AM Best affirms NICI ratings
AM Best has affirmed the financial strength rating of A (Excellent) and the long-term issuer credit rating of “a” (Excellent) of Utah-registered NiSource Insurance Corporation (NICI). The outlook of these ratings is stable.
The ratings reflect NICI’s balance sheet strength, which AM Best assesses as strong, as well as its strong operating performance, neutral business profile and appropriate enterprise risk management (ERM). The company’s ratings benefit from the implicit and explicit support it receives as a strategic component of its ultimate parent NiSource’s ERM.
NICI maintains the strongest level of risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR). The balance sheet assessment also considers the company’s ample liquidity measures, conservative reserving practices and investment strategy, along with the financial flexibility afforded by NiSource. NICI experienced consistently favourable reserve development on a calendar-year basis during the previous 10-year period. These attributes are offset by the high retention to surplus ratio, which is reflected in the limit the captive offers the parent.
The company’s strong operating performance assessment is supported by favourable combined and operating ratios that outperform AM Best’s commercial casualty composite. NICI’s strong operational results reflect loss ratios trending favourably, as well as a low underwriting expense structure, an inherent benefit of being a single-parent captive of NiSource. Through its niche captive orientation, risk management expertise and conservative underwriting criteria, NICI has generated favourable results at levels generally equal to or better than its industry peers, organically growing its surplus by three-fold in the last 10 years.
NICI is a single-parent captive insurer wholly owned by NiSource, providing all-risk property, workers’ compensation, excess general and automobile liability, medical stop-loss, long-term disability, group life insurance and punitive damage coverage for the parent and its affiliates. AM Best has taken a balanced view of NICI’s overall business profile, which albeit limited in scope, maintains inherent advantages as a single-parent captive with immediate access to business and resources along with the broader financial wherewithal of its ultimate parent. NICI plays a critical role in NiSource’s overall ERM framework, supporting the parent’s objectives through insuring key risks and ultimately supporting NiSource’s financing needs.
The stable outlooks for NICI reflect its appropriate risk-adjusted capitalisation and derived balance sheet strength assessment in insuring NiSource’s insurance needs/exposures through sustainable organic underwriting profits and surplus growth. The outlooks also reflect AM Best's expectation that the ability and willingness of NiSource to support NICI will not change.
Negative rating actions could occur if NICI’s operating performance declines and appears it could be trending consistently weaker, warranting a lower assessment. Negative rating actions also could occur if changes in the parent’s financial condition or operations reflect a potential change in its ability or willingness to support NICI. Conversely, positive rating actions may occur if the company's risk-adjusted capitalisation supports a higher assessment level due to ongoing organic surplus growth and an appropriate level of retentions to surplus offered to NiSource.
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