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A.M. Best Withdraws Credit Ratings of MedMal Direct Insurance Company
[April 13, 2018]

A.M. Best Withdraws Credit Ratings of MedMal Direct Insurance Company


A.M. Best has downgraded the Financial Strength Rating to B- (Fair) from B++ (Good) and the Long-Term Issuer Credit Rating to "bb-" from "bbb" of MedMal Direct Insurance Company (MedMal Direct) (Jacksonville, FL). The outlook of these Credit Ratings (ratings) has been revised to negative from stable. Concurrently, A.M. Best has withdrawn the ratings as the company has requested to no longer participate in A.M. Best's interactive rating process.

The ratings reflect MedMal Direct's balance sheet strength, which A.M. Best categorizes as adequate, as well as its marginal operating performance, limited business profile and marginal enterprise risk management (ERM).

These rating actions are related partly to MedMal Direct's prospective balance sheet strength and A.M. Best's concerns related to ultimate reserve adequacy, and the potential loss emergence and legal actions related to extra contractual obligations and excess of policy limits (as an event subsequently disclosed in the company's year-end 2017 statutory annual statement). Unfavorable outcomes from each of these could potentially have a negative influence on the parent's already high debt leverage and ability to cover its cost of capital. Concerns regarding reserve adequacy have increased following recent changes in claims management and changes in reserving practices added to the limitations on the company's own data due to its relatively short time in operation, as well as adverse reserve development in calendar-year 2017 and each of the prior three accident years. The 2017 reserve increase contributed to a 20% decrease in policyholders' surplus and significantly decreased capitalization.

The company's operating performance has been below the medical professional liability (MPL) averages and trending negatively in recent years culminating in the significant loss reported in 2017. While claims frequency remains relatively flat, the MPL market is in a prolonged soft pricing cycle. Market dynamics continue to see prvate practice physicians leaving for employment opportunities with physician groups or hospitals, mergers among physician groups and health care systems, greater medical responsibilities being taken on by physician extenders that were performed previously by physicians, as well as other changes. The business profile is limited by MedMal Direct's concentration of underwriting risk in MPL lines, mainly in Florida. In recent years, Florida has reversed certain tort reforms that would keep claims frequency and severity in check. However, the company has partially mitigated this by writing most policies at low limits.

Furthermore, in A.M. Best's opinion, the company's ERM is marginal. While the company has brought in seasoned leadership in key management positions in recent years, those changes have either followed material deficiencies in operations or precipitated corrective actions and contributed to the company's marginal operating performance.

The outlooks have been revised to negative based on the challenges facing this company, as earnings and future capital formation may be constrained due to the potential for additional reserve strengthening in the near term and what could become of the legal actions related to the adverse excess of policy limits claims judgment in January 2018. Management is currently reviewing its options in this matter.


This press release relates to Credit Ratings that have been published on A.M. Best's website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see A.M. Best's Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Understanding Best's Credit Ratings. For information on the proper media use of Best's Credit Ratings and A.M. Best press releases, please view Guide for Media - Proper Use of Best's Credit Ratings and A.M. Best Rating Action Press Releases.

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.


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