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This article by Barbara Fox was prepared for the March 26, 2003 edition of U.S. 1 Newspaper. All rights reserved.
Life in the Fast Lane
Medical insurers are feeling the sting from New Jersey’s
medical malpractice insurance crisis as they scramble to soothe nervous
customers and investors while their reputations are getting eclipsed
by the threat of exorbitant payouts resulting from malpractice suits.
Last month the influential insurance rating company A.M. Best downgraded
the financial strength indicator of Princeton Insurance Companies
based at 746 Alexander Road. This is the second downgrade for the
major New Jersey insurer within six months. Company officials say
the medical malpractice situation in the state is contributing to
its financial woes.
In February A.M. Best downgraded Princeton Insurance’s financial strength
rating from B-plus (good) to B-minus (fair), after a previous downgrade
last September from A-minus (excellent). Best had also downgraded
Princeton’s parent company, the New York City-based MLMIC Group, the
country’s largest medical malpractice insurer, from A-minus to B-plus-plus
(very good), saying the companies’ financials were "still under
review with negative implications."
"If the company is unable to improve its capitalization and profitability
in the near-term, the company’s rating could be lowered further,"
A.M. Best said in a press release. The downgrade, A.M. Best said,
"reflects Princeton Insurance’s marginal capitalization and deteriorating
Princeton has seen mounting losses — a 1998 net income of $13.2
million fell to a 2002 net loss of almost $58.8 million. The policyholders
surplus, from which claim payouts are taken, fell sharply from $141.6
million in 2001 to $107.2 million last year.
While some of the language used in these types of ratings might sound
like Aramaic to the average reader, a lowered rating ultimately puts
into question the insurers’ ability to pay claims. For medical liability
companies like Princeton Insurance, the root of the capitalization
problem is New Jersey’s medical malpractice crisis, now receiving
attention from state lawmakers and even from President George W. Bush.
As the threat of multimillion-dollar jury awards drives premiums up
and forces some doctors to leave the state or limit their practices,
insurers are expected to commit increasingly large amounts of money
just in case of the multimillion dollar suits.
"It has everything to do with the medical liability experience,"
says Bob Schultz, Princeton Insurance’s vice president of corporate
and customer relations. "We’re seeing significant increases in
loss severity and, as a result of that, the independent actuaries
that review our loss reserves have been asking not only Princeton
but companies across the medical liability industry to strengthen
their reserves because the payouts that we may have predicted we’d
be making in the future will probably be higher than predicted."
Princeton Insurance says it made some capitalization moves in the
fourth quarter last year, selling its workers compensation business
and withdrawing activities in four other states to cushion the fall.
"We initiated the sale of that workers compensation book of business
not to generate income to strengthen surplus but to remove premium
from our books, which improves the premium-to-surplus ratio,"
says Schultz. The premium-to-surplus ratio, he explains, reflects
the company’s ability to pay claims.
Princeton Insurance also withdrew its lines of business, particularly
in medical liability coverage, in four other core states — Pennsylvania,
Delaware, Virginia, and Maryland. This move will take another $45
million of premiums off of its books, Schultz adds.
Those factors could help during a review by A.M. Best that Princeton
Insurance hopes will take place at the end of this month.
"What they have done by reducing their premium base is they have
alleviated some of their leverage on their balance sheet. That does
give some relief from the standpoint of capitalization," says
Angela Quinn, a financial analyst with A.M. Best.
However, Princeton Insurance doesn’t expect its capitalization measures
to help it regain its former stellar Best ratings. "We think it
will be doubtful that they will make any adjustment upward," says
Schultz. "But certainly they will remove the `under review’ label.
They are putting that `negative implications’ on every medical liability
insurer because there is too much uncertainty that goes along with
those loss reserve issues."
Also hurting Princeton Insurance is the formation of
alternatives insurers like NJ PURE (U.S. 1, November 20, 2002), as
well as MIIX Advantage and a just-founded company in Woodbridge, Conventus
"The reality is we’ve got a situation with this medical liability
crisis where Princeton Insurance Companies in New Jersey is sort of
the big guy on the block and we have the most experience of any of
the carriers that are in this state," says Schultz. "We insure
by far the majority of doctors (over 8,100) and hospitals in this
state. I think all of our insureds are concerned to some extent. Not
only the crisis but also our A.M. Best rating gives them reason to
look at options."
Created in the midst of a similar medical liability crisis in the
mid 1970s, Princeton Insurance originally operated as a reciprocal
(in which the insureds effectively pool their premiums to pay claims)
called the Health Insurance Exchange. This entity was formed by New
Jersey hospitals at a time when there were no commercial insurers
willing to insure them. It changed its moniker to Princeton Insurance
after its decision to become a closed stock company still wholly owned
Another firm opening around the same time as the Health Insurance
Exchange that also operated as a reciprocal and has ended up hitting
a similar skid in recent years was MIIX (Medical Inter-Insurance Exchange)
formed by Garden State doctors, which saw part of its problems stem
from a decision to go public in the late `90s.
