A.M. Best Co. has affirmed the issuer credit rating (ICR) of “bbb+” of National Interstate Corporation (NATL) [NASDAQ: NATL]. Concurrently, A.M. Best has affirmed the financial strength rating (FSR) of A (Excellent) and ICRs of “a+” of the operating members of National Interstate Group (National Interstate). The outlook for all ratings is positive. All companies are domiciled in Richfield, OH, except for Vanliner Insurance Company, which is domiciled in Fenton, MO. NATL is 52% 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 reflect the group members’ excellent operating performance, which outperforms the peer composite over the long term, strong risk-adjusted capitalization and demonstrated expertise within the transportation industry, which is its niche market. In addition, the ratings acknowledge the experienced management team and conservative operating philosophy. National Interstate’s specialty focus provides the group with a sustainable competitive advantage, particularly in terms of pricing, claims adjusting and loss control, resulting in high policyholder retention rates despite the competitive operating environment. Management has effectively broadened the group's product base through expansion into underserved markets as evidenced by growth within its Alternative Risk Transfer (ART) segment. Additionally, the group's financial flexibility is enhanced by its publicly traded immediate parent, NATL, which maintains modest financial leverage and strong interest coverage.
Partially offsetting these positive rating factors are the concentration of business within the passenger and truck transportation industries, the inherent risks associated with modest new business premium growth occurring within the group’s ART business component, and to a lesser extent, 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 National Interstate’s ratings include the deterioration of risk-adjusted capitalization and/or operating results, particularly if the resulting performance trails that of similarly rated peers.
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