A.M. Best has affirmed the financial strength ratings of A- (Excellent) and the issuer credit rating (ICR) of “a-” of Integon National Insurance Company and its pooling affiliates (collectively referred to as National General Group), Agent Alliance Insurance Company and Century-National Insurance Company. The companies are subsidiaries of National General Holdings Corp. (NGHC) [NASDAQ:NGHC] (headquartered in New York, NY). A.M. Best has also affirmed the ICR of “bbb-” of NGHC and its issue ratings and indicative issue ratings. The outlook for each rating is stable. (See below for a detailed listing of companies and ratings.)
The rating affirmations of National General Group’s members reflect their supportive level of risk-adjusted capitalization, the group’s generally profitable operating performance, its well-diversified and substantial business profile in the personal lines market and its scalable operating platform, which has enabled the group to substantially increase its premiums in recent years without similar increases in underwriting expenses. The ratings also consider the financial flexibility of NGHC, as demonstrated by a series of capital raises in recent years. While these capital raises have been used primarily to fund acquisitions, they have also been used to increase the surplus of the National General Group members to support additional retention of premium previously ceded to related and unaffiliated reinsurers.
The positive rating factors are partially offset by variability in the group’s statutory underwriting and operating performance, although concern with respect to this variability is somewhat offset by the group’s generation of fee income. The group has an increasing exposure to weather-related losses as it expands its homeowners business, although the group’s strong reinsurance program somewhat mitigates this concern.
The rating affirmations of Agent Alliance reflect its strong level of risk-adjusted capitalization and its strategic role in providing surplus lines capacity to support the business of its affiliates within the NGHC enterprise. The ratings also reflect the explicit financial support from NGHC in the form of a capital contribution to achieve its business plan. Offsetting these factors are the risks inherent in the company’s business plan, including its business concentration in Florida property and the challenging environment for lender-placed insurance business in recent years.
The rating affirmations of Century-Nation reflect the company’s strong level of risk-adjusted capitalization, sound liquidity and management’s extensive knowledge of its local marketplace. These positive factors are partially offset by the company’s recent underwriting volatility and geographic concentration of risk.
The ICR of NGHC and its associated issue and indicative issue ratings reflect the company’s financial leverage, with adjusted debt to total capital (less accumulated other comprehensive income) measuring 29.1% at June 30, 2016. This is within A.M. Best’s guidelines for the ratings, as is interest coverage. Financial leverage has been increasing as NGHC has issued senior debt, subordinated debt and preferred securities during the past year. In addition, goodwill and intangibles stemming from the company’s acquisition-driven strategy accounted for 34.7% of GAAP equity as of June 30, 2016, which resulted in elevated levels of adjusted and unadjusted debt to tangible capital. The company’s solid earnings from its insurance operations, access to credit facilities and dividend capacity from non-insurance operations provide liquidity to meet corporate obligations.
Positive movement in the ratings is not likely in the near-term, but could occur should sustained improvement in underwriting and operating performance reach a level that exceeds the composite average over the longer-term. Negative rating actions could result from deterioration in underwriting or operating performance to a level that is materially lower than that of its similarly-rated peers. A substantial change in the financial condition of NGHC could also impact the ratings, which could be positive or negative based on the direction of the holding company results.
The FSR of A- (Excellent) and the ICRs of “a-” have been affirmed for the following insurance 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
- Imperial Fire and Casualty Insurance Company
- Integon Preferred Insurance Company
- National General Insurance Online Inc.
- Personal Express Insurance Company
- National General Re Ltd.
- Century-National Insurance Company
- Agent Alliance Insurance Company
The following issue ratings have been affirmed:
National General Holdings Corp.—
-- “bbb-” on $100 million 6.75% senior unsecured notes, due 2024
-- “bbb-” on $250 million 6.75% senior unsecured notes, due 2024
-- “bb+” on $100 million 7.625% subordinated notes, due 2055
-- “bb” on $200 million 7.5% preferred stock
-- “bb” on $150 million 7.5% preferred stock
-- “bb” on $55 million 7.5% preferred stock
The following indicative issue ratings have been affirmed:
National General Holdings Corp.—
-- “bbb-” on senior unsecured debt
-- “bb+” on subordinated debt
-- “bb” on preferred stock
-- “bb” on junior subordinated debt
This press release relates to rating(s) that have been published on A.M. Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see A.M. Best’s Recent Rating Activity web page.
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