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A.M. Best Revises Outlook To Positive For National Interstate Corporation And Its U.S. Property/Casualty Subsidiaries

A.M. Best Co. has revised the outlook to positive from stable and affirmed the issuer credit rating (ICR) of “bbb+” of National Interstate Corporation (NATL) {NASDAQ: NATL). Concurrently, A.M. Best has revised the outlook to positive from stable and affirmed the financial strength rating (FSR) of A (Excellent) and ICRs of “a+” of the National Interstate Group (National Interstate) and its property/casualty members. All companies are headquartered in Richfield, OH, except for Vanliner Insurance Company, which is domiciled in Fenton, MO. NATL is 52.4% owned by Great American Insurance Company, a wholly-owned subsidiary of American Financial Group, Inc. (See below for a detailed list of the companies and ratings.)

The ratings for National Interstate reflect its excellent operating performance, strong risk-adjusted capitalization and demonstrated expertise in its niche market of providing coverages to the transportation industry. This specialty focus provides National Interstate with sustainable competitive advantages, particularly in terms of pricing, claims adjusting and loss control, which enables the group to maintain high policyholder retention rates in a highly competitive environment. Management has increased National Interstate’s product base by identifying and responding to market opportunities largely targeting underserved markets, which include growth in its alternative risk transfer (ART) component. Furthermore, the group’s financial flexibility is enhanced by NATL, which maintains modest financial leverage and strong interest coverage.

These positive rating factors are somewhat offset by the inherent risks pertaining to new business, specifically, National Interstate’s continued premium growth in its ART business component, the concentration of business in the passenger and truck transportation industries and to a lesser degree, the risks associated with the 2010 acquisition of Vanliner Group, Inc.

Positive rating actions could be taken on National Interstate’s ratings if underwriting and operating results materially outperform other similarly rated commercial auto insurers while maintaining a strong level of risk-adjusted capitalization. Key factors that could trigger negative rating actions on the group’s ratings include the deterioration of risk-adjusted capitalization and/or operating results, particularly if the resulting performance is below that of similarly rated peers, or an increase in financial leverage or decrease in cash coverage at NATL to a level that is outside A.M. Best’s guidelines for its rating level.

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