i work in the commercial insurance industry (property & casualty) and this type of non-renewal is completely within the authority of the company to do.
underwriters typically try to fight for their clients, but the higherups make the calls on what types of business to non-renew or flat out cancel.
none of the companies we work with would ever take on the liability of firearms instructors. we write firing ranges from time to time, and pawn shops that buy/sell guns, but even then they require exclusions against any gunsmithing.
then again, the case in question might be complete bias. if thats the case, and there is no documentation from management about reducing the risks covered, then the Division of Insurance will investigate. and any company/agent HATES the idea of the DOI jumping on them, because the DOI wont just investigate them for that one thing, they'll want to look at EVERYTHING and review every insureds policy. the DOI fines are very costly.