AM Best reports that the US medical professional liability (MPL) insurance segment continues to experience negative returns and an overall decline in policyholders’ surplus due primarily to unrealized losses stemming from volatility in the capital markets.
The rating agency notes 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 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,” explained David Blades, Associate Director for Industry Research and Analytics at 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 analysts, 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.
And 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.
“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,” concluded Sharon Marks, Director at 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.”
