A.M. Best: Outlook Positive for Oklahoma’s National American Insurance Co.

November 14, 2012

A.M. Best Co. has revised the outlook to positive from stable and affirmed the financial strength rating of B++ (Good) and issuer credit rating of “bbb+” of National American Insurance Co. (NAICO) in Chandler, Okla.

NAICO is a specialty property/casualty insurance company that operates in Oklahoma and across the central United States.

A.M. Best stated that factors supporting the ratings include NAICO’s excellent risk-adjusted capitalization, stable operating performance and long-standing regional market presence. The ratings also consider the financial leverage and interest coverage of the organization on a consolidated enterprise level, which has improved in recent years due in part to the retirement of a $6.9 million debenture at the immediate parent company level, Chandler (USA) Inc.

This transaction improved the financial leverage, currently 18.1 percent, and cash coverage measures of the organization, both of which are within A.M. Best’s parameters for NAICO’s current ratings.

Partially offsetting these positive rating factors are NAICO’s relatively low level of investment earnings resulting in low total return measures.

Other offsetting factors include NAICO’s high level of reinsurance dependence to support its operations, including reinsurance placed with its ultimate parent, Chandler Insurance Co. Ltd. (Chandler Ltd.) in the Cayman Islands. This concern is somewhat mitigated by NAICO’s use of trust account deposits provided by Chandler Ltd.

Despite these concerns, the outlook reflects NAICO’s improving risk-adjusted capital position, stable operating performance over the recent five-year period and management’s projections for sustained operating profitability over the near term.

Positive rating actions could occur over the longer term if the company can sustain the recent improvement in its operating performance, which would permit additional growth in surplus in support of its planned premium growth.

However, negative rating actions could occur should adverse reserve development occurring on prior accident years negatively impact NAICO’s operating performance, and/or premium growth in excess of projections weakens overall capitalization to a level that no longer supports its ratings.

Source: A.M. Best

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