A.M. Best Affirms Ratings of State National Group’s Members, Assigns Ratings to State National Companies, Inc.

A.M. Best has affirmed the financial strength rating (FSR) of A (Excellent) and the issuer credit ratings of “a” of State National Insurance Company, Inc. (SNIC) and its subsidiaries National Specialty Insurance Company (NSIC) and United Specialty Insurance Company (USIC) (all headquartered in Bedford, TX), which operate under a pooling agreement and are collectively referred to as State National Group (State National). The outlook for all ratings is stable.

Concurrently, A.M. Best has assigned an issuer credit rating of ICR “bbb” to State National Companies, Inc. (State National Companies) (Bedford, TX) [NASDAQ: SNC]. The outlook assigned to the rating is stable.

The ratings of the insurance operating companies reflect their excellent risk-adjusted capital position, sustained operating profitability driven by its core collateral protection insurance business and favorable liquidity. Additional supporting factors include its strong profile serving as a provider of policy issuance and management services on program business administration for other specialty insurance organizations. This business produces significant fee income for the organization. Part of State National’s success in program business is its ability to avoid channel conflicts and mitigate exposure through collateral posted by participating companies.

These positive rating factors are partially tempered by the elevated ceded leverage from the extensive use of reinsurance. This is somewhat mitigated by the collateral held by State National. The risk is also controlled by indemnification agreements contained within the reinsurance contracts. In recent years, the program business has grown significantly, and this portfolio has a dependency on third-party capital.

The rating assigned to State National Companies is based on its role as the ultimate parent holding company for the State National insurance operating companies. As of Dec. 31, 2014, debt-to-capital and debt-to-tangible capital ratios (excluding other comprehensive income/loss) were 15.8% and 16.2%, respectively. Furthermore, interest coverage and cash flow for the parent is exceptionally strong.

A.M. Best believes the ratings are well-positioned at their current level. Positive rating action in the long term is possible with improvements in operating results and metrics. Factors that may lead to a negative rating action include a significant decline in risk-adjusted capital position, operating performance that falls short of expectations, modifications to the business profile that may lead to adverse overall results or a large dispute over reinsurance recoverable amounts.

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 .

Key insurance criteria reports utilized:

    • Equity Credit for Hybrid Securities
    • Insurance Holding Company and Debt Ratings
    • 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.

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