AM Best

A.M. Best Affirms Credit Ratings of State National Group’s Members


Robert Raber
Senior Financial Analyst
+1 908 439 2200, ext. 5696

Greg Williams
Senior Director
+1 908 439 2200, ext. 5815

Christopher Sharkey
Manager, Public Relations
+1 908 439 2200, ext. 5159

Jim Peavy
Director, Public Relations
+1 908 439 2200, ext. 5644


OLDWICK - SEPTEMBER 22, 2017 11:18 AM (EDT)
A.M. Best has affirmed the Financial Strength Rating (FSR) of A (Excellent) and the Long-Term Issuer Credit Ratings (Long-Term ICR) of “a” of State National Insurance Company, Inc. and its subsidiaries, National Specialty Insurance Company, United Specialty Insurance Company, City National Insurance Company and Independent Specialty Insurance Company, which operate under a pooling agreement and are collectively referred to as State National Group (State National). The outlook of the FSR remains stable, while the outlook of the Long-Term ICR remains positive. All companies are headquartered in Bedford, TX.

Concurrently, A.M. Best has affirmed the Long-Term ICR of “bbb” of State National Companies, Inc. (State National Companies) (headquartered in Bedford, TX) [NASDAQ: SNC]. The outlook of this Credit Rating (rating) is positive.

The ratings reflect the insurance operating companies’ strong risk-adjusted capitalization, extended history of sustained operating profitability driven by its core collateral protection insurance business, and dominant market position providing fronting services. Additional favorable factors include the extensive enterprise risk management programs specialized to the State National business model and comprehensive capabilities managing collateralized counterparty relationships.

These positive rating factors are tempered partially by the elevated credit risk associated with the group’s extensive use of reinsurance within the program business. In recent years, this business has grown significantly. The high ceded reinsurance leverage risk is mitigated largely by the collateral held by State National, which is adjusted to account for the credit quality of its reinsurers. The risk also is controlled by the indemnification agreements contained within the reinsurance contracts, which transfer the run-off risk directly to the reinsurer. Additionally, portions of these writings are supported by reinsurance placed with high quality reinsurers.

The affirmation of the Long-Term ICR of State National Companies is based on its role as the ultimate parent holding company for the State National insurance operating companies. As of June 30, 2017, debt-to-capital and debt-to-tangible capital ratios (excluding other comprehensive income/loss) were 12.3% and 12.8%, respectively. Furthermore, interest coverage and cash flow for the parent is exceptionally strong.

The rating could receive positive support from further advancements in operating results or overall profitability. Factors that could result in negative rating action include a significant contraction in stand-alone risk-adjusted capitalization, operating performance over a sustained period falling short of historical results, significant modifications to the organization’s business model including adapting disadvantageous provisions in the reinsurance treaties, or a dispute regarding reinsurance recoverable amounts.

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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