AM Best has downgraded the Financial Strength Rating to A- (Excellent) from A (Excellent) and the Long-Term Issuer Credit Ratings to “a-” (Excellent) from “a” (Excellent) of Pharmacists Mutual Insurance Company (PMIC) and its wholly owned reinsured subsidiary, Chiron Insurance Company (Chiron). At the same time, AM Best has downgraded the Long-Term Issue Credit Rating to “bbb” (Good) from “bbb+” (Good) of the $25 million, 7.375% surplus notes, due 2039, issued by PMIC. The outlook of these Credit Ratings (ratings) has been revised to stable from negative. These companies are domiciled in Algona, IA and collectively called Pharmacists Mutual Insurance Group (PMIG or the group).

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 (ERM).

The rating downgrades reflect PMIG’s key operating performance metrics, which have weakened considerably in recent years and have shifted ultimately toward levels more closely aligned with carriers assessed at the marginal level as opposed to adequate. The deterioration in the group’s operating results has been driven primarily by elevated loss activity stemming from several catastrophe events, along with adverse reserve development on prior year claims given the surge in economic inflation that has driven loss costs upward. Particularly in 2023, results have remained volatile while the group focuses on its exit from the historically unprofitable personal lines sector, as incurred losses remain elevated with declines in premium, driving loss ratios upward. Through year-end 2023, the group is expected to post another combined ratio well above break-even, due to a sizable underwriting loss, as well as a corresponding decline in policyholders’ surplus.

In response to the volatility, management has implemented several corrective measures to facilitate improvement in its operating performance, as well as to provide stability from a capital perspective, including but not limited to, pricing actions on nearly all lines of business, strengthening of overall reserves, and revised underwriting guidelines. Further, the group is refining its risk appetite by exiting certain risk classes and geographic regions that have not been conducive to favorable results, with a renewed focus on PMIG’s historically profitable lines of business as a specialty writer of pharmacy and related health care risks. Although the overall effectiveness of these actions remains to be seen, AM Best expects that these initiatives should provide stability in key balance sheet strength metrics, which have fallen relative to earlier years in PMIG’s history.

Despite a moderate decline from prior years, the group maintains a very strong level of overall risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), as well as a comprehensive reinsurance program to mitigate severity of loss. PMIG’s neutral business profile reflects its effective and efficient marketing strategy and its market position as the largest independent insurer of pharmacists in the United States. The group’s ERM program remains appropriately commensurate with its risk profile, with a framework in place that is aimed at addressing and overcoming recent volatility.

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 use of Best’s Credit Ratings, Best’s Performance Assessments, Best’s Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best’s Ratings & Assessments.

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