The U.S. medical professional liability insurance (MPLI) market saw an improvement in financial performance in 2021, but its combined ratio remained an unprofitable 108 and a return to profitability in unlikely, said Fitch Ratings.

Fitch said it expects results to improve in 2022 on the back on premium growth but “the competitive nature of the MPLI market and uncertainty on incurred-loss experience from economic volatility, higher inflation and any post-pandemic revival of litigation activity” remain as challenging headwinds.

Net written premiums grew to about $10 billion in MPLI in 2021 after a 10.4 percent annual increase—far above the 4 percent average over the prior three years. Fitch said a recent deceleration of rate increases in MPLI, among other liability lines, “adds concerns whether pricing can keep pace with loss cost trends.”

Courts are now returning to full operation following the pandemic. Fitch pointed to social inflation and high general inflation as reasons for loss-severity uncertainty.

Furthermore, Fitch added that demand for MPLI is expected to drop due to ongoing consolidation in the healthcare industry. The ratings agency cited a study from the Physicians Advocacy Institute that found more physicians are working for hospitals or corporate entities, which typically self-insure or use captives.

“Larger MPLI writers are adapting by expanding product offerings and services toward medical facilities, but many smaller regional carriers lack the expertise and capacity to move beyond physician coverage,” Fitch said. Over 55 percent of premiums are from specialty, MPLI-focused underwriters with limited geographic scope or opportunity to deploy additional capital outside of MPLI.

ProAssurance’s recent acquisition of NORCAL could signify more M&A activity in the space, but there are “still likely more active buyers than sellers” among MPLI underwriters, Fitch said.