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A.M. Best Upgrades Ratings of National American Insurance Company

FOR IMMEDIATE RELEASE

OLDWICK, N.J., NOVEMBER 08, 2013
A.M. Best Co. has upgraded the financial strength rating to A- (Excellent) from B++ (Good) and the issuer credit rating to “a-” from “bbb+” of National American Insurance Company (NAICO) (Chandler, OK). The outlook for both ratings has been revised to stable from positive.

The rating actions reflect NAICO’s excellent risk-adjusted capitalization, consistent operating performance and long-standing regional market presence. These factors are somewhat offset by a relatively low level of investment earnings, which has somewhat constrained total return measures.

Other offsetting factors include a modest level of adverse development of loss reserves for older accident years (although those years have experienced some favorable development in more recent calendar years) and the high level of reinsurance dependence to support operations, including reinsurance placed with the company's ultimate parent, Chandler Insurance Company, Ltd. (Chandler, Ltd.) (Cayman Islands). This concern is somewhat mitigated by NAICO's use of trust account deposits provided by Chandler, Ltd.

Despite these concerns, the outlook for the ratings reflect the improved risk-adjusted capital position, stable operating performance over the recent five-year period and management's projections for sustained operating profitability over the near term.

The positive rating factors reflect management initiatives to improve performance inclusive of rate increases, exposure reductions and the elimination of unprofitable classes of business while focusing on more profitable geographic areas. The ratings also consider the financial leverage and interest coverage of the organization at both the intermediate holding company level, as well as on a consolidated enterprise level. Financial leverage measures have improved in recent years as the organization retired an outstanding debenture at the immediate parent company level, Chandler (USA) Inc. As a result, the organizations’ consolidated debt-to-total capital ratio is modest and remains within A.M. Best’s guidelines relative to the ratings with solid interest coverage ratios.

While A.M. Best feels the ratings are properly positioned at the current level, additional positive rating actions could occur over the longer term should operating results continue to outperform the peer composite by a wide margin, with supportive risk-adjusted capital maintained at both the operating company and consolidated enterprise levels.

Alternatively, negative rating actions could occur should operating performance fall significantly short of expectations, or if risk-adjusted capital should deteriorate at the operating company or overall enterprise.

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.