Fitch Ratings has affirmed the ‘AAA’ insurer financial strength ratings of the National Indemnity Company and the six associated members of the National Indemnity Group (National Indemnity). The Rating Outlook is Stable.
The ratings continue to reflect National Indemnity’s enormous capital base, excellent reinsurance market position, solid liquidity profile, low operating leverage and underwriting discipline. Offsetting these positives is National Indemnity’s high investment risk associated with their large equity allocation and the volatile nature of the group’s high-level catastrophe excess-of-loss reinsurance product line.
National Indemnity reported a pre-tax (GAAP) underwriting gain of $534 million at year-end 2002 versus underwriting losses of $647 million in 2001. The vast majority of the gain in 2002 stemmed from National Indemnity’s Catastrophe & Individual Risk Unit, which saw significant opportunities after the events of Sept. 11, 2001.
National Indemnity’s non-catastrophe reinsurance business also continues to be an attractive product line due to the anticipated extended claim payment period that allows for large future investment income. National Indemnity’s high operating earnings in this line of business is a product of historically small underwriting losses offset by the large amounts of investment income on National Indemnity’s substantial invested asset base.
National Indemnity estimates its maximum after-tax exposure to a single catastrophic event to be $3.25 billion. While material, with well over $20 billion in policyholders’ surplus, National Indemnity could easily absorb such a loss. Further, this type of loss may even be a boon to National Indemnity’s business if industry pricing significantly increases and causes a ‘flight to quality’ that would benefit only the most highly capitalized competitors. Fitch believes recent experience in National Indemnity’s Catastrophe & Individual Risk segment is evidence of this phenomenon.
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