[March 31, 2015] |
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A.M. Best Affirms Ratings of National Lloyds Insurance Company and American Summit Insurance Company
A.M. Best has affirmed the financial strength rating (FSR) of A
(Excellent) and the issuer credit ratings (ICR) of "a" of National
Lloyds Insurance Company (National Lloyds), and its affiliate, American
Summit Insurance Company (American Summit). The outlook for National
Lloyds' ratings remains negative while American Summit's outlook is
stable. National Lloyds and American Summit are subsidiaries of their
ultimate parent, Hilltop Holdings Inc. (headquartered in Dallas,
TX) (NYSE:HTH). All companies are domiciled in Waco, TX unless otherwise
specified.
The affirmation of National Lloyds' ratings reflects its adequate
risk-adjusted capitalization, conservative investment strategy, sound
balance sheet liquidity with generally positive operating cash flow, and
local market expertise within its niche market of personal property
insurance. In addition, the ratings recognize the company's generally
positive operating income and actions taken by management to improve
earnings, which resulted in improved underwriting results in 2014.
Management continues with corrective actions that include but are not
limited to rate increases, restrictive underwriting guidelines,
non-renewal of unprofitable business and reduced exposure in
geographical regions that are more catastrophe-prone. National Lloyds
benefits from the financial flexibility of its immediate parent holding
company, National Lloyds Corporation (formally known as NLASCO Inc.),
which was evidenced in 2012 by its explicit support in the form of a
capital contribution to offset underwriting losses.
The continuation of the negative outlook reflects National Lloyds'
volatile operating results, as well as its lower risk-adjusted
capitalization over the past five years. This is due primarily to
National Lloyds' unfavorable underwriting performance in three of the
past five years, which resulted in underwriting losses driven by a
variety of frequent and severe weather-related events in recent years,
particularly tornado, hail and windstorm losses. Consequently, the
company's five-year combined ratio and pre-tax operating returns on
revenue lag the personal property composite. In addition, National
Lloyds' loss reserve development has been unfavorable on both an
accident- and calendaryear basis in recent years due to adverse
development from prior years resulting from weather-related underwriting
losses.
The ratings may be downgraded if National Lloyds' underwriting results
deteriorate and/or there is a decline in its risk-adjusted
capitalization. Removal of the negative outlook is contingent upon
consistent operating and underwriting profitability, surplus
appreciation and improved overall risk-adjusted capitalization.
The ratings of American Summit acknowledge its favorable risk-adjusted
capitalization, conservative investment strategy and generally positive
net income primarily driven by a steady stream of net investment income,
other income and capital gains over the past five years. American Summit
maintains moderate underwriting leverage measures and excellent balance
sheet liquidity; and has reported generally favorable loss reserve
development on both an accident- and calendar-year basis in most years.
These positive rating factors are partially offset by American Summit's
varying underwriting performance that resulted in underwriting losses in
three of the past five years. The unfavorable underwriting performance
was driven by increased weather-related events and elevated losses from
an affiliated quota share reinsurance agreement with National Lloyds.
American Summit maintains a prudent catastrophe reinsurance program in
conjunction with National Lloyds to mitigate losses associated with
severe weather-related catastrophe events. American Summit's product
offerings are somewhat limited as it is primarily a provider of
insurance for the mobile home market with most of its business conducted
in Arizona.
The ratings and outlook for American Summit could come under pressure if
operating performance deteriorates or there is a material deterioration
in its capital strength as measured by Best's Capital Adequacy Ratio
(BCAR). Any future positive rating action is contingent upon a
consistent and sustained trend or operating and underwriting results
while improving overall risk-adjusted capitalization and maintaining
moderate underwriting leverage measures.
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.
Key insurance criteria reports utilized:
• Catastrophe Analysis in A.M. Best Ratings
• Equity Credit for Hybrid Securities
• Evaluating U.S. Surplus Notes
• Evaluating Non-Insurance Ultimate Parents
• Rating Members of Insurance Groups
• Risk Management and the Rating Process for Insurance Companies
• Understanding BCAR for Property/Casualty Insurers
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 visit A.M. Best's Ratings
& Criteria Center.
A.M. Best Company is the world's oldest and most authoritative
insurance rating and information source. For more information, visit www.ambest.com.
Copyright © 2015 by A.M. Best Company, Inc. ALL RIGHTS
RESERVED.
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