A.M. Best Downgrades MLMIC Group, Princeton Co., OHIC Co.

A.M. Best Co. has downgraded the financial strength rating to B++ (Very Good) from A- (Excellent) of MLMIC Group, which is based on the consolidated operating performance and financial condition of Medical Liability Mutual Insurance Company, and its wholly owned subsidiaries, Princeton Insurance Company, OHIC Insurance Company and Professional Liability Insurance Company of America. The rating
remains under review with negative implications.

Additionally, A.M Best has downgraded the financial strength rating to B (Fair) from B+ (Very Good) of the independently-rated Princeton Insurance Company and to B++ (Very Good) from A- (Excellent) of OHIC Insurance Company. Both ratings also remain under review with negative implications.

The rating action of MLMIC Group follows the decline in policyholders’ surplus at year-end 2001 and through the first nine months of 2002, driven by deterioration in operating results from the strengthening of loss reserves by $280 million, primarily in the group’s New York and New Jersey medical malpractice book of business and unrealized capital losses on the group’s investment portfolio.

Also, the rating action of Princeton Insurance Company reflects deterioration in operating results from the strengthening of loss reserves in 2001 and in the first nine months of 2002 (by $100 million) resulting from rapidly rising severity of losses, which nullified the benefit of the additional capital contribution of $40 million from its parent, MLMIC, during the first quarter 2002.

This, along with the strong growth in gross premiums written of more than 45 percent and decline in policyholders’ surplus by nearly 30 percent during the first nine months of 2002, has resulted in the company’s net and gross leverage measures increasing to a level that is higher than the medical malpractice industry composite.

Finally, the rating action of OHIC Insurance Company follows the recent reduction in investment income and weakening in overall capitalization driven by the decline in reported surplus and strong premium growth in 2002. Furthermore, OHIC Insurance Company is dependent on the financial support of its parent, which is experiencing financial difficulties.

Capitalization of MLMIC Group falls short of its current rating. It is also dependent on business from New York, making it highly susceptible to the unique regulatory environment in the state for medical malpractice companies as evidenced by its inability to obtain adequate physicians’ rates in 2002.

A.M. Best remains concerned regarding the adequacy of loss reserves given the reserve strengthening and current claim severity trends in the medical malpractice market.

As such, the ratings of MLMIC Group, Princeton Insurance and OHIC Insurance Company will remain under review with negative implications, pending the analysis of both the year-end 2002 financials and management’s ongoing capital enhancing efforts.