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Business and Finance
Thu, October 20, 2011 Fitch Upgrades FPIC's Ratings Following TDC Acquisition
CHICAGO--([ BUSINESS WIRE ])--Following the recent acquisition of FPIC Insurance Group (NASDAQ: FPIC) by The Doctors Company (TDC) for $352 million, Fitch Ratings has upgraded FPIC's ratings and affirmed TDC's ratings.
These actions include the upgrade of FPIC's senior debt to 'BBB' from 'BBB-' and the upgrade of its wholly owned insurance subsidiaries to 'A' from 'A-'. Also included is the affirmation of TDC's insurance subsidiaries at 'A'.
The Rating Outlook for both companies is Stable. (A full list of affected ratings follows at the end of this release.)
The FPIC acquisition adds to TDC's market presence in the medical professional liability insurance line and provides an opportunity to better compete in the key states of Florida and Texas.
The acquisition was financed by the sale of invested bonds and thus has minimal impact on financial leverage. Operating leverage will increase modestly but within Fitch's targets for the current rating category. Operating leverage for TDC at year-end 2010 was 0.5 times (x), and pro forma consolidated TDC and FPIC operating leverage will approximate 0.7x, which is within recent historical ranges for the company.
Fitch has some concerns about the proposed transaction including integration risk, business retention, rate regulations, and the ultimate realization of cost synergies. Some of these concerns are mitigated by the fact that TDC has a successful track record of integrating acquisitions and realizing synergies.
TDC's ratings continue to be supported by above-average underwriting performance and profitability relative to medical professional liability insurance (MPLI) peers, favorable loss reserve levels and strong statutory capital position. Additionally, TDC has an experienced management team that employs a conservative operating strategy that is focused on long-term underwriting profitability.
The rating also considers that TDC is a mono-line insurer operating in one of the more volatile segments of the property/casualty insurance industry. Market conditions in recent years were favorably affected by legislative reforms, a drop in claims frequency, and market exits from underperforming competitors. While Fitch does not anticipate a precipitous drop in underwriting results for the MPLI industry, near-term softening of rates will promote downward pressure on profitability.
Fitch believes that a ratings upgrade in the near term is unlikely given the company's narrow product focus in a highly volatile line of business. Further, Fitch has concerns that that the medical professional liability insurance market may have reached its peak in the underwriting cycle.
The following is a list of key rating drivers that could lead to a downgrade:
--Failing to successfully integrate FPIC or other recent acquisitions;
--An increase in the company's operating leverage, as defined by net written premiums to policyholder surplus, of 1x or higher;
--Material adverse reserve development;
--Failure to maintain pricing discipline in a softening rate environment.
Fitch has upgraded the following FPIC Insurance Group, Inc.'s ratings:
--IDR to 'BBB+' from 'BBB';
--Senior debt rating to 'BBB' from 'BBB-'.
Fitch has upgraded the following FPIC insurance subsidiaries to 'A' from 'A-':
--First Professional Insurance Company
--Anesthesiologists Professional Assurance Company
--Intermed Insurance Company
--Advocate MD Insurance of the Southwest, Inc.
Fitch has affirmed the 'A' IFS ratings of the following TDC insurance subsidiaries:
--The Doctors' Company an Intercompany Insurance Exchange
--Professional Underwriters Liability Insurance Company (PULIC)
--Underwriter for the Professions Insurance Company (UPIC)
--Northwest Physicians Insurance Company (NPIC)
--OHIC Insurance Company (OHIC)
--SCPIE Indemnity Company
--American Physicians Capital Inc
The Rating Outlook for all of the above companies is Stable.
Additional information is available at '[ www.fitchratings.com ]'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--'Insurance Rating Methodology' (Sept. 22, 2011).
Applicable Criteria and Related Research:
Insurance Rating Methodology
[ http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=651018 ]
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