Press Release - SEPTEMBER 27, 2017
A.M. Best Affirms Credit Ratings of National General Hldgs Corp. and Most Subs.; Upgrades Direct General Ins. Co. and Affiliates
FOR IMMEDIATE RELEASE
OLDWICK - SEPTEMBER 27, 2017
The ratings reflect National General Group’s solid risk-adjusted capitalization, generally profitable operating performance, its well-diversified and substantial business profile in the personal lines space (including its position as one of the leading providers of non-standard personal automobile coverages), and its scalable operating platform that has enabled the group to substantially increase its premiums in recent years without similar increases in underwriting expenses.
These positive rating factors are offset partially by statutory underwriting losses and operating losses in three of the past five years, driven by increased loss frequency, loss reserve strengthening and weather-related losses. These losses are, as noted above, more than offset by fee and service revenue, producing operating profits. An offsetting rating factor is the potential for emergence of variability in the group’s results due to the increased exposure to weather and catastrophe events as a result of its additional exposure to homeowners business through various recent acquisitions. Losses from 2017 weather events have been considered and are likely to drive some deterioration of performance for the year.
In July 2017, questions emerged related to Wells Fargo’s collateral protection insurance program and tracking services provided by the group and its affiliates. At present, there is uncertainty regarding what (if any) liability NGHC or any of its subsidiaries may have. A.M. Best will monitor the situation and reassess the ratings impact, as additional details become available.
NGHC’s financial leverage, with adjusted debt to total capital (less accumulated other comprehensive income) measuring 27.3% at June 30, 2017, is within A.M. Best’s guidelines, as is interest coverage. Financial leverage increased through year-end 2016, as NGHC issued senior debt, subordinated debt and preferred securities during the past year. While debt to tangible capital levels remain somewhat elevated as a result of the company’s acquisition-driven strategy, goodwill and intangibles declined slightly relative to capital, accounting for 22.3% of GAAP equity as of June 30, 2017.
Positive rating actions may be taken in the future if risk-adjusted capitalization and underwriting and operating performance consistently exceed those of similarly rated peers, with improved levels of tangible capital at the holding company level. Negative rating actions could result from one or more of the following: deterioration in underwriting or operating performance to a level that is significantly below that of similarly rated peers; emergence of substantial adverse development of prior years’ loss reserves; significant reduction in risk-adjusted capitalization due to premium growth in excess of A.M. Best’s expectation; or acquisition of substantial books of business that have performed historically below the group’s average.
The FSR of A- (Excellent) and the Long-Term ICRs of “a-” have been affirmed for the following insurance subsidiaries of National General Holdings Corp.:
The ratings have been removed from under review with positive implications, the FSR has been upgraded to A- (Excellent) from B (Fair), the Long-Term ICRs have been upgraded to “a-” from “bb+”, and stable outlooks have been assigned to the following:
The following Long-Term IRs 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 Long-Term IRs 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 Credit Ratings 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. For additional information regarding the use and limitations of Credit Rating opinions, please view Understanding Best’s Credit Ratings. For information on the proper media use of Best’s Credit Ratings and A.M. Best press releases, please view Guide for Media - Proper Use of Best’s Credit Ratings and A.M. Best Rating Action Press Releases.
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