A.M. Best Upgrades Ratings of Physicians Insurance Mutual Group and Its Members.

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

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

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

Partially offsetting these positive rating factors are the inherent challenges associated with largely being a single state, monoline insurer, particularly as they 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 global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers. For more information, visit www.ambest.com.