The MIIX Group (still traded on the NYSE as a penny stock but undergoing
a voluntary run-off) is currently readying itself for a possible class
action suit against it by shareholders angered by its decision to
stop writing new policies last year and reorganize into a new entity,
MIIX Advantage, which began operations last September, confining itself
only to insuring doctors in New Jersey.
The lawsuit was filed by a shareholder who had earlier filed an unsuccessful
suit against MIIX’s 1999 IPO. MIIX Chairman and CEO Patricia A. Costante
said in a press statement that she believes the new suit "is without
merit and we will defend it vigorously."
For 2002, MIIX saw a net loss of $116.0 million, or $8.67 per share,
down from $157.6 million, or $11.66 per share, for 2001. Its share
price has plummeted over 75 percent over the last year to $0.66 as
of close on March 16.
The firm attributes its financial pains to the same beast ravaging
other players in the medical liability community: the cost of payouts.
"We are currently operating in the most volatile medical malpractice
environment in recent history. There are at least a dozen states feeling
the serious effects of the medical malpractice insurance crisis, including
New Jersey, Pennsylvania, Ohio and New York. And a crisis is looming
in as many as 30 other states," she said.
"The average MIIX Insurance Company payout per case in New Jersey
has increased by 88 percent in the last five years. In February, we
experienced a $24.2 million jury verdict in Philadelphia, which is
reflected in the company’s fourth quarter financial results. Unpredictable
and extraordinary jury awards drive up settlement values of similar
cases and remove the stability that is essential in setting rates
and reserves," she said.
Best’s Quinn says the malpractice insurance problem is "definitely
a contributing factor" in the financial health of quite a few
medical liability companies. "I think in certain marketplaces
there is that evidence of weakened financial strength," she adds.
Medical liability players in one particular market — California
— have not been stung by the malpractice dilemma, she points out.
The Golden State, known by pundits pushing for legislative changes
to malpractice law as "the gold standard," is the only state
to have passed malpractice tort reform, putting caps on damages.
In this state, pressure from doctors and medical groups as well as
insurance companies has helped malpractice legislation make the rounds.
Last week the State Senate approved a bill that would put a $300,000
limit on doctors’ liability for so-called "pain and suffering"
in malpractice cases and the creation of a state fund that would pay
patients up to another $700,000. However, with the assembly unlikely
to pass the bill — seen as a compromise — many still feel
this will be an uphill battle.
"From our perspective," says Schultz, "we’d like to see
caps on non-economic damages but whether or not that ultimately will
be passed is probably unlikely. Trial attorneys are pushing very hard
from the other side, saying caps on economic damage probably won’t
have the effect that everyone’s telling them it will have. And
the debate goes on."
— Peter Mladineo
Five Princeton area companies have been chosen to exhibit
at New Jersey Technology Council’s Venture Fair, and three will be
making presentations. The fair is on Monday, March 31, 10 a.m. to
6:30 p.m. at Liberty Science Center in Jersey City. Cost: $190. Call
856-787-9700. But if five companies from Princeton sounds impressive,
consider that they represent less than 10 percent of the 57-company
Fidelia Technology offers NetVigil software for locating and identifying
problems on data networks and Internet sites. Knite, Inc., manufactures
ignition systems. Founded by Paul Kydd, Paralec develops and markets
very low temperature thick film material used to make printed wiring
boards on polymer substrates. Quantiva offers wide area network management
services for Internet businesses.
NanoOpto Corporation is one of the two firms founded by Stephen Chou,
the nano guru at Princeton University. NanoOpto designs and makes
components for optical networking with a process that is biologically
clean and can also be applied to data storage and other fields. A
sister company on Deer Park Drive, Nanonex, is making the machines
that NanoOpto and other companies can use for their nano manufacturing
A Sarnoff spinoff that has moved to Pennsylvania, Lamina Ceramics,
will also be represented.
205, Princeton 08543. Vikas Aggarwal, CTO and founder. 609-452-2225;
fax, 609-452-2662. Www.fidelia.com.
Corporate Plaza, Monmouth Junction 08852. Michael Krupit, president
and CEO. 732-329-0505; fax, 732-329-8334. Www.knite.com.
236, Rocky Hill 08553-0236. Steve Ludmerer, president. 609-279-0072;
fax, 609-252-1288. Home page: www.parelec.com
08540. Al Fink, president and CEO. 609-514-9540; fax, 609-514-8505.
Home page: www.quantiva.com.
