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FOR IMMEDIATE RELEASE
OLDWICK, N.J. - MAY 26, 2006 12:00 AM (EDT)
A.M. Best Co. has affirmed the financial strength rating (FSR) of B+ (Very Good) and assigned an issuer credit rating (ICR) of "bbb-" to National American Insurance Company (OK) (NAICO) (Chandler, OK). Concurrently, A.M. Best has affirmed the ICR of "bb-" of NAICO's parent, Chandler (U.S.A.), Inc. (Chandler) and the debt rating of "bb-" on Chandler's 8.75% senior unsecured debentures due 2014. The outlook for all ratings is negative.
These ratings reflect NAICO's adequate risk-adjusted capitalization and management's corrective actions in recent years, including significantly increasing rates, reducing exposures, improving risk selection and tightening policy terms and conditions. Offsetting the positive rating factors has been the occurrence of adverse loss reserve development, which totaled more than $67 million between 2001 and 2005, as well as the company's continued dependence on reinsurance. Although the majority of the adverse development during this period impacted accident years 1997 through 2001, more recent accident years began to develop adversely in 2005. Given the continued uncertainty surrounding the adequacy of its reserves, the outlook remains negative.
The ratings also consider the financial leverage of the organization on an enterprise basis, as well as fixed charge coverage, which was barely adequate in prior years but improved in 2005. Historically, NAICO has played a significant role in the servicing of debt at Chandler, but management indicated that the obligations can be met by other companies throughout the enterprise, as was done in 2005. Nevertheless, it is possible that dividends from NAICO could be necessary to service the holding company's debt obligations in the future, which could have an adverse impact on surplus and overall capitalization.
For Best's Debt Ratings, all other Best's Ratings, an overview of the rating process and rating methodologies, please visit Best's Rating News.
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