A.M. Best Co. has affirmed the financial strength rating (FSR) of B++ (Good) and issuer credit ratings (ICR) of “bbb” of National Security Group (National Security) and its member, National Security Fire and Casualty Company. A.M. Best also has affirmed the ICR of “bb” of National Security’s parent company, The National Security Group, Inc. (Wilmington, DE) [NASDAQ: NSEC]. The outlook for these ratings is negative.

Additionally, A.M. Best has affirmed the FSR of B+ (Good) and ICR of “bbb-” of National Security’s wholly owned subsidiary, Omega One Insurance Company, Inc (Omega One). The outlook for both ratings is stable.

Concurrently, A.M. Best has revised the outlook to positive from stable and affirmed the FSR of B (Fair) and ICR of “bb+” of the group’s life/health company, National Security Insurance Company (NSIC). All companies are domiciled in Elba, AL, except where specified.

The ratings of National Security reflect its adequate risk-adjusted capitalization, generally positive earnings, established niche position as a provider of dwelling/fire coverage and the actions taken by management to reduce exposure to catastrophic losses and improve earnings.

These positive rating factors are offset in part by the group’s concentration in property and auto lines of business in the Gulf Coast states and its low per risk retention that subjects earnings to underwriting volatility and exposes surplus to severe weather-related events. Although capitalization and earnings have improved over the last two years, A.M. Best is maintaining a negative outlook on the ratings due to uncertainty regarding the group’s exposure to legal actions being taken against The National Security Group, Inc. regarding its sale of shares in Mobile Attic Inc. in 2007.

The ratings of Omega One acknowledge its sound capitalization and historically favorable operating performance, partially offset by recent strong growth in the Louisiana non-standard auto market, negative earnings trend and limited business profile.

The rating actions on NSIC recognize the company’s growing strategic and financial importance to National Security. Additionally, the ratings reflect NSIC’s favorable level of risk-adjusted capitalization, increasing—albeit modestly—levels of absolute capital and surplus, a third consecutive year of profitable net operating results and generally increasing net premium trends driven primarily by sales of its cancer products enhanced by increased production from its independent agent and worksite marketing distribution channels.

These positive rating factors are offset by NSIC’s limited geographic profile and the challenges it faces in managing its modest capital and surplus levels and improving its operating performance, while it grows its top line. In revising NSIC’s outlook to positive, A.M. Best acknowledges the expected continuing positive trends in absolute capital and surplus levels and positive operating trends.

The principal methodology used in determining these ratings is Best’s Credit Rating Methodology -- Global Life and Non-Life Insurance Edition , which provides a comprehensive explanation of A.M. Best’s rating process and highlights the different rating criteria employed. Additional key criteria utilized include: “Risk Management and the Rating Process for Insurance Companies”; “Understanding BCAR for Property/Casualty Insurers”; “Understanding BCAR for Life and Health Insurers”; “ Rating Members of Insurance Groups”; and “ A.M. Best’s Ratings & the Treatment of Debt.” Methodologies can be found at www.ambest.com/ratings/methodology.

Founded in 1899, A.M. Best Company is the world’s oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

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