AM Best has downgraded the Financial Strength Rating to B++ (Good) from A- (Excellent) and the Long-Term Issuer Credit Rating to “bbb+” from “a-” of National Fire and Casualty Co. (NFC), based in Chicago.
The outlook of these ratings remains stable.
The ratings reflect NFC’s balance sheet strength, which AM Best categorizes as very strong, as well as its marginal operating performance, limited business profile and appropriate enterprise risk management (ERM).
The rating downgrades reflect a revision in AM Best’s assessment of NFC’s operating performance to marginal from adequate, given the deterioration of underwriting results over the most-recent five-year period. While initiatives have been put in place to better align pricing with risks and manage severity trends, results have not yet benefited from these actions.
NFC’s balance sheet strength reflects the strongest level of risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), modest underwriting leverage and favorable loss reserve development, partially offset by its elevated common stock leverage and limited scale.
NFC’s operating performance has trended downward in recent years, largely due to a spike in severity losses, as well as continued above-average expenses associated with the cost of litigation in defense of claims against policyholders, commissions and overhead, which have resulted in underwriting and operating performance metrics that trail the commercial casualty composite.
NFC maintains a limited scale of operations, writing specialized business for local public entities. AM Best views NFC’s ERM as appropriate, with a management team that continues to develop and enhance ERM capabilities.
Source: AM Best
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