08873. Barry Weinbaum, CEO. 732-627-0808; fax, 732-627-9886. Home
Road, Princeton 08540-0001. Judith D. Moore, president & CEO. 609-720-6500;
fax, 609-720-6550. Home page: www.chauncey.com
The Chauncey Group International won the contract to provide full
examination and registry services in New York State’s certification
program for nurse aides working in nursing homes. It will develop,
deliver, score and report both a written test and a clinical skills
performance-based test. This program is similar to those that the
Chauncey Group manages in Michigan, Florida, and Arkansas.
08619, Box 8627, Princeton 08540. Andy Quinn, CEO. 609-584-9696; fax,
609-584-2448. Home page: www.princetonoptronics.com
Princeton Optronics, Inc. will partner with Agility, Alcatel Optronics
and Bookham Technology to provide equipment manufacturers with standardized
tunable laser modules. Each will separately develop and market fully
compatible tunable sources, providing customers greater security of
supply while lowering their overall cost of ownership, says the press
Center, Suite 100, Princeton 08540-6235. Christopher B. Kuenne, president.
609-750-0347; fax, 609-580-4044.
The marketing consulting company moved from 103 Carnegie Center and
went from six to 25 employees. It offers marketing strategy development
based on high resolution segmentation.
Evansville, Indiana 47712. Ron Bonger, owner. 812-425-1099; fax, 812-425-1069.
An Indiana-based firm, Fire House, expanded to Princeton at Princeton
Meadows Office Center in 1992. Now it has moved that office back to
Indiana. It does graphic design and marketing, specializing in sales
promotion, event planning, and corporate identity development.
Gemini Drive, Beaverton 97008. Francis Sladen, vice president. 503-644-1960;
fax, 503-526-4700. Home page: www.pkinetics.com
Formerly known as GN Nettest, this eight-person office changed its
name to Photon Kinetics and moved from 139 Wall Street at the beginning
of January. The company has fiber optic instrumentation technology
for the telecommunications industry to analyze fiber and has also
been known as York Technology. "The office in Princeton has been
a satellite office for seven years," says Francis Sladen, vice
president of engineering. He has been with the company for 20 years.
Princeton 08540. Stuart Smith, managing partner.
After one year at this location, the consulting group closed. It did
restaurant design, building, and development, also core consulting
for the hospitality industry, with 50 employees nationwide.
670, Montreal, Quebec, Canada H4B2M8. 800-267-6611. Home page:
An office of Walsh Automation closed at HQ in Forrestal Village
last year and its business is being handled in Montreal. An Invensys
company, it works on process, IT, and automation projects for pharmaceutical
and petroleum industries.
Telford 18969. Bruce Ruhf, president. 215-258-5730; fax, 215-258-3353.
Home page: www.magspecinc.com
Magnetic Specialties Inc., which designs and fabricates components
that sense, control, and manage electrical energy, was bought by William
Jones and is now a division of Solar Atmospheres Manufacturing Inc.
The firm moved from 10,000 square feet at Albemarle Avenue in Trenton
to 7,000 feet in Telford, Pennsylvania, last fall. It has 10 employees.
802, Box 211, New York 10018. John G. Powers, publisher. 212-354-0670;
fax, 212-354-0736. Home page: www.scepterpub.org
John Powers closed the Princeton office of the publishing company
last fall. The firm publishes Catholic books and materials.
Box 2189, Edison 08818. Janice Fox, office manager. 732-632-6100;
Last fall the insurance services firm moved from Rossmoor Drive in
Jamesburg. Formerly known as the Tribus Financial Group, it was bought
out by First Union and is now called First Union Insurance Services.
About 50 people work in this office, which does employee benefits,
pension administration, cafeteria plans, executive compensation, and
Monmouth Junction 08552. Home page: www.funworksanimation.com
This graphic arts business has closed. It did clay and stop motion
animation for commercials, entertainment, and education.
Siting Board, 44 South Clinton Avenue, Station Plaza III, Box 410,
Trenton 08625-0410. Paul Wyszkowski, chairman. 609-777-4247; fax,
This office was searching for a community to volunteer to host New
Jersey’s federally mandated low-level radioactive waste facility,
and it closed on December 2. Further information is available at www.nj.gov/dep/rpp/llrw
08690. 609-586-3566; fax, 609-586-3152. Home page: www.planetvos.com
This office support system has closed. It did editing, data entry,
and basic web design.
8267, Princeton 08543-8267. 609-683-8513; fax, 609-683-8560.
This professional women’s group disbanded in January.
Robert B. Hargraves 74, on March 21. He had been a faculty member
in the geology department at Princeton University.
with Princeton Borough Police.
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