An affiliate of ProAssurance Corporation PRA, ProAssurance American Mutual, a Risk Retention Group (ProAssurance RRG) was recently assigned a financial strength rating of A+ (Superior) and an issuer credit rating of “aa” by A. M. Best with a stable outlook.

These ratings came on the back of a quota share reinsurance agreement between ProAssurance RRG and one of ProAssurance’s major companies – ProAssurance Indemnity Company, Inc. Per the deal, ProAssurance Indemnity will provide ProAssurance RRG with administrative and managerial services along with reinsurance support. ProAssurance RRG is set to gain from ProAssurance’s primacy in the medical professional liability insurance (MPLI) market. Additionally, the insurer’s long-term profitable operations as well as implementation of programs for proper risk management and patient safety should prove advantageous for the risk-retention group.

Although ProAssurance RRG is a start-up entity, it has not been exposed to adverse loss experience or inadequate rate structure. However, certain market risks intrinsic to the MPLI sector, such as weak market pricing and stiff competition, regulatory or legislative changes, as well as modifications in health care delivery and MPLI market dynamics partially offset the positives.

ProAssurance is expected to benefit from ProAssurance RRG as it increases the insurer’s ability to offer better coverage for doctors and other medical professional faculty. ProAssurance expects to improvise the provision of medical professional liability and related general liability to them on the basis of claims made.

Additionally, the unit will help the company to become more flexible in writing admitted business in states with stricter regulatory environment. Moreover, it will benefit the company as a risk-bearing entity in the future as health care continues to be amended and multi-state, multi-specialty risks appear.

Since ProAssurance Indemnity and ProAssurance RRG are interrelated, the changes in the ratings of one may affect the ratings of the other. ProAssurance’s successful business, solid operating performance along with consistent fundamental profitability and strong risk-adjusted capitalization are likely to result in positive rating actions. However, adverse loss experience, reserve deficiency trends or erosion in risk-adjusted capitalization at ProAssurance Indemnity could lead to a negative rating action. Moreover, loss of the ProAssurance RRG's support from ProAssurance Indemnity could also result in a downgrade.

Strong ratings from credit rating agencies play an important part in retaining investor confidence in the stock as well as maintaining creditworthiness in the market. We believe that the company’s present score with the credit rating agency will help it write more business going forward.

Currently, ProAssurance carries a Zacks Rank #3 (Hold).

Stocks to Consider

Some better-ranked stocks from the same sector are AmTrust Financial Services, Inc. AFSI, Arch Capital Group Ltd. ACGL and Everest Re Group Ltd. RE. All of these hold a Zacks Rank #2 (Buy).

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
EVEREST RE LTD (RE): Free Stock Analysis Report
 
PROASSURANCE CP (PRA): Free Stock Analysis Report
 
AMTRUST FIN SVC (AFSI): Free Stock Analysis Report
 
ARCH CAP GP LTD (ACGL): Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research