How Do We Rate?How Do We Rate?

Rating Actions on Medical Malpractice Companies and

Prospects for the Future

Robert D. Francis

Chief Operating Officer

The Doctors Company

• Effects of rating changes on the medical malpractice segment

• Review of ratings pattern since 1984

• Track the key rating variable

• Postulate near term outlook

American Phys Assurance

COPIC

The Doctors Company

FPIC

Health Care Indemnity

ISMIE

LAMMICO

MAG Mutual

Medical Assurance

MIEC (California)

MLMIC

Medical Mutual of NC

Medical Mutual of MD

Medical Protective

MHA Insurance Company

MICA (AZ)

PIC Wisconsin

Physician Insurance (WA)

Preferred Professionals Insurance

ProNational

SCPIE

State Volunteer Mutual

Utah Medical

Companies AnalyzedCompanies Analyzed

Average Ratings of Rated Average Ratings of Rated Peer GroupPeer Group

1984 1987 1990 1993 1996 1999 2002 2005

Source: Best's Aggregates & Averages

A++

B

B+

B++

A-

A

A+

Medical Malpractice Industry Medical Malpractice Industry CycleCycle

0%

20%

40%

60%

80%

100%

120%

140%

160%

180%

1976 1981 1986 1991 1996 2001

Combined Ratio Operating Ratio

Source: Best's Aggregates & Averages

2005

Initial Ratings PhaseInitial Ratings Phase

0%

20%

40%

60%

80%

100%

120%

140%

160%

1983 1988 1993 1998 2003

Operating Ratio

10 8

Stability and UpgradesStability and Upgrades

0%

20%

40%

60%

80%

100%

120%

140%

160%

1983 1988 1993 1998 2003

Operating

11 25

DowngradesDowngrades

0%

20%

40%

60%

80%

100%

120%

140%

160%

1983 1988 1993 1998 2003

Operating

25 16

Companies Upgraded in Companies Upgraded in 2006 (for 2005)2006 (for 2005)

• The Doctors Company

• American Physicians Assurance

• Medical Protective

Companies Upgraded in Companies Upgraded in 2006 (for 2005)2006 (for 2005)

Operating Ratio Leverage Ratio

The Doctors Company 72% 3.3

American Phys 73% 3.6

Med Pro 121% 2.9

Peer Average 89% 4.3

The Doctors Company The Doctors Company Ratings ChangesRatings Changes

0%

20%

40%

60%

80%

100%

120%

140%

160%

1984 1989 1994 1999 2004

Industry Operating RatioTDC Operating Ratio

Source: Best's Aggregates & Averages

A

A+ A

A-B++

A-

Key Elements in Rating Key Elements in Rating DecisionsDecisions

• Operating ratio clearly leads the group of key metrics

• Combined ratio and leverage ratio are also important

• Current rating

• Performance relative to the industry

• Pattern of performance

Final ThoughtsFinal Thoughts

• Medical malpractice carriers are less sensitive to rating changes though sensitivity increases with market softness and account size

• Few upgrades likely in 2007

• Some possible in 2008