A.M. Best Affirms and Assigns Ratings to Physicians Insurance Mutual Group; Revises Outlook to Positive.

OLDWICK, N.J. -- A.M. Best Co. has affirmed the financial strength rating (FSR) of B++ (Good) and assigned an issuer credit rating (ICR) of "bbb+" to Physicians Insurance Mutual Group and its members, Physicians Insurance A Mutual Company and its reinsured subsidiary, Western Professional Insurance Company. The outlook for the FSR has been revised to positive from stable, and the outlook assigned to the ICR is positive. All companies are domiciled in Seattle, WA.

The ratings reflect Physicians Insurance Mutual Group's excellent risk-adjusted capitalization, conservative reserving philosophy, aggressive claims defense position and implementation of re-underwriting initiatives contributing to much improved operating profitability and growth in policyholders' surplus since 2002. The rating also recognizes Physicians Insurance A Mutual Company's specialty expertise and leading business position in writing professional liability insurance for health care providers in Washington. It is the leading provider of medical malpractice coverage in the state, with approximately 65% of the available market.

The Physicians Insurance Mutual Group responded to the adverse loss trends, which were primarily responsible for the large underwriting loss and resulting 30% decline in policyholders' surplus in 2002 through aggressive re-underwriting initiatives, including compounded rate increases, a reduction in policyholder count and withdrawing from the hospital business in Washington and business written in Montana.

Offsetting these positive rating factors are the inherent challenges associated with largely being a single state, monoline medical malpractice insurer, particularly as the challenges relate to price competition, legislative (tort) reform, loss cost trends and regulation.

The rating outlook reflects the improvement in operating performance and risk-adjusted capitalization. Critical to this outlook is Physician Insurance Mutual Group's pricing and underwriting discipline as competition increases.

For Best's Ratings, an overview of the rating process and rating methodologies, please visit www.ambest.com/ratings.

Founded in 1899, A.M. Best Company is a full-service credit rating organization dedicated to serving the financial services industries, including the banking and insurance sectors. For more information, visit www.ambest.com.