OREANDA-NEWS. Fitch Ratings has affirmed the 'A' Insurer Financial Strength (IFS) ratings on The Doctors Company, an Inter-Insurance Exchange (Doctors) and its wholly owned insurance subsidiaries (see list below), collectively referred to as The Doctors Company Group (TDC). The Rating Outlook is Stable.

KEY RATING DRIVERS

TDC's ratings are based on above-average underwriting performance and profitability relative to medical professional liability insurance (MPLI) peers, favorable loss reserve levels, strong statutory capital position, and an operating strategy that is focused on long-term underwriting profitability.

Partially offsetting these positives is the company's business concentration in the at times more volatile medical professional liability (MPLI) line of business. While not anticipated over the ratings horizon, Fitch believes TDC, as a specialty largely monoline company, is exposed to adverse changes in MPLI market conditions or other industry dynamics.

The MPLI market includes many monoline MPLI writers that experienced strong capital growth in the last hard market and have limited underwriting opportunities outside of MPLI. Efforts to deploy capital by MPLI specialists is dampening market pricing and is likely to promote deteriorating MPLI market underwriting results going forward.

MPLI follows a unique underwriting cycle to other commercial insurance lines. Industry premium volumes are shrinking due to fundamental market changes and price competition. Health care providers are moving from independent and smaller group practices towards employment with hospitals and large medical groups that are more likely to self-insure and use captive or alternative risk programs, reducing demand for primary MPLI coverage.

The creation of TDC RRG allows TDC to effectively provide coverage and services to the larger integrated healthcare systems that can be multistate. TDC reinsures 90% of TDC RRG business thus providing capital support. TDC RRG also has common branding, management, and resources.

TDC reported a statutory calendar year and accident year combined ratio of 92.7% and 116.2% respectively as of year-end 2015 compared to prior period calendar and accident year combined ratios of 94.2% and 117.8% respectively.

Fitch views TDC's loss reserve position as modestly redundant and notes that the company has a history of favorable prior accident year reserve development. In particular, loss reserves are critically important for MPLI writers given the potential for reserve volatility due to changes in the litigation environment and inflation over time.

TDC has strong operating leverage at year-end 2105 of 0.4 times (x) and a Risk Based Capital (RBC) ratio of 466%. Financial leverage is modest at approximately 11% at year-end 2015. These ratios have persisted for several years, demonstrating management's commitment to balance sheet strength.

Within Fitch's rating rationale are multiple rating triggers. If TDC were to materially deviate from any of these items, especially for an extended period, the ratings could be affected.

RATING SENSITIVITIES

While TDC's quantitative metrics are more consistent with a higher rating category, Fitch's current view of the risk characteristics of MPLI specialists is a limiting factor for TDC's ratings. Fitch believes that a future ratings upgrade would be predicated on a significant expansion in TDC's market position and scale through profitable growth and diversification of business risk.

The following is a list of triggers that could lead to a downgrade:

--An increase in the company's operating leverage, as defined by net written premiums to policyholder surplus, of 1.0x or higher;

--Material adverse reserve development;

--A Prism capital model score below 'Strong' (currently 'Very Strong').

FULL LIST OF RATING ACTIONS

Fitch has affirmed the 'A' IFS ratings of the following TDC insurance subsidiaries with a Stable Outlook:

--Doctors Company, An Interinsurance Exchange;

--American Physicians Assurance;

--First Professional Insurance Company;

--OHIC Insurance Company (OHIC);

--TDC Specialty Insurance Company;

--Underwriter for the Professions Insurance Company (UPIC).

--The Doctors Company Risk Retention Group, a Reciprocal Exchange.

Fitch has also affirmed the following ratings:

Doctors Company, An Interinsurance Exchange

--Long-term Issuer Default Rating at 'A-';

--Surplus notes at 'BBB+'.