AM Best is revising its outlook on the U.S. medical professional liability (MPL) insurance segment to stable from negative, citing improved rate adequacy, the diminishing impact from pandemic-related exposures, persistently redundant loss reserves, higher reinvestment rates and improved overall returns.
The Best’s Market Segment Report, “Market Segment Outlook: US Medical Professional Liability,” notes the segment’s proven ability to adapt to various market cycles, despite tort reform challenges. However, offsetting factors in the outlook change include the segment’s shrinking pool of solo practitioners, persistent economic uncertainty, volatility in the equity markets, rising reinsurance costs, higher claims severity and the persistence of social inflation.
As the legal system reopened post-pandemic and became fully operational in the latter part of 2022 and in 2023, the expected significant negative impact on the MPL segment’s loss ratio was minimal. The segment successfully navigated changes related to pandemic-related claims and tort reform challenges. It achieved this by implementing rate increases and growing its premium every year since 2017, according to the report. Despite the advances, the MPL segment faced another year of underwriting losses in 2022. The level of favorable development has grown in the past two years, with a positive impact on results.
“Given the segment’s generally robust balance sheets, investment income remains a key driver generating overall returns on revenue that exceed industry averages,” said Vicky Riggs, associate director, AM Best. “This should play an even larger role as interest rates remain higher for longer. Further appropriate pricing adjustments should also drive additional positive momentum in 2024.”
What remains to be seen are the potential impacts of rising loss frequency, as well as escalating burnout rates, staffing shortages and further growth of alternative care providers. The potential for these trends to negatively impact frequency while severity continues to rise could impede the progress the segment has made the past several years, according to the report.
To access a copy of this report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=337514 .