A.M. Best Downgrades Ratings of National Financial Group, Its Members and National Life Insurance Company (Puerto Rico)

OLDWICK, N.J.--()--A.M. Best Co. has downgraded the financial strength rating (FSR) to B- (Fair) from B+ (Good) and issuer credit ratings (ICR) to “bb-” from “bbb-” of National Financial Group and its members, National Insurance Company (NIC) and its wholly owned, 100% reinsured subsidiary, National Group Insurance Company (NGIC) (Coral Gables, FL). Concurrently, A.M. Best has downgraded the FSR to B- (Fair) from B+ (Good) and the ICR to “bb-” from “bbb-” of the affiliated, National Life Insurance Company (Puerto Rico) (NALIC). All three companies operate as National Financial Group, and all ratings have been placed under review with negative implications. All companies are domiciled in Hato Rey, PR, unless otherwise specified.

The rating actions on NIC and NGIC reflect their significantly weakened overall capitalization on a consolidated basis, which is reflective of their ongoing poor operating performance inclusive of adverse reserve development, an increase in non-admitted assets driven by uncollected premium balances and a reduction in the carrying value of the life insurance affiliate, NALIC. The impact of these adjustments collectively resulted in a significant decline in NIC’s consolidated policyholder surplus during the fourth quarter of 2010.

The ratings of NALIC recognize its relatively large operating and unrealized loss reported in 2010, significant reduction in risk-adjusted capital and constrained financial flexibility due to the cross ownership held by the parent as well as NALIC’s sister company, NIC. Partially offsetting these rating factors are a diversified product mix and its historically positive statutory earnings. A.M. Best also notes NALIC’s somewhat improving financial trends during the first quarter of 2011.

While management has implemented initiatives intended to improve operating performance and capitalization, the ratings have been placed under review until A.M. Best has met with management and concluded its analysis on the impact of these initiatives on the companies.

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”; and ”Equity Credit for Hybrid Securities.” 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.

Copyright © 2011 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.

Contacts

A.M. Best Co.
Gordon McLean, 908-439-2200, ext. 5304
Senior Financial Analyst
gordon.mclean@ambest.com
or
Gerard Altonji, 908-439-2200, ext. 5626
Assistant Vice President
gerard.altonji@ambest.com
or
Rachelle Morrow, 908-439-2200, ext. 5378
Senior Manager, Public Relations
rachelle.morrow@ambest.com
or
Jim Peavy, 908-439-2200, ext. 5644
Assistant Vice President, Public Relations
james.peavy@ambest.com

Contacts

A.M. Best Co.
Gordon McLean, 908-439-2200, ext. 5304
Senior Financial Analyst
gordon.mclean@ambest.com
or
Gerard Altonji, 908-439-2200, ext. 5626
Assistant Vice President
gerard.altonji@ambest.com
or
Rachelle Morrow, 908-439-2200, ext. 5378
Senior Manager, Public Relations
rachelle.morrow@ambest.com
or
Jim Peavy, 908-439-2200, ext. 5644
Assistant Vice President, Public Relations
james.peavy@ambest.com