Best’s Market Segment Report: U.S. Medical Professional Liability Insurers Making Some Gains Despite Difficult Environment

OLDWICK, N.J.--(BUSINESS WIRE)--
Despite improved underwriting results and positive net income, the medical professional liability (MPL) insurance segment experienced negative returns and an overall decline in policyholders’ surplus due primarily to unrealized losses stemming from volatility in the capital markets, according to a new AM Best market segment report.

The Best’s Market Segment Report, “Difficult Environment for U.S. Medical Professional Liability Insurers,” states that the MPL segment incurred an underwriting loss of $261 million in 2022, which was lower than in the immediate previous years, but still the eighth consecutive year that the segment has posted an underwriting loss. The MPL industry’s year-over-year premium growth also flattened, although AM Best’s MPL composite, made up of insurers whose primary line is medical or hospital professional liability insurance, saw direct premium growth of 5.5%, to $8.8 billion, in 2022. This followed a 7.6% direct premium increase in 2021.

“The pressure for heightened rate increases due to capacity shortages in recent years mostly has dissipated, so growth for most MPL carriers has reverted back to average,” said David Blades, associate director, industry research and analytics, AM Best. “Some MPL specialists have taken on new business, while some still need to further reposition or trim their portfolios after acquiring other MPL carriers in prior years.”

According to the report, the MPL segment’s core client base is still being impacted by health care consolidation and the employment of physicians by hospitals, which often have their own captives or self-insurance mechanisms. Accordingly, premiums for physicians have declined steadily while premiums for hospitals saw significant growth, as well as some of the highest loss ratios, during the 2018-2022 period.

Despite positive net income of $786 million for the MPL composite in 2022, it was a decline of 15.1% from the previous year, due mainly to a significant decline in realized capital gains, though partially offset by the reduction in underwriting losses and growth in net investment income. Continued other income from ancillary fee-based services also helped offset the underwriting loss. As a result, pre-tax operating income grew significantly in 2022, after being relatively flat for three years, as declines in net investment income had largely counterbalanced modest moderation in underwriting losses from 2019 through 2021. The substantial unrealized losses and the decline in realized capital gains also were the primary driver for an 8.2% decline in policyholders’ surplus in 2022 to $19.9 billion.

“Fundamentally, MPL insurers need to maintain discipline pursuing premium adequacy to effectively combat headwinds, such as rising claims severity, the erosion of tort reforms in certain jurisdictions, high reinsurance costs and the impact of social inflation,” said Sharon Marks, director, AM Best. “Other risks remain on the horizon, including escalating burnout rates, staffing and supply shortages and further growth of alternative care providers. These potential threats could negate much of the progress the segment has made regarding pricing gains and loss ratio improvements over the last two years.”

To access this market segment report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=331393.

A panel of AM Best analysts and leading market executives will discuss the MPL segment in a complimentary market briefing scheduled for Wednesday, May 10, 2023, at 11:00 a.m. (EDT). To register, or for more information, please go to http://www.ambest.com/conferences/MPL2023/index.html.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

Copyright © 2023 by AM Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.

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David Blades
Associate Director, Industry

Research and Analytics

+1 908 439 2200, ext. 5422

[email protected]

Christopher Sharkey
Associate Director, Public Relations

+1 908 439 2200, ext. 5159

[email protected]

Sharon Marks
Director

+1 908 439 2200, ext. 5477

[email protected]

Al Slavin
Senior Public Relations Specialist

+1 908 439 2200, ext. 5098

[email protected]

Source: AM Best