On Friday, ratings agency - A.M. Best Co. - asserted its debt
and financial strength ratings on
Hilltop Holdings Inc.
) and its subsidiaries with a stable outlook.
Accordingly, A.M. Best reiterated its issuer credit rating (ICR)
of "bbb+" on Hilltop, reflecting adequate liquidity that is also
favourable for mitigating any balance sheet risks. The ICR was
previously assigned by A.M. Best in April 2010.
Simultaneously, the ratings agency also maintained the
credibility of Hilltop's subsidiaries by affirming the ICR of "a+"
and "a" on National Lloyds Insurance Company (NLIC) and American
Summit Insurance Company (
), respectively. Besides, the financial strength rating (
) for both NLIC and ASIC were avowed at "A", reflecting an
excellent capital position.
The ratings of ASIC were previously upgraded in April 2010,
followed by an annual affirmation on all of Hilltop and its
subsidiaries in April last year. Both ASIC and NLIC are the
affiliates of Hilltop's primary wholly-acquired subsidiary NLASCO
Inc., through which the company conducts its property and casualty
operations in the US.
The ratings validate an adequate financial surplus position
coupled with a favourable debt leverage outlook for Hilltop and its
wings. Further, banking on the solid risk-adjusted balance sheet,
healthy operating performance and capital leverage, the company
assures strong earnings potential once the macro-economic risks
subside. Besides, the company's firm grasp on the local personal
property insurance market adds value to Hilltop's overall business
in its operating areas.
Moreover, Hilltop's risk-based capital (
) relating to insurance risk, asset credit risk, interest rate risk
and business risk exceeds the level at which regulatory action
would be required by the National Association of Insurance
Commissioners (NAIC). These factors also pave the way for
meaningful acquisitions and alliances for the long-term growth of
Additionally, the $100 million share repurchase program,
announced in November 2011, appears sustainable and bodes well for
retaining confidence in the shareholders, also reflecting healthy
capital deployment. Going ahead, Hilltop's disciplined underwriting
philosophy and expense management along with a better competitive
position should continue to accelerate the top line in future.
However, these positives are partially offset by Hilltop's
exposure to the weather-risk prone areas such as Texas and Arizona,
which increases the company's claim ratios and taint their
underwriting results as well. Nevertheless, the company is taking
proactive steps at both NLIC and ASIC through cautious reinsurance
programs in a effort to alleviate itself from catastrophe
Hilltop reported net income attributable to common stockholders
of $5.0 million or 9 cents per share in the fourth quarter of 2011,
escalating from $1.0 million or 2 cents per share in the year-ago
period and the Zacks Consensus Estimate of 2 cents per share.
Total revenue increased 21.3% year over year to $40.4 million,
while total expenses inched up 0.3% year over year to $32.6
million. Results benefited from modest underwriting profitability,
premiums growth, net realized gains and investment income that
drove the top line. Even a lower-than-expected expense growth
supported the bottom line.
Hilltop primarily competes with
Capital Trust Inc.
American Realty Investors Inc.
). Overall, based on Hilltop's organised and structured growth
strategy that more than offset the industry and weather-related
risks, we maintain a long-term Outperform rating on the company.
The Zacks Rank #1 on Hilltop further validates our long view and a
short-term Strong Buy recommendation.
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