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A.M. Best Affirms Ratings of National Lloyds Insurance Company and American Summit Insurance CompanyA.M. Best has affirmed the financial strength rating (FSR) of A (Excellent) and the issuer credit ratings (ICR) of "a" of National Lloyds Insurance Company (National Lloyds), and its affiliate, American Summit Insurance Company (American Summit). The outlook for National Lloyds' ratings remains negative while American Summit's outlook is stable. National Lloyds and American Summit are subsidiaries of their ultimate parent, Hilltop Holdings Inc. (headquartered in Dallas, TX) (NYSE:HTH). All companies are domiciled in Waco, TX unless otherwise specified. The affirmation of National Lloyds' ratings reflects its adequate risk-adjusted capitalization, conservative investment strategy, sound balance sheet liquidity with generally positive operating cash flow, and local market expertise within its niche market of personal property insurance. In addition, the ratings recognize the company's generally positive operating income and actions taken by management to improve earnings, which resulted in improved underwriting results in 2014. Management continues with corrective actions that include but are not limited to rate increases, restrictive underwriting guidelines, non-renewal of unprofitable business and reduced exposure in geographical regions that are more catastrophe-prone. National Lloyds benefits from the financial flexibility of its immediate parent holding company, National Lloyds Corporation (formally known as NLASCO Inc.), which was evidenced in 2012 by its explicit support in the form of a capital contribution to offset underwriting losses. The continuation of the negative outlook reflects National Lloyds' volatile operating results, as well as its lower risk-adjusted capitalization over the past five years. This is due primarily to National Lloyds' unfavorable underwriting performance in three of the past five years, which resulted in underwriting losses driven by a variety of frequent and severe weather-related events in recent years, particularly tornado, hail and windstorm losses. Consequently, the company's five-year combined ratio and pre-tax operating returns on revenue lag the personal property composite. In addition, National Lloyds' loss reserve development has been unfavorable on both an accident- and calendaryear basis in recent years due to adverse development from prior years resulting from weather-related underwriting losses. The ratings may be downgraded if National Lloyds' underwriting results deteriorate and/or there is a decline in its risk-adjusted capitalization. Removal of the negative outlook is contingent upon consistent operating and underwriting profitability, surplus appreciation and improved overall risk-adjusted capitalization. The ratings of American Summit acknowledge its favorable risk-adjusted capitalization, conservative investment strategy and generally positive net income primarily driven by a steady stream of net investment income, other income and capital gains over the past five years. American Summit maintains moderate underwriting leverage measures and excellent balance sheet liquidity; and has reported generally favorable loss reserve development on both an accident- and calendar-year basis in most years. These positive rating factors are partially offset by American Summit's varying underwriting performance that resulted in underwriting losses in three of the past five years. The unfavorable underwriting performance was driven by increased weather-related events and elevated losses from an affiliated quota share reinsurance agreement with National Lloyds. American Summit maintains a prudent catastrophe reinsurance program in conjunction with National Lloyds to mitigate losses associated with severe weather-related catastrophe events. American Summit's product offerings are somewhat limited as it is primarily a provider of insurance for the mobile home market with most of its business conducted in Arizona. The ratings and outlook for American Summit could come under pressure if operating performance deteriorates or there is a material deterioration in its capital strength as measured by Best's Capital Adequacy Ratio (BCAR). Any future positive rating action is contingent upon a consistent and sustained trend or operating and underwriting results while improving overall risk-adjusted capitalization and maintaining moderate underwriting leverage measures. The methodology used in determining these ratings is Best's Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best's rating process and contains the different rating criteria employed in the rating process. Best's Credit Rating Methodology can be found at www.ambest.com/ratings/methodology. Key insurance criteria reports utilized: • Catastrophe Analysis in A.M. Best Ratings • Equity Credit for Hybrid Securities • Evaluating U.S. Surplus Notes • Evaluating Non-Insurance Ultimate Parents • Rating Members of Insurance Groups • Risk Management and the Rating Process for Insurance Companies • Understanding BCAR for Property/Casualty Insurers This press release relates to rating(s) that have been published on A.M. Best's website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please visit A.M. Best's Ratings & Criteria Center. A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com. Copyright © 2015 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.
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