Medical Professional Liability Insurers Face Challenging Environment

The medical professional liability (MPL) insurance segment experienced negative returns and a decline in policyholders' surplus in 2022, despite improved underwriting results and positive net income, according to A.M. Best.

In a Best's Market Segment Report, "Difficult Environment for U.S. Medical Professional Liability Insurers," the rating agency said the MPL segment's performance was attributable primarily to unrealized losses resulting from volatility in the capital markets.

The MPL segment experienced a $261 million underwriting loss in 2022, Best said, which, while lower than in the immediate years prior, was still the eighth consecutive year the segment posted an underwriting loss.

The segment's year-over-year premium growth also flattened, Best said, though A.M. Best's MPL composite, which is made up of insurers whose primary line is medical or hospital professional liability, saw a 5.5 percent increase in direct premium written in 2022 to $8.8 billion. That followed a 7.6 percent increase in direct premium written by the composite group in 2021.

"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," David Blades, associate director, industry research and analytics at A.M. Best, said in a statement. "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 the Best report, the medical professional liability segment's core client base is still feeling the impacts of healthcare consolidation and the employment of physicians by hospitals, which often have their own captive insurance companies or self-insurance mechanisms. Along with that trend, Best noted, premiums for physicians have declined steadily while hospital premiums saw significant growth—and some of the highest loss ratios—during the period from 2018 to 2022.

While Best's MPL composite reported $786 million in net income in 2022, that was down 15.1 percent from 2021, mainly due to a significant decline in realized capital gains, the rating agency said, though that was offset somewhat by the reduction in underwriting losses and growth in net investment income.