AM Best has downgraded the Financial Strength Rating to B (Fair) from A- (Excellent) and the Long-Term Issuer Credit Rating to “bb” (Fair) from “a-” (Excellent) of New York Schools Insurance Reciprocal (NYSIR) (Uniondale, NY). The outlook of these Credit Ratings (ratings) is negative.

The ratings reflect NYSIR’s balance sheet strength, which AM Best assesses as adequate, as well as its marginal operating performance, limited business profile and marginal enterprise risk management (ERM).

NYSIR’s balance sheet strength assessment has been revised downward to adequate from very strong due to the continued deterioration in risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), and policyholder surplus as of year-end 2023 and through the first quarter of 2024. NYSIR’s capitalization and surplus level continued to decrease primarily from additional reserve strengthening from higher-than-anticipated loss emergence on prior accident years, and storm-related property losses in 2023. NYSIR has experienced unfavorable loss emergence driven by adverse external factors impacting the general liability environment, most notably the Child Victims Act, as well as the impact of social inflation on liability claims costs.

NYSIR’s operating performance has been revised downward to marginal from adequate. Despite mitigation strategies put into place in recent years, the company’s operating performance has deteriorated below the adequate range as evidenced by declining underwriting and operating metrics. The high loss emergence from the impact of social inflation on liability claim costs, increased property loss costs, and higher-than-usual sexual assault and molestation claims led to poor results in 2023 following 2022 when NYSIR also had a significant overall loss. Loss results in 2023 also were driven by the continued effort to improve carried loss reserves from prior accident years, particularly on the general liability line of business. In addition, NYSIR’s property losses in 2023 drove deteriorating results and the elevated losses incurred during the year. Severity of claims in recent years has spiked also due to economic inflation contributing to the higher-than-average property losses.

NYSIR’s business profile has been revised downward to limited from neutral. As an insurance reciprocal, NYSIR’s mission is to help subscribers provide a safe environment for students, staff and visitors, and to assist in protecting their physical assets. NYSIR remains the leading insurer of public schools in New York offering property, general liability, automobile liability and physical damage, school board legal liability and excess catastrophe liability policies to school districts across 50 New York counties. However, due to high geographic concentration and segment risk, the reciprocal has been impacted by recent social and political events, which has exposed NYSIR to significant regulatory risk due to changes in legislation leading to deteriorating operating performance results and capital strength.

NYSIR’s ERM has been revised downward to marginal from appropriate. Although historically, the company’s ERM has been considered appropriate, NYSIR’s risk awareness and pricing management has come into question following significant reserve strengthening driving the decline in surplus and operating performance. NYSIR’s appropriateness over claims handling and reserving, along with management’s reactions to address the challenges in the market in which the reciprocal operates, has led to deterioration in the company’s overall balance sheet strength and operating performance. NYSIR has implemented risk mitigation strategies such as expanded control over reserving, revamped claims process, coverage and rate changes, and limit changes; however, it remains to be seen if NYSIR’s strategic initiatives will return performance back to historical results.

NYSIR continues to have strong support from highly rated reinsurance participants as the 2024 program was completed with ample capacity. In addition, NYSIR has strong support from its subscribers as retention remains strong despite significant rate and coverage changes recently put into place.

The negative outlooks reflect AM Best’s outstanding concerns surrounding the reciprocal’s ERM practices and initiatives put into place to turnaround operating results and strengthening NYSIR’s balance sheet. Further negative action could occur if the company’s balance sheet strength does not improve as a result of further surplus deterioration, unfavorable loss emergence, continued adverse development, weather related events, or decline in regulatory capital position. However, management is expecting its initiatives and strategy, which have been reviewed and approved by the New York State Department of Financial Services, to address the challenges NYSIR faces in its market and remain an integral part of the New York state public education market.

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