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 (listed below), collectively referred to as The Doctors Company Group (TDC). The Rating Outlook for all ratings 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 experienced management team that employs a conservative operating strategy focused on long-term underwriting profitability.

Partially offsetting these positives is the company's status as a monoline company that primarily operates in the volatile medical professional liability (MPLI) line of business, which limits the upside of TDC's ratings. While not anticipated by Fitch over the ratings horizon, Fitch believes TDC, as a specialty largely monoline company, is exposed to adverse changes in the MPLI market conditions or other industry dynamics.

The MPLI market's underwriting results continue to outperform other major commercial lines segments on a calendar year basis. However, more recently, MPLI combined ratios have deteriorated, while other commercial lines posted better results due to better premium rates and below average catastrophe related losses.

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 will restrict any potential for improving market conditions 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. This shift is changing purchase and coverage preferences for MPLI. Large groups are more likely to self-insure and use captive or alternative risk programs, reducing demand for primary MPLI coverage.

Through its subsidiary The Doctors Company Risk Retention Group (TDC RRG), TDC competes with the growing trend of larger integrated healthcare systems that can operate on a multistate basis. TDC reinsures 90% of TDC RRG business thus providing capital support. TDC RRG shares common branding, management, and resources with TDC.

TDC reported a statutory calendar year and accident year combined ratio of 92% and 108.4%, respectively, for the nine months ended Sept. 30, 2015 compared to prior period calendar and accident year combined ratios of 92.4% and 108% respectively.

TDC's calendar year underwriting results have been influenced by sizeable favorable reserve development for several years and thus analyzes underwriting results more so on an accident year basis to reduce the influence of reserve development when looking at profitability.

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 a MPLI company as the liability duration is amongst the highest in the property/casualty universe, with potential for reserve volatility due to changes in the litigation environment and inflation over time.

TDC has strong operating leverage at Sept. 30, 2105 of 0.4x and a Risk Based Capital (RBC) ratio of 430% as of year-end 2014. Financial leverage is modest at approximately 12% at Sept. 30, 2015. These ratios have persisted for several years, showing managements discipline 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 the MPLI market position is constraining TDC's ratings given TDC's monoline status. Fitch believes that a ratings upgrade in the near term is unlikely, barring a change in Fitch's broad view of the risks inherent in the MPLI industry.

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 'Extremely 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 Corporation;
--First Professionals 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+'.