AM Best Downgrades Nonprofits Insurance Alliance Group Ratings
AM Best has downgraded the Financial Strength Rating (FSR) to A- (Excellent) from A (Excellent) and the Long-Term Issuer Credit Ratings (Long-Term ICRs) to ‘a-‘ (Excellent) from ‘a+’ (Excellent) for the Vermont and California members of Nonprofits Insurance Alliance Group. The affected members include National Alliance of Nonprofits for Insurance, Inc., Alliance of Nonprofits for Insurance, Risk Retention Group, Inc. (both in Vermont), and Nonprofits Insurance Alliance of California, Inc.
The downgrade reflects a decline in the group’s risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), and increased unfavorable development of prior-year loss reserves, leading to a significant decline in surplus in 2024. AM Best noted that adverse reserve development was observed across multiple lines of business, including improper sexual misconduct liability, directors’ and officers’ liability, and commercial auto liability, exacerbated by social inflation and higher jury verdicts.
The substantial growth in premium over the last five years, driven by changes in the commercial insurance market, has pressured NIA’s underwriting leverage metrics and BCAR score. In response, NIA’s management has implemented corrective actions, including non-renewing problematic business segments, significant rate increases, revised limits, and increased deductibles, as well as staff changes. AM Best has adjusted its assessment of NIA’s business profile to neutral, acknowledging the potential for market disruption due to these actions.
The negative outlook on the ratings reflects concerns over NIA’s deteriorating operating performance in recent years. Prior to 2022, the group maintained consistent underwriting and operating metrics, but recent years have seen deterioration driven by elevated loss and loss adjustment expenses. AM Best warned that continued deterioration in operating performance or significant adverse loss reserve development could lead to further negative rating actions.
While unlikely in the intermediate term, positive rating actions could occur if NIA exhibits sustained organic surplus growth that can absorb variability in reserve development. The downgrade and negative outlook highlight the challenges faced by NIA in maintaining its financial stability amid evolving market conditions and internal adjustments.
