Thursday, May 29, 2003

BY DAVID RESS
Star-Ledger Staff

Princeton Insurance, the state's largest medical malpractice insurer, has tripped an early warning signal of financial distress.

The company, which covers more than half of New Jersey doctors, is being monitored by the state, which required it to write a plan to fix its financial problems, company, regulatory and financial sources said yesterday.

The reason for the regulatory crackdown is a sharp drop in its capital, the pool o money that guarantees an insurer's ability to pay claims.

Princeton's problem is one more sign of trouble in the business of insuring doctors against the risk their patients will sue them for poor or negligent care.

The cost of coverage has soared, and several insurers have shut their doors. Earlier this year, doctors shut their own doors for three days to demand caps on damages, while legislators and lobbyists have been wrangling for months about how to fix the market.

"Princeton is bearing the scars of this difficult market," department spokeswoman Mary Cozzolino said.

Company spokesman Bob Schultz said the insurer is taking steps to beef up its finances.

Princeton's financial strains led the state to approve an 18 percent rate increase earlier this month, on the heels of a 24.8 percent increase last November and a 15 percent increase in February 2002.

Still, Princeton lost $59 million last year. That cut its capital by 24 percent, to $107 million, despite a $40 million injection of funds from its parent, the filings show.

The drop in capital set off a regulatory alarm bell, leading regulators to demand an action plan to reverse the slide.

Last year's decline left Princeton's capital just a little above the point at which regulators could start telling company officials how to run their business.

The company had hoped the $40 million from its parent, New York-based Medical Liability Mutual Insurance, would help it handle a flood of doctors seeking coverage, according to Schultz.

Hefty rate increases and tighter rules about who would get coverage at other companies had sent thousands of doctors shopping, and Princeton hoped to take on much of that business.

But Schultz said the $40 million was eaten up by the need to boost reserves.

Princeton boosted reserves because it feared a trend of ever-bigger settlements meant it didn't have enough money put away to cover claims still working through the courts. After a mid-year review, Princeton added $60 million to reserves. After a follow-up analysis in the third quarter, it added another $40 million to reserves.

The big additions to reserves cut operating results, said Angela Quinn, an analyst at A.M. Best, the insurance rating agency. For an insurer growing the way Princeton was, that was worrying.

Best to cut Princeton's rating from a B+, or very good, to a B, or fair, in February. Princeton's rating remains under review, with a negative outlook, Quinn said.

Princeton is getting smaller to strengthen its balance sheet.

It sold its profitable workers compensation business, which accounted for about a third of premiums, last year.

"That was a tough decision to make," Schultz said.

But the sale means Princeton's smaller capital base is supporting a smaller business, which takes some pressure off.

Regulators, meanwhile, say other malpractice insurers have said they are interested in expanding in New Jersey.

A state program to help doctors get coverage has found policies for 50 of the 51 who have asked for help. The doctor who couldn't get coverage happened to be under investigation by the state board of medical examiners.