S&P Raises Outlook on Professionals Direct

Standard & Poor’s Ratings Services recently revised its outlook on Professionals Direct Insurance Co. (PDIC) to stable from negative.

Standard & Poor’s also said that it affirmed its ‘BBB’ counterparty credit and financial strength ratings on PDIC, which is based in Grand Rapids, Mich.

“We revised the outlook to stable because we consider earnings to be good and supportive of the current rating,” said Standard & Poor’s credit analyst Jason A. Jones.

Although PDIC’s combined ratio was 103% through the first nine months of 2006, it is Standard & Poor’s expectation that the company will achieve a combined ratio of about 95 %-100% for full-year 2006 and 2007. The loss ratio of 77% was higher than Standard & Poor’s expectations so far. Part of the higher loss ratio was because of the company’s increase in reserves for unallocated loss adjustment expenses, and we don’t expect further reserve additions of this type.

S&P said its ratings reflect “PDIC’s strong capitalization and good competitive position in the lawyers’ professional liability market.” These positive factors are offset by a “concentrated position in a volatile line of business in a limited number of states and recent significant reserve deficiencies.”

PDIC is a monoline writer of lawyers’ professional liability insurance. Its focus is on small firms (one to five attorneys) in second tier cities and rural areas. It is geographically concentrated, with 67% of its 2005 business in its five largest states and 36% in Michigan.

We expect that PDIC will remain focused in its lawyers’ professional liability niche in the states where it currently does business, though it is expected to seek moderate growth of market share in this niche in 2007. For this reason, direct premiums written are expected to increase moderately by about 10% annually.
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