Best’s Market Segment Report: Underwriting and Reserving Pressures Build on U.S. Medical Professional Liability Industry

The U.S. medical professional liability (MPL) segment continues to
produce favorable results, with better-than-average profitability for
more than a decade; however, according to a new AM Best special
report, the MPL market remains pressurized, resulting in a long-term
trend of declining premiums, rising underwriting ratios and diminishing
reserve redundancies.

The Best’s Market Segment Report, titled, “MPL Industry Results
Improved in 2018, But Challenges Remain,” states that while many
financial metrics look encouraging for the MPL segment, a host of issues
are infringing on the market. These challenges include the evolution of
health care delivery systems; growing concerns about cyber
liability/security; the opioid crisis; mergers and acquisitions;
diversification; and tort reform. Additionally, a growing numbers of
doctors have moved from working as solo practitioners or in small
practices to being employed by hospitals or other large medical
organizations. Given these headwinds, AM Best is maintaining a negative
market segment outlook on the MPL segment, with the overarching theme
being shrinking demand and prolonged soft-market conditions.

The property/casualty industry’s top 20 MPL writers, based on statutory
direct premiums written (DPW), accounted for 69.9% of direct premium
volume in 2018. DPW for AM Best’s MPL composite was up 3.2% in 2018, to
$7.4 billion. Overall earnings were boosted by higher investment gains
and lower taxes. The composite’s underwriting loss in 2018 was slightly
worse than that experienced in the previous year, and the combined
ratio, after policyholder dividends, deteriorated to 102.3 from 101.1 in
2017. However, despite another year of net underwriting losses, net
income increased in 2018, by 55% to $1.8 billion due to increases in net
investment income and realized capital gains. The positive impact of
prior-year loss reserve development on MPL business has been diminishing
in recent years, but the composite’s calendar year underwriting results
still benefited operating profitability for the segment.

Since 2010, the MPL segment’s one-year reserve development has been
running off redundant. However, the release of prior-year reserves has
been decreasing, and the amount released as a percentage of the prior
year’s original calendar-year reserves booked also has been decreasing.
Despite favorable reserve development year over year, indications are
that there is a clear erosion in the level of redundancy for the
segment. AM Best believes that current reserve redundancies will allow
insurers to continue to report favorable reserve development in the near
term, but at a lower level than reported in calendar-year 2018.

AM Best notes the impact innovative technological advancements have had
on the medical field, and as an extension, the MPL market. AM Best
believes that innovation is critical to insurers’ future success and
that they must use it to attract and retain customers, as well as
improving efficiencies and gain a competitive advantage. While
technological developments tend to be the innovations that garner the
most recognition, innovation is not all about technology. Many insurers
have found nimble ways to adapt to the dynamically changing market
environment without having to become sophisticated technology players.

To access the full copy of this market segment report, please visit

AM Best is a global rating agency and information provider with a
unique focus on the insurance industry. Visit
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