A.M. Best Downgrades Ratings of National Insurance Company and National Group Insurance Company

May 31, 2011

The following article was posted to the iStockAnalyst website on May 31, 2011:

A.M. Best Downgrades Ratings of National Insurance Company and National Group Insurance Company

A.M. Best Co. has downgraded the financial strength rating (FSR) to E (Under Regulatory Supervision) from B- (Fair) and issuer credit ratings (ICR) to “rs” from “bb-” of National Insurance Company (NIC).

A.M. Best also has downgraded the FSR to D (Poor) from B- (Fair) and ICR to “c” from “bb-” of NIC’s wholly owned, 100% reinsured subsidiary, National Group Insurance Company (NGIC) (Coral Gables, FL). All ratings have been removed from under review with negative implications, and the ratings of NGIC have been placed under review with developing implications. Additionally, A.M. Best has withdrawn the ratings of National Financial Group as rating action was taken on each company within the group individually. All companies are domiciled in Hato Rey, Puerto Rico, except where specified.

The rating actions follow confirmation that the Office of the Commission of Insurance of Puerto Rico issued an order of rehabilitation for NIC, effective May 16, 2011. As part of the rehabilitation process, all members of the board of directors, the chief executive officer and the chief operating officer have resigned their positions. Reorganization strategies have started immediately, and include review of cost control policies, as well as discussions with general agents and producers. At this time, all existing reinsurance contracts remain in force.

The ratings of NGIC reflect A.M. Best’s concern that the company may be exposed to natural catastrophe losses given the rehabilitation order on NIC. As a result, NGIC may be significantly exposed to storm losses given its Florida property exposure base, as well as the credit risk associated with existing reinsurance recoverables from NIC.

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”; and “Natural Catastrophe Stress Test Methodology.” Methodologies can be found at www.ambest.com/ratings/methodology.

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