OLDWICK, N.J.--(BUSINESS WIRE)--
A.M. Best Co. has assigned a financial strength rating (FSR) of A-
(Excellent) and an issuer credit rating (ICR) of "a-" to American
Physicians Insurance Company (API). A.M. Best also has assigned an ICR
of "bbb-" to API's parent holding company, American Physicians Service
Group, Inc. (APS) (both of Austin, TX) (NASDAQ: AMPH). The outlook for
all ratings is stable.
These ratings reflect API's strengthened risk-adjusted capital
position, historically favorable operating performance, experienced
management team and strong policyholder retention. These rating
factors are primarily derived from API's longstanding commitment for
over 30 years to Texas healthcare practitioners. Due to management's
broad knowledge of the market, extensive physician involvement and
strong focus on customer relationship management, API has been able to
renew approximately 90% of policyholders on an annual basis, while
simultaneously producing generous returns on revenue and surplus. In
addition, recent returns have been enhanced by the favorable impact
that comprehensive tort reform has had on underwriting results since
its passage in 2003. The rating outlook is contingent upon API's cycle
management capabilities, price discipline and ability to manage
exposure growth in a profitable manner in Texas and its recently added
market of Oklahoma.
The ratings also reflect the benefits derived from API's status as
a newly acquired wholly owned subsidiary of APS. This transaction has
provided API with financial flexibility and access to capital that it
previously did not possess as the former American Physician Insurance
Exchange (APIE). These benefits were demonstrated in second quarter
2007 when a secondary offering and over allotment of APS common stock
generated $36 million in net proceeds, $10 million of which was
contributed to API to enhance its capital position.
Partially offsetting these positive rating factors are the
inherent market risks associated with being predominantly a single
state, monoline medical malpractice insurer as they relate to price
competition, loss cost trends and regulatory challenges. Although
competition has increased due to the favorable tort reform in Texas
and price compression has become evident, A.M. Best does not expect
significant levels of margin compression in the near term. API also
has substantially grown its exposure base over the last few years,
which has led to additional risks in the pricing, claim and reserving
areas. However, these risks are mitigated by the company's
conservative reserve position and strong risk-adjusted capital
position.
Since inception, API was managed by its attorney-in-fact, APS
Facilities Management (FMI), a wholly owned subsidiary of APS.
Effective April 1, 2007, API became a wholly owned subsidiary of APS
in a stock transaction that involved total consideration of
approximately $45 million, consisting of approximately 2.0 million
common shares and $9.2 million worth of preferred shares. The
preferred stock, which is scheduled to be redeemed at a rate of $1
million per year with a 3% annual dividend, was issued to API
policyholders who made refundable surplus contributions prior to 1992
and represents the sole source of APS' modest financial leverage of
approximately 7% (total debt/total capital).
For Best's Ratings, an overview of the rating process and rating
methodologies, please visit www.ambest.com/ratings.
Founded in 1899, A.M. Best Company is a global full-service credit
rating organization dedicated to serving the financial and health care
service industries, including insurance companies, banks, hospitals
and health care system providers. For more information, visit
www.ambest.com.
Source: A.M. Best Co.
Contact: A.M. Best Co.
Analysts:
Gregory Williams, 908-439-2200, ext. 5815
gregory.williams@ambest.com
Joseph Roethel, 908-439-2200, ext. 5630
joseph.roethel@ambest.com
or
Public Relations:
Jim Peavy, 908-439-2200, ext. 5644
james.peavy@ambest.com
Rachelle Morrow, 908-439-2200, ext. 5378
rachelle.morrow@ambest.com