The ratings of NSFC and Omega are reflective of their strong balance sheets; actions being taken by management to improve earnings primarily through stricter underwriting standards; catastrophe exposure management; rate increases; cancellation of underperforming books of business and refined rate making capabilities.These positive rating factors are offset in part by both companies’ exposure to hurricane and other severe weather events in the South and Southeastern United States; significant underwriting losses in recent years and relatively high net retention on their catastrophe reinsurance program. The ratings also acknowledge the $13.0 million unfavorable settlement in the Mobile Attic, Inc. litigation earlier in the year and the need for the insurance operating companies to make dividend payments to NSGI to fund debt obligations. The outlook for the ratings of NSFC is negative due to an unfavorable underwriting trend. Negative rating pressure could intensify if the company’s earnings performance does not improve or if capitalization is weakened. Pressure could be taken off of the ratings by a favorable operating trend that leads to capital appreciation without excessive growth. The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Key criteria utilized include: “Risk Management and the Rating Process for Insurance Companies”; “Understanding BCAR for Property/Casualty Insurers”; “Understanding BCAR for Life/Health Insurers”; “Catastrophe Analysis in A.M. Best Ratings”; “Equity Credit for Hybrid Securities”; and “Rating Members of Insurance Groups.” Best’s Credit Rating Methodology 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. Copyright © 2012 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.
A.M. Best Co. has upgraded the financial strength rating (FSR) to B+ (Good) from B (Fair) and the issuer credit rating to “bbb-“ from “bb+” of National Security Insurance Company (NSIC). The outlook for both ratings is stable. A.M. Best also has affirmed the FSR of B++ (Good) and ICR of “bbb” of National Security Fire and Casualty Company (NSFC). The outlook for these ratings is negative. In addition, A.M. Best has affirmed the FSR of B+ (Good) and ICR of “bbb-” of NSFC’s wholly owned subsidiary, Omega One Insurance Company, Inc. (Omega). The outlook for both ratings is stable. Concurrently, A.M. Best has affirmed the ICR of “bb” of the parent holding company, The National Security Group, Inc. (NSGI) (Wilmington, DE) [NASDAQ: NSEC]. The outlook for this rating is negative. All companies are domiciled in Elba, AL, unless otherwise specified. The rating actions taken on NSIC reflect A.M. Best’s belief that the financial resources of the life company will not be materially impacted by the Mobile Attic, Inc. lawsuit settlement. These rating actions also reflect NSIC’s favorable stand-alone risk-adjusted capitalization, modestly increasing capital trends, a generally conservative fixed-income investment portfolio, which is currently in a unrealized gain position and its positive—albeit modest—overall net operating performance. These positive factors are offset by NSIC’s limited geographic profile and the challenges it faces to manage its modest capital levels, sustain and improve its operating performance and reverse declining trends in its net premium growth. Given the recent positive movement on NSIC’s ratings, A.M. Best believes the company is well positioned at its current rating level. Future positive actions could occur on NSIC’s ratings from positive movement in the parent’s ratings. Key rating factors that could result in negative actions on the company’s ratings include a meaningful erosion of absolute and/or risk-adjusted capitalization, a deterioration of operating performance below A.M. Best’s expectations or negative movement in the parent and/or property and casualty affiliates’ ratings.