A.M. Best Affirms Credit Ratings of ProAssurance Corporation and Most Subsidiaries

OLDWICK, N.J.--(BUSINESS WIRE)-- A.M. Best has affirmed the Financial Strength Rating (FSR) of A+ (Superior) and the Long-Term Issuer Credit Ratings (Long-Term ICR) of “aa-” of the members of the ProAssurance Group. Concurrently, A.M. Best has affirmed the FSR of A- (Excellent) and the Long-Term ICR of “a-” of PACO Assurance Company, Inc. (PACO) (Franklin, TN). In addition, A.M. Best has affirmed the FSR of A (Excellent) and the Long-Term ICRs of “a+” of the members of the Eastern Alliance Insurance Group (EAIG).

A.M. Best also has downgraded the Long-Term ICR to “a” from “a+” and affirmed the FSR of A (Excellent) of Eastern Re Ltd., S.P.C. (Eastern Re) (Grand Cayman, Cayman Islands).

The outlook of these Credit Ratings (ratings) is stable. See below for a detailed list of the companies. All of these companies are indirect subsidiaries of ProAssurance Corporation (PRA) (Birmingham, AL) (NYSE:PRA).

Along with these rating actions, A.M. Best has affirmed the Long-Term ICR of “a-” of PRA and the Long-Term Issue Credit Rating (Long-Term IR) of “a-” on PRA’s $250.0 million 5.30% 10-year senior unsecured notes, due 2023. A.M. Best also has affirmed the indicative Long-Term IRs under the shelf registration of “a-” on the senior unsecured debt, “bbb+” on the senior subordinated debt and “bbb” on the preferred stock of PRA. The outlook of these ratings is stable.

The ratings of ProAssurance Group reflect its balance sheet strength, which A.M. Best categorizes as strongest, as well as its strong operating performance, favorable business profile and appropriate enterprise risk management (ERM).

ProAssurance Group’s balance sheet strength assessment reflects its risk-adjusted capitalization being at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR), the strength of its reserves and the quality of its investments. The group’s operating performance consistently has outperformed peers in the medical professional liability (MPL) insurance sector, reflecting disciplined underwriting standards, conservative reserving practices and proactive legal defense and claims handling philosophy. The ratings also consider the group’s market position as one of the leading MPL insurers in the United States, as well as its diversification across multiple disciplines, geographic areas and in its other lines of business. These ratings also acknowledge the depth and breadth of ProAssurance Group’s ERM programs and policies. In addressing challenges in a prolonged soft MPL market, management has leveraged its talent, knowledge base and market position to introduce innovative alternatives.

The ratings of PACO reflects its balance sheet strength, which A.M. Best categorizes as very strong, as well as its adequate operating performance, limited business profile and appropriate ERM. The ratings also reflect lift from the lead rating unit, ProAssurance Group, based on implicit support.

PACO’s ratings consider its balance sheet strength, which is supported by risk-adjusted capitalization that measures in the strongest category. PACO’s operating performance generally has improved since being acquired by PRA in 2010. PACO broadens PRA’s MPL lines of business to include chiropractors and acupuncturists, another niche medical specialty with favorable loss parameters. The company’s underwriting has been modestly profitable, benefiting from favorable industry trends in claims and losses in a lower-risk line of business during the soft market.

The ratings of EAIG reflect its balance sheet strength, which A.M. Best categorizes as very strong, as well as its adequate operating performance, neutral business profile and appropriate ERM. The ratings also reflect lift from the lead rating unit, ProAssurance Group, based on implicit support.

EAIG’s ratings consider its balance sheet strength, which is supported by risk-adjusted capitalization that measures in the strongest category. The group has produced favorable underwriting results; however, investment returns have been relatively modest, leading to overall returns that are more in line with the peer group composite. The members of EAIG, which operate under an intercompany pooling reinsurance agreement, have been able to write new business by further expanding its programs in the eastern half of the United States after being concentrated in Pennsylvania. In late 2017, it acquired the renewal rights of the Great Falls Insurance Company, a monoline workers’ compensation insurance company, which expanded their footprint to New England.

The ratings of Eastern Re reflect its balance sheet strength, which A.M. Best categorizes as very strong, as well as its adequate operating performance, very limited business profile and appropriate ERM. The ratings also reflect lift from the lead rating unit, ProAssurance Group, based on implicit support.

The rating action on Eastern Re reflects a change in A.M. Best’s assessment of the company’s business profile due to its run-off status and its diminished future business prospects, despite an ongoing connection with the parent from shared clientele. Eastern Re’s balance sheet strength is supported by risk-adjusted capitalization that measures in the strongest category. However, some of the cells within Eastern Re fall short of supporting the overall company’s consolidated financial strength and remain a concern. Eastern Re’s specialization in alternative market workers’ compensation solutions and segregated portfolio cells creation and management was a growth engine for the entire ProAssurance Group. The company was put into run-off on Jan. 1, 2018, following the enactment of Tax Cuts and Jobs Act of 2017 and all but one of active clients moved into a new vehicle, Inova Re, Ltd. SPC (under PRA), which will be a 953(d) entity paying U.S. taxes.

Each of the rating units discussed above also benefits from the financial flexibility provided by PRA, the ultimate parent. PRA’s financial leverage is conservative, its interest coverage is strong and it holds cash and short-term investments outside of the insurance operating companies that are available for use without regulatory approval. At the same time, surplus growth at most rating units has been limited over the past five years by the payment of significant dividends to PRA, which they have utilized to pay shareholders’ dividends and repurchase company stock. Nonetheless, management remains committed to maintaining capital at the rated entities at levels commensurate with their ratings.

The FSR of A+ (Superior) and the Long-Term ICR of “aa-” have been affirmed with stable outlooks for the following members of the ProAssurance Group:

• ProAssurance Casualty Company
• ProAssurance Indemnity Company, Inc.
• ProAssurance Specialty Insurance Company, Inc.
• Medmarc Casualty Insurance Company
• Noetic Specialty Insurance Company
• Podiatry Insurance Company of America
• ProAssurance American Mutual, A Risk Retention Group

The FSR of A (Excellent) and the Long-Term ICRs of “a+” have been affirmed with stable outlooks for the following members of the Eastern Alliance Insurance Group:

• Eastern Alliance Insurance Company
• Allied Eastern Indemnity Company
• Eastern Advantage Assurance Company

This press release relates to Credit Ratings that have been published on A.M. Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see A.M. Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Understanding Best’s Credit Ratings. For information on the proper media use of Best’s Credit Ratings and A.M. Best press releases, please view Guide for Media - Proper Use of Best’s Credit Ratings and A.M. Best Rating Action Press Releases.

A.M. Best is a global rating agency and information provider with a unique focus on the insurance industry. Visit www.ambest.com for more information.

Copyright © 2018 by A.M. Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.

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A.M. Best

Jieqiu Fan, +1-908-439-2200, ext. 5372

Senior Financial Analyst

jieqiu.fan@ambest.com

or

Sharon Marks, +1-908-439-2200, ext. 5477

Senior Financial Analyst

sharon.marks@ambest.com

or

Christopher Sharkey, +1-908-439-2200, ext. 5159

Manager, Public Relations

christopher.sharkey@ambest.com

or

Jim Peavy, +1-908-439-2200, ext. 5644

Director, Public Relations

james.peavy@ambest.com

Source: A.M. Best