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Fitch Affirms FPIC's Ratings; Outlook Stable

^{Published on 2010-06-01 17:40:09 - Market Wire}
 

CHICAGO--([ BUSINESS WIRE ])--Fitch Ratings has affirmed the 'BBB-' senior debt rating and 'BBB' Issuer Default Rating (IDR) of FPIC Insurance Group (NASDAQ: FPIC). In addition, Fitch has affirmed the 'A-' Insurer Financial Strength (IFS) ratings of FPIC's wholly owned insurance subsidiaries (see list below). Fitch also assigned an 'A-' IFS rating to Advocate MD Insurance of the Southwest, FPIC's recent acquisition. The Rating Outlook is Stable.

FPIC's ratings are based on above-average underwriting performance and profitability relative to medical professional liability insurance peers, adequate loss reserve levels, a relatively strong asset portfolio, and adequate capital position. The rating also considers that FPIC is a mono-line insurer operating in one of the more volatile segments of the property/casualty insurance industry. Market conditions have improved recently due to the impact of legislative reforms, drop in claims frequency, and market exits from underperforming competitors. While Fitch does not anticipate a precipitous drop in underwriting results for the medical professional liability insurance industry, Fitch believes that a softening of rates will put downward pressure on near-term underwriting results.

In November 2009 FPIC acquired Advocate, MD Financial Group, (Advocate) Inc. for $33.6 million in cash at closing, and may pay up to $12 million in additional consideration depending on Advocate's performance over the next two-year period following close. FPIC also retired the $9 million in bank debt Advocate had outstanding at the time of closing. This transaction reduces FPIC's Florida concentration, which was approximately 77% of written premiums at year end 2009, by approximately 10 percentage points and makes Texas FPIC's second largest state.

Advocate is the fourth largest medical professional liability insurance carrier in Texas and also writes some medical professional liability insurance in Mississippi. Advocate was founded in 2003 following the significant tort reform initiatives in Texas.

FPIC ranks among the top 15 U.S. writers of medical professional liability insurance, ranks number one in Florida, and has significant positions in other markets, including Texas, Georgia, Missouri and Arkansas. FPIC writes business in 13 states. FPIC's Florida concentrated position is both a positive and a negative for the credit. Fitch considers it prudent that FPIC operates in an environment where the company has longstanding local knowledge and expertise. However, deriving a significant portion of the premium from a single state exposes the company to idiosyncratic risk.

FPIC's strong operating performance is a function of tort reform in Florida, increased claims management, more stringent underwriting, coupled with a strong decrease in frequency that is partially offset by moderating severity. FPIC reported a GAAP combined ratio of 88.6% for the quarter ended March 31, 2010 which is comparable to the 85.4% combined ratio reported for full-year 2009.

As of March 31, 2010, FPIC reported 14% debt-to-capital and earnings based interest coverage ratio of 12.7x. Fitch anticipates that financial leverage and coverage will continue to approximate current levels in the near term.

Fitch affirms FPIC Insurance Group, Inc.'s ratings as follows:

--IDR at 'BBB';

--Senior debt rating at 'BBB-'.

Fitch affirms FPIC's insurance subsidiaries as follows:

First Professional Insurance Company

Anesthesiologists Professional Assurance Company

Intermed Insurance Company

Interlex Insurance Company

--IFS at 'A-'.

Fitch assigns the following rating to FPIC's insurance subsidiary Advocate MD Insurance of the Southwest, Inc.:

--IFS at 'A-'.

The Rating Outlook for all of the above ratings is Stable.

These rating actions reflect the application of Fitch's current criteria which are available at '[ www.fitchratings.com ]' and specifically include the following reports:

--'Insurance Rating Methodology' (Dec. 29, 2009);

--'Non-Life Insurance Rating Criteria' (March 24, 2010);

--'Fitch's Approach to Rating Insurance Groups' (March 24, 2010);

--'Insurance Industry: Global Notching Methodology and Recovery Analysis' (Dec. 29, 2009).

Additional information is available at '[ www.fitchratings.com ]'.

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