A.M. Best has affirmed the financial strength rating (FSR) of A- (Excellent) and issuer credit rating (ICR) of “a-”of the property/casualty subsidiaries of National General Holdings Corp. (National General Holdings) [NASDAQ: NGHC] (headquartered in New York), also known as National General Group (National General). Concurrently, A.M. Best has affirmed the ICR and senior debt ratings of “bbb-” of National General Holdings. The outlook for all ratings is stable. (See below for a detail list of the companies and ratings.)
These rating actions take into consideration the completed equity offerings of National General Holdings in June 2013 and February 2014, and their beneficial impact on overall financial flexibility, liquidity and improved statutory risk-adjusted capitalization of National General. Gross proceeds from the offerings were approximately $420 million, of which approximately $225 million will be contributed to National General. With the contribution, National General intends to bolster statutory surplus to support the additional premium volumes retained as a result of the run-off of its third-party quota share treaty, effective Aug. 1, 2013, as well as assumed premiums from the Tower Personal Lines Cut-Through Reinsurance Agreement entered into in the first quarter. Additionally, the affirmation of National General’s ratings reflect its solid risk-adjusted capitalization, the historically profitable operating performance of the company’s personal lines, a well-established market presence and an increase in efficiency and pricing sophistication from a recently completed system enhancement, which will enable the group to process the increased premium volume.
These positive rating factors are partially offset by declining operating income in recent years, primarily driven by decreasing underwriting results due to increased loss frequency, loss reserve strengthening and weather-related losses. In addition, the execution risk on business assumed through the aforementioned Tower transaction, including the increase in the group’s property exposures, could result in increased variability in results, driven by the vagaries of weather and catastrophe events. However, this risk is somewhat mitigated through a strong reinsurance program.
Key rating factors that may lead to future positive rating actions include the group outperforming its projections and peers over an extended period of time. However, negative rating actions could result if the group’s operating performance falls short of expectations or its risk-adjusted capitalization declines to a level that no longer supports the ratings of its members.
The FSR of A- (Excellent) and ICRs of “a-” have been affirmed for the following property/casualty subsidiaries of National General Holdings Corp.:
- New South Insurance Company
- National General Assurance Company
- Integon National Insurance Company
- Integon Indemnity Corporation
- Integon General Insurance Corporation
- MIC General Insurance Corporation
- National General Insurance Company
- National Health Insurance Company
- Integon Casualty Insurance Company
- Integon Preferred Insurance Company
- National General Insurance Online Inc.
- Personal Express Insurance Company
The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.
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Senior Financial Analyst
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Michael Lagomarsino, CFA
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