Fitch: Medical Professional Liability Insurance Continues Downward Slide

September 24, 2015

Medical professional liability insurance for the U.S. property/casualty industry continued its years-long decline in 2014 in terms of net written premium volume, hammered by everything from worsening accident-year results to a rapidly evolving healthcare market, Fitch Ratings found.

Fitch said that net written premium volume dropped 2.5 percent in 2014, the eighth straight year that it has decline. What’s more, Fitch said that the changing healthcare market and “ample underwriting capacity” for medical professional liability insurance (MPLI) suggests the sector will continue to have weakening market fundamentals and more “gradual” declines in premium rates.

A number of factors are continuing this trend, according to Fitch, including:

On the bright side, Fitch pointed out that the MPLI market continues to produce significant profits per calendar-year, and that the industry combined ratio was 94 in 2014. That represents only a slight deterioration over the last 5 years.

Still, with all of the negatives, Fitch said that the market is ripe for consolidation. Fitch pointed out that there were few M&A deals involving MPLI specialists in the last few years, but merger activity has picked up in the broader P/C market through the first half of 2015. With that in mind, conditions seem ripe for some MPLI merger deals.

“Heightened expense pressure from a declining revenue base, coupled with profit erosion from weaker underwriting results and depleted reserve redundancies could spur an expansion in MPLI transactions going forward,” Fitch said.

Even so, the very nature of the MPLI sector’s way of operation could also be an obstacle to more merger deals.

“The mutual/reciprocal organization structure of many MPLI specialists reduces incentives for management to find a merger partner,” Fitch noted.

Source: Fitch Ratings