AM Best Removes Under Review Status of Iowa’s Pharmacists Mutual

AM Best has removed from under review with negative implications and affirmed the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Ratings of “a-” (Excellent) of Pharmacists Mutual Insurance Company (PMIC) and its wholly owned reinsured subsidiary, Chiron Insurance Company (Chiron). Concurrently, AM Best has removed from under review with negative implications and affirmed the Long-Term Issue Credit Rating of “bbb” (Good) on the $25 million, 7.375% surplus notes, due 2039, issued by PMIC.

These companies are domiciled in Algona, Iowa and collectively referred to as Pharmacists Mutual Insurance Group (PMIG). The outlook assigned to these Credit Ratings (ratings) is stable.

The ratings reflect PMIG’s balance sheet strength, which AM Best assesses as very strong, as well as its marginal operating performance, neutral business profile and appropriate enterprise risk management.

The ratings were initially placed under review with negative implications in March of 2024, following substantial weakening in PMIG’s key balance sheet strength metrics and its policyholders’ surplus, as well as management’s intent to address these issues through various capital management strategies.

Effective June 1, 2024, PMIG pursued one of these initiatives and entered into a multiple-line quota share reinsurance agreement, which provides for 45% quota share reinsurance on its umbrella, equipment breakdown, cyber, EPLI and EAM primary coverages. This reinsurance agreement effectively reduces its retention on individual losses from $1 million to $550,000. Participation in this agreement provided immediate capital relief of nearly $9 million.

Still, the negative outlooks consider the execution risks associated with PMIG’s additional initiatives surrounding its balance sheet strength. AM Best’s expectation for the near term is for continued improvement in the group’s reserving trends, policyholders’ surplus growth and overall levels of risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR) over the near term. Management has significantly refined its underwriting appetite and exited particular lines of business and geographic locations.

AM Best said these decisions are the result of management’s focus on only underwriting healthcare verticals that support sustainable profitability and align with the company’s underwriting expertise.