AM Best has downgraded the Financial Strength Rating (FSR) to B (Fair) from B++ (Good) and the Long-Term Issuer Credit Rating (Long-Term ICR) to “bb” (Fair) from “bbb” (Good) of National Security Fire and Casualty Company (NSFC). AM Best also has downgraded the FSR to B- (Fair) from B+ (Good) and the Long-Term ICR to “bb-” (Fair) from “bbb-” (Good) of NSFC’s wholly owned subsidiary, Omega One Insurance Company, Inc. (Omega). In addition, AM Best has downgraded the FSR to B (Fair) from B++ (Good) and the Long-Term ICR to “bb” (Fair) from “bbb” (Good) of NSFC’s affiliated life/health insurer, National Security Insurance Company (NSIC). Concurrently, AM Best has maintained the under review with negative implications status for these Credit Ratings (ratings). All companies are domiciled in Elba, AL and are subsidiaries of VR Insurance Holdings, Inc. (VR Holdings).

The ratings of NSFC reflect its balance sheet strength, which AM Best assesses as adequate, as well as its marginal operating performance, limited business profile and appropriate enterprise risk management (ERM).

The rating downgrades for NSFC reflect its poor operating results in 2023, due to an increase in the frequency and severity of weather events, which in conjunction with the significant operating losses at its sister company, NSIC, resulted in a material loss of GAAP equity, an increase in financial leverage, weak interest coverage measures and an overall decline in the financial flexibility of VR Holdings. This resulted in a negative holding company assessment and subsequent decline in NSFC’s overall balance sheet strength assessment to adequate from strong.

The ratings of NSIC reflect its balance sheet strength, which AM Best assesses as weak, as well as its adequate operating performance, limited business profile and appropriate ERM.

The rating downgrades for NSIC reflects a downward revision in its balance sheet strength assessment to weak from adequate following a material decline in risk-adjusted capitalization and absolute surplus in 2023 and through the first quarter of 2024, as a result of a change in reserving practice for its multi-year guaranteed annuity product line, which it started selling in early 2023. Although NSIC has taken actions to improve its risk-adjusted capitalization, including significantly reducing annuity growth beginning in the second quarter 2024, as well as looking for additional ways of enhancing capital, a significant amount of execution risk remains.

The ratings of Omega reflect its balance sheet strength, which AM Best assesses as strong, as well as its marginal operating performance, very limited business profile, appropriate ERM and ratings drag from its immediate parent NSFC, as well as the overall decline in credit fundamentals of the consolidated group.

The rating outlooks for all entities are being maintained at under review with negative implications status pending the close of a previously announced transaction under which the group will be acquired by PhenixFin, a publicly traded asset management company. The under review with negative implications status reflects the need for AM Best to fully assess the business strategy, financial and operational impacts on the group as a result of the proposed acquisition, as well as other capital raising initiatives. The ratings will remain under review with negative implications status until the transaction closes and AM Best has reviewed the group’s strategy and capitalization plans.

This press release relates to Credit Ratings that have been published on AM 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 see AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best's Credit Ratings. For information on the proper use of Best’s Credit Ratings, Best’s Performance Assessments, Best’s Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best’s Ratings & Assessments.

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