A.M. Best Upgrades Ratings of FPIC Insurance Group, Inc.

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A.M. Best Co. has upgraded the financial strength rating (FSR) to A- (Excellent) from B++ (Good) and the issuer credit ratings (ICR) to “a-� from “bbb+� of FPIC Insurance Group (FPIC) and its four pooled members, which are led by First Professionals Insurance Company, Inc. (Jacksonville, FL). Concurrently, A.M. Best has upgraded the ICR to “bbb-� from “bb+� and the various indicative debt ratings of FPIC’s publicly-traded parent, FPIC Insurance Group, Inc. (Jacksonville, FL) [NASDAQ: FPIC]. The outlook for all ratings is stable. (See below for a detailed list of the ratings.)

These rating actions follow FPIC Insurance Group, Inc’s fourth quarter earnings announcement and takes into consideration the earnings reported in that quarter, as well as management’s progress over the past several years, which has led to a much improved book of business, less reinsurance dependence and a more robust balance sheet.

The rating upgrades also reflect FPIC’s excellent statutory risk-adjusted capitalization, solid operating prospects going forward, its specialty expertise and leading business position within the medical professional liability insurance sector, and the financial flexibility afforded by its parent whose financial leverage (total debt and preferred stock/total capital) is a modest 13.9%. FPIC Insurance Group, Inc’s interest coverage is also within bounds for its ratings.

The ratings also recognize the actions by management to streamline the organization, which presently operates solely in the insurance underwriting segment, and expand its focus on selected markets within that segment whereby FPIC can capitalize on its market knowledge, well established reputation and significant market presence.

Offsetting these rating strengths are the inherent challenges associated with largely being a single state, monoline medical malpractice insurer, particularly as they relate to price competition, legislative (tort) reform, loss cost trends and regulatory challenges. Given its core medical malpractice focus, A.M. Best believes FPIC will experience some level of price erosion. However, A.M. Best does not expect any significant level of margin compression in the near term. Despite the increased competition, the stable outlook is contingent upon FPIC’s cycle management capabilities and price discipline.

Over the years, FPIC has been the beneficiary of compounded annual rate increases and favorable claim frequency and severity trends. Management’s stronger stance on claims defense and enhanced underwriting standards has also led to FPIC’s recent turnaround. Despite continued upward development in prior year reserves, mainly accident years 2001 and 2002 (primarily due to higher Allocated Loss Adjustment Expense (ALAE) estimates that are a result of FPIC’s aggressive claim defense strategy), overall development has been favorable.

FPIC Insurance Group, Inc. streamlined its operation through the disposition of its insurance management operations in September 2006 and third party administration (TPA) operation in May 2005. Also, the organization has benefited from the commutation of the Hannover Re net account quota share agreement, effective December 31, 2006, given the good performance of the underlying business as well as the elimination of future interest charges. Additionally, the organization has benefited from the commutation of all reinsurance agreements with Physicians’ Reciprocal Insurers, effective January 1, 2007, which resulted in a statutory gain and the removal of volatility in FPIC’s reserve position and financial results.

FPIC operates in a medical malpractice market where companies are subject to adverse industry risk factors such as heightened loss severity, and experience can vary depending on local legal and regulatory environments. Despite these risk factors, FPIC benefits from its long-standing localized market knowledge in its core markets. FPIC has increased its writing of Florida physicians when measured by policy count; however, the overall impact on gross exposures is moderated due to lower policy limits, the halting of fronting programs and reduced writings in non-core states.

The FSR has been upgraded to A- (Excellent) from B++ (Good) and the ICRs have been upgraded to “a-� from “bbb+� for FPIC Insurance Group and its following pooled members:

* First Professionals Insurance Company, Inc.
* Anesthesiologists Professional Assurance Company
* Interlex Insurance Company
* Intermed Insurance Company

The ICR has been upgraded to “bbb-� from “bb+� for FPIC Insurance Group, Inc.

The following indicative ratings available under shelf registration have been upgraded:

FPIC Insurance Group, Inc.—

— to “bbâ€? from “bb-â€? on the preferred stock debt

— to “bbb-â€? from “bb+â€? on the senior unsecured debt

— to “bb+â€? from “bbâ€? on the subordinated debt

FPIC Capital Statutory Trust IV and V—

— to “bbâ€? from “bb-â€? on trust preferred securities

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.
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