The negative outlook reflects a series of operational missteps made by American Community over the past few years, which contributed to net losses and corresponding lower surplus reported in 2006-2007 and thus far in 2008. These missteps involved inconsistent underwriting, inadequate product pricing and insufficient reserving. The write-offs of a discontinued information system in 2006 and a subsidiary, Precedent Insurance Company, in 2007 also contributed to the sizeable net losses. Additionally, in first quarter 2008, American Community reported a $4.1 million net loss from elevated general expenses, higher paid claims than projected and reserve strengthening.
Despite the recent net losses, American Community still maintains an adequate risk-adjusted surplus level for its insurance and investment risks. The company’s premium revenue and earnings derive primarily from marketing mostly major medical products to groups and individuals chiefly in seven Midwestern states and Arizona. Although the company recently implemented a number of corrective actions to improve future operating results, A.M. Best anticipates its future earnings will be challenged by an increasingly competitive major medical market dominated by larger managed care carriers with deeper network discounts.
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