CONTACTS:
FOR IMMEDIATE RELEASE
OLDWICK, N.J. - MAY 02, 2007 12:00 AM (EDT)
A.M. Best Co. has affirmed the financial strength rating (FSR) of B+ (Good) and the issuer credit rating (ICR) of "bbb-" of National American Insurance Company (OK) (NAICO) (Chandler, OK). Concurrently, A.M. Best has affirmed the ICR of "bb-" of NAICO's parent, Chandler (USA) Inc. (Chandler), and the debt rating of "bb-" on Chandler's 8.75% senior unsecured debentures, due 2014. The outlook for all ratings has been revised to stable from negative.
The ratings reflect NAICO's solid risk-adjusted capitalization and improved operating performance in 2005 and 2006, primarily driven by the reduction of the extent of unfavorable loss reserve development reported in recent years. This improvement is due in part to management's corrective actions over the prior five years, including significantly increasing rates, reducing exposures, improving risk selection and tightening policy terms and conditions.
These factors are offset by the magnitude of adverse loss reserve development reported over the prior five-year period, primarily occurring on accident years 1997 through 2001, as well as the company's considerable dependence on reinsurance, despite increased retention levels in recent years. Although more recent accident years have developed adversely, they have done so to a much lesser extent.
The ratings also consider the financial leverage and interest coverage of the organization on an enterprise basis, which have improved in recent years. While NAICO historically played a significant role in the servicing of debt at Chandler, other companies throughout the enterprise have met these obligations in more recent years. 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.
The revised outlook is reflective of the improvement in risk-adjusted capitalization and operating performance in recent years, driven in part by the moderation in unfavorable loss reserve development on the five most recent accident years, as well as what appears to be a more conservative current accident year loss ratio pick.
For Best's Debt Ratings, all other Best's Ratings, an overview of the rating process and rating methodologies, please visit Best's Rating Center.
Founded in 1899, A.M. Best Company is a full-service credit rating organization dedicated to serving the financial services industries, including the banking and insurance sectors.