Ratings agency A.M. Best Co. demoted the credit rating of
National Lloyds Insurance Co. (NLIC) - a property-casualty
(P&C) wing of
Hilltop Holdings Inc.
) - by a notch. The rating was lowered on the backdrop of weak
operating performance over the past several years.
Accordingly, the ratings agency downgraded the issuer credit
rating (ICR) of NLIC to "a" from "a+". While NLIC maintains its
financial adequacy with a strong risk-based capitalization, A.M.
Best remains concerned over its weak underwriting performance
that has been delivering losses. Particularly, increased
catastrophe losses in Texas, NLIC's primary operating area, over
the past few years have escalated the claims ratio, thereby
affecting the earnings.
Nevertheless, NLIC is taking proactive steps through a
conservative investment strategy and firm grasp on the local
P&C insurance market. These steps are aiding the company to
tighten policy coverage, eliminate loss-making products and
increase rates on existing products. Such efforts are expected to
improve underwriting operations as well as overall profitability
in the future.
Meanwhile, the ratings agency pulled out the ICR of "bbb+"
that was assigned on Hilltop in Apr 2010 and was affirmed last
year. This was backed by Hilltop's recent acquisition of Plains
Capital Corp., following which Hilltop became a bank holding
company, which curbed the business contribution from its P&C
However, A.M. Best affirmed the financial strength rating
(FSR) at "A" on both NLIC and American Summit Insurance Co.
(ASIC) with an overall stable outlook. The ratings agency also
reiterated the ICR of "a" on ASIC. Both ASIC and NLIC are the
affiliates of Hilltop's primary subsidiary NLASCO Inc., through
which the company conducts its P&C operations in the U.S.
The ratings agency remains confident of ASIC's right-sized
product basket that helps it retain a strong position in the
mobile home insurance market, primarily based out of Ariz. While
catastrophe losses are a consistent risk, prudent management
entails cautious reinsurance programs that help in mitigating a
majority of the losses for this division of Hilltop. Going ahead,
any improvement or deceleration from the current level should
direct A.M. Best's revisions in the ratings of Hilltop and its
Apart from Hilltop, other stocks that are outperforming in the
insurance sector include
XL Group Plc
Navigators Group Inc.
). All these stocks carry a Zacks Rank #1 (Strong Buy).
HILLTOP HLDGS (HTH): Free Stock Analysis
NAVIGATORS GRP (NAVG): Free Stock Analysis
PROGRESSIVE COR (PGR): Free Stock Analysis
XL GROUP PLC (XL): Free Stock Analysis Report
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