AM Best has downgraded the Financial Strength Rating to A-(Excellent) from A (Excellent) and the Long-Term Issuer Credit Rating (Long-Term ICR) to “a-” (Excellent) from “a” (Excellent) of New York Schools Insurance Reciprocal (NYSIR) in (Uniondale. The outlook of these credit ratings (ratings) has been revised to negative from stable.
AM Best said the ratings reflect NYSIR’s balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management (ERM). The rating downgrades reflect the reduction in the NYSIR’s balance sheet strength assessment to very strong from strongest.
NYSIR issues 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.
NYSIR experienced a significant decrease in risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), primarily due to reserve strengthening in 2022 on older-year claims. NYSIR had a significant increase in ultimate loss estimates due to a change in the reciprocal’s actuary. The unfavorable loss emergence experienced was primarily driven by mis-estimations in loss costs related to New York’s Child Victims Act of 2019 claims, as well as a change in actuarial analysis assumptions for the general liability line of business. As a result, NYSIR’s operating performance metrics deteriorated due to the reduction in surplus in 2022, resulting in a significant increases in its underwriting and operating ratios.
Under the Child Victims Act, New York temporarily extended for two years the statute of limitations for survivors of child sexual abuse to sue churches, hospitals, schools, camps, scout groups, other institutions and individuals. By the time that window closed in August 2021, more than 9,000 lawsuits had been filed across the state.
In addition to reserve strengthening in 2022, the municipal insurer’s operating performance metrics were impacted by high loss emergence due to the clearing of a backlog of claims driven by COVID-19 court closures and delays, increased property losses and the impact of social inflation on liability claim costs.
AM Best said the negative outlooks reflect AM Best’s concern surrounding the company’s ERM. The ratings agency said there is potential for continued reserve strengthening on NYSIR’s older-year claims and the size of the reserve charge taken in 2022 raise questions as to risk awareness and the appropriateness of the reciprocal’s reserving and claims management practices, as well as loss-cost assumptions when setting pricing.
While NYSIR has been a market leader in risk management and safety protocols related to school risks in New York for more than 33 years, it remains to be seen if mitigation initiatives in place will return operating performance to historical results, according to AM Best.
As a leading insurer of public schools in New York since 1989, NYSIR benefits from its leading market position, strong subscriber retention and sponsorships by statewide education associations, AM Best noted.
Due to high geographic concentration and segment risk, the reciprocal has been impacted by recent social and political events, which exposes NYSIR to significant regulatory risk due to changes in legislation
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