AM Best recently downgraded the financial ratings of the members of the Non-profit Insurance Alliance Group (NIA). The financial strength rating (FSR) of the members of Vermont and California has been downgraded from A (Excellent) to A- (Excellent), and the long-term issuer credit rating (ICR) has been downgraded from “a+” to “a-“. This adjustment reflects the decline in NIA’s risk-adjusted capital level and a significant reduction in earnings in 2024, mainly due to the intensification of unfavorable reserve developments in business areas such as liability for improper sexual conduct, while premium growth also exerts pressure on the underwriting leverage indicator.
AM Best pointed out that NIA has taken measures including adjusting business departments and raising rates, but it will take a long time to reverse the performance. The negative outlook stems from concerns over deteriorating operations. If the loss provisions continue to increase or the corrective measures fail to meet expectations, the rating may be further downgraded. Although there is unlikely to be a positive adjustment in the short term, if the surplus grows steadily in the future, the rating may be improved.
The balance sheet strength of NIA is still evaluated as “strong”, but the decline in underwriting performance is due to rising social inflation and the cost of jury decisions. The rating agency emphasized that the reform of the management might cause short-term fluctuations in the market and the subsequent effects need to be closely monitored.
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