A.M. Best Downgrades Issuer Credit Rating of National Lloyds Insurance Company

A.M. Best Downgrades Issuer Credit Rating of National Lloyds Insurance Company

OLDWICK, N.J.--(BUSINESS WIRE)-- A.M. Best Co. has downgraded the issuer credit rating (ICR) to "a" from "a+" and affirmed the financial strength rating (FSR) of A (Excellent) of National Lloyds Insurance Company (National Lloyds).

Additionally, A.M. Best has affirmed the FSR of A (Excellent) and ICR of "a" of National Lloyds' affiliate, American Summit Insurance Company (American Summit). The outlook for all ratings is stable. All companies are domiciled in Waco, TX, unless otherwise specified.


Concurrently, A.M. Best has withdrawn the ICR of "bbb+" of Hilltop Holdings Inc. (HTH) (headquartered in Dallas, TX) (NYS: HTH) . National Lloyds and American Summit are subsidiaries of their ultimate parent, HTH.

The downgrading of National Lloyds' ICR reflects its adverse operating results in recent years primarily due to unfavorable underwriting performance. The deterioration in National Lloyds' underwriting performance was driven by increased weather-related losses in recent years, especially wind and hail events that occurred in the spring of 2012 in Texas. In response, management has increased rates, tightened policy coverage and is non-renewing and de-emphasizing unprofitable products and geographical regions that are more catastrophe-prone.

These negative rating actions are partially offset by National Lloyds' adequate risk-adjusted capitalization, conservative investment strategy and local market expertise within its niche market of personal property insurance. In addition, National Lloyds benefits from the financial flexibility of its immediate parent holding company, NLASCO Inc., which was evidenced in 2012 by its explicit support in the form of a capital contribution to offset underwriting losses.

In future rating cycles, negative rating actions could occur if National Lloyds' underwriting performance continues to deteriorate and/or there is a reduction in its overall risk-adjusted capitalization.

The ratings of American Summit recognize its solid risk-adjusted capitalization, conservative investment strategy and generally favorable operating performance. Over the last five years, American Summit has reported positive net income earnings driven by net underwriting gains, favorable other income and consistent net investment gains.

These positive rating factors are partially offset by American Summit's limited product offerings as primarily a provider of insurance for the mobile home market. In addition, American Summit's overall performance is susceptible to the frequency and severity of localized storm activity as the majority of its business is produced in Arizona. This was largely evidenced in 2011, as American Summit reported a sizeable year-end underwriting loss driven by significant weather-related losses in Arizona. American Summit maintains a prudent catastrophe reinsurance program in conjunction with National Lloyds to mitigate losses associated with severe weather-related catastrophe events.

The outlook for American Summit could be revised if its operating performance deteriorates and/or there is a material deterioration in its capital strength as measured by Best's Capital Adequacy Ratio (BCAR).

The withdrawal of HTH's ICR is due to recent changes in its organizational structure. On November 30, 2012, HTH acquired Plains Capital Corporation (a Texas-based and Dallas-headquartered financial holding company). As a result of this acquisition, total insurance operations account for only a small percentage of HTH's business.

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"; and "Rating Members of Insurance Groups." Best's Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.

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 © 2013 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.



A.M. Best Co.
Najam Sharif, 908-439-2200, ext. 5326
Financial Analyst
najam.sharif@ambest.com
Joseph Burtone, 908-439-2200, ext. 5125
Assistant Vice President
joseph.burtone@ambest.com
Rachelle Morrow, 908-439-2200, ext. 5378
Senior Manager, Public Relations
rachelle.morrow@ambest.com
Jim Peavy, 908-439-2200, ext. 5644
Assistant Vice President, Public Relations
james.peavy@ambest.com

KEYWORDS:   United States  Europe  North America  New Jersey  Texas

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