31 March 2023Analysis

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 NiSource Insurance Corporation, (NICI). The outlook of these credit ratings is stable.

The ratings reflect NICI’s balance sheet strength, which AM Best said that it assesses as very strong, as well as its strong operating performance, neutral business profile and appropriate enterprise risk management.

NICI’s balance sheet strength assessment of very strong reflects the strongest level of risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR), as well as the company’s strong liquidity measures, conservative investment philosophy and history of favourable reserve development. The combined and operating ratios have outperformed the industry averages, due to a low underwriting expense structure and loss ratios trending favourably.

Since inception, NICI has generated profitability at levels generally equal to or better than its industry peers. Over the years, retained earnings have bolstered NICI’s balance sheet strength with future earnings expected to produce more of the same, complements of its niche captive orientation, risk management expertise and conservative underwriting criteria; consequently, the stable outlooks.

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 and group life insurance 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.

Downward rating pressure could result from a decline in the company’s operating performance, an increase in underwriting leverage or an outsized loss event that triggers a sudden decline in risk-adjusted capitalization. In addition, rating pressure could occur if there are any sudden and material changes in the financial and credit profile of the parent.