A.M. Best has downgraded the financial strength ratings (FSR) to
B++ (Good) from A- (Excellent) and the issuer credit ratings (ICR) to
“bbb+” from “a-” of the following insurance company operating
subsidiaries of Fortegra Financial Corporation (Fortegra)
(headquartered in Jacksonville, FL): Lyndon Southern Insurance
Company (Lyndon Southern) (Wilmington, DE), Insurance
Company of the South (ICOTS) (Athens, GA), Life of the South
Insurance Company (Nashville, GA), Bankers Life of Louisiana (Ruston,
LA), and Southern Financial Life Insurance Company (Scottsville,
KY), the last three of which are collectively referred to as the Life
of the South Group. Additionally, A.M. Best has removed these
ratings from under review with negative implications. The outlook
assigned to the FSRs is stable while the outlook assigned to the ICRs is
negative.
Concurrently, A.M. Best has withdrawn the ICR of “bbb-” of Fortegra, as
Fortegra is no longer the ultimate parent of the rated insurance
entities. The ratings of Fortegra and its insurance operating
subsidiaries were placed under review with negative implications
following the announcement that Fortegra would be acquired by a
subsidiary of Tiptree Financial Inc. [NASDAQ: TIPT]. The transaction
closed on Dec. 4, 2014.
The downgrade of the ratings for Fortegra’s insurance subsidiaries
reflects the significant increase in Fortegra’s financial leverage
measures as a result of the leveraged buy-out transaction under which
Fortegra was acquired by Tiptree. Following the close of the
transaction, Fortegra has approximately $110 million in bank debt
related to the transaction.
The ratings for Lyndon Southern and ICOTS recognize the companies’ solid
risk-adjusted capitalization, niche distribution and the historical
profitable operating performance of their core credit–related books of
business. Somewhat offsetting these favorable rating factors are the
limited scope of the companies’ operations, considerable growth in
direct writings in recent years and heavy reliance on third-party
reinsurance, as evidenced by the companies’ elevated gross and ceded
underwriting leverage measures. However, the associated credit risk
related to the companies’ reliance on third-party reinsurance
recoverables is mitigated by the credit quality of its rated reinsurers
and collateralization of recoverables due from non-rated entities.
The ratings for the Life of the South Group acknowledge its sufficient
consolidated risk-adjusted capitalization that has been enhanced by
conservative operating company balance sheets, consisting primarily of
investment grade long-term bonds. The ratings also recognize the group's
positive net operating performance, derived primarily from its core
credit life and credit accident and health businesses, as well as the
positive trends in premium growth enhanced by increased production from
its existing clients, new clients distributing its credit insurance
products and geographic expansion.
A.M. Best remains concerned with Life of the South Group's limited
business profile, although the group continues to expand its product
offerings and distribution capabilities. A.M. Best believes the group
may be challenged to sustain and improve its net operating performance
given the challenges of the persistent low interest rate environment and
the expense strains expected from anticipated new business growth.
Positive rating action for the insurance subsidiaries of Fortegra is
unlikely over the near to medium term, although a significant reduction
in financial leverage at Fortegra would be favorably considered in the
rating process. Rating factors that could result in negative rating
actions include a significant and sustained decline in risk-adjusted
capitalization; a decline in the current levels of underwriting or
operating performance; or a deterioration in the quality of Fortegra's
consolidated balance sheet, including, but not limited to, an increase
in financial leverage or an increase in the ratio of intangible assets
to stockholders’ equity.
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:
• Analyzing Insurance Holding Company Liquidity
• Catastrophe Analysis in A.M. Best Ratings
• Equity Credit for Hybrid Securities
• Evaluating Non-Insurance Ultimate Parents
• 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
• A.M. Best's Liquidity Model for U.S. Life Insurers
• Understanding BCAR for U.S. and Canadian Life/Health 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.
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