AM Best has maintained the under review with developing implications status for the Financial Strength Rating (FSR) of A- (Excellent) and the Long-Term Issuer Credit Ratings (Long-Term ICR) of “a-” for the members of NORCAL Group (NORCAL). (See below for a detailed listing of the companies.)

Originally, NORCAL’s Credit Ratings (ratings) were placed under review with developing implications on Dec.10, 2019, and the under review status was revised to developing on Feb. 26, 2020, following an announcement that ProAssurance Corporation [NYSE:PRA] planned to acquire NORCAL, upon its demutualization, in the fourth quarter of 2020. The under review status also considered the potential for additional reserve charges that had resulted in rating downgrades on Dec. 10, 2019.

Following a lengthy regulatory review process due to delays related to the pandemic, the acquisition closed on May 5, 2021. As part of its demutualization, $191 million of NORCAL’s policyholders surplus, which was approximately $543 million as of year-end 2020, was converted to contribution certificates, which negatively impacts risk-adjusted capitalization, as measured by Best’s Credit Adequacy Ratio (BCAR).

The developing implications reflect the potential for NORCAL’s ratings to be lowered if the balance sheet strength assessment were to decline due to changes in capitalization. However, now that the transaction has consummated, there also is the potential for NORCAL’s ratings to be stabilized or enhanced once the level of explicit and/or implicit support from ProAssurance can be determined following further discussions with management.

The ratings will remain under review pending further discussions with NORCAL’s new parent so that AM Best can fully assess the financial and operational impacts of the acquisition.

The FSR of A- (Excellent) and the Long-Term ICRs of “a-” remain under review with developing implications for the following members of NORCAL Group:

• NORCAL Insurance Company (formally known as NORCAL Mutual Insurance Company)
• NORCAL Specialty Insurance Company
• Medicus Insurance Company
• FD Insurance Company
• Preferred Physicians Medical Risk Retention Group, a Mutual Insurance Company

This press release relates to Credit Ratings that have been published on AM Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best’s Credit Ratings. For information on the proper media use of Best’s Credit Ratings and AM Best press releases, please view Guide for Media - Proper Use of Best’s Credit Ratings and AM Best Rating Action Press Releases.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

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