reserve development, strong premium growth and subsequent decline in surplus.”

Best indicated that the “negative” outlook was a result of its concern over “further adverse reserve development and the maintenance of insufficient capitalization at MLMIC Group and Princeton Insurance Company to support their current ratings, and OHIC’s financial dependence on its parent.”