AM Best has revised the outlooks to negative from stable and affirmed the Financial Strength Rating (FSR) of B++ (Good) and the Long-Term Issuer Credit Rating (Long-Term ICR) of “bbb” of National Security Fire and Casualty Company (NSFC). AM Best also has revised the outlooks to negative from stable and affirmed the FSR of B++ (Good) and the Long-Term ICR of “bbb” of NSFC’s affiliated life/health insurer, National Security Insurance Company (NSIC). In addition, AM Best has revised the outlooks to negative from stable and affirmed the FSR of B+ (Good) and the Long-Term ICR of “bbb-” of NSFC’s wholly owned subsidiary, Omega One Insurance Company, Inc. (Omega). Concurrently, AM Best has revised the outlook to negative from stable and affirmed the Long-Term ICR of “bb” of The National Security Group, Inc. (Wilmington, DE) [NASDAQ: NSEC], the parent holding company. All companies are domiciled in Elba, AL, unless otherwise specified.

The ratings of NSFC reflect its balance sheet strength, which AM Best assesses as strong, as well as its marginal operating performance, limited business profile and appropriate enterprise risk management (ERM). The outlooks of NSFC have been revised to negative from stable to reflect pressure on its balance sheet after experiencing significant capital declines driven by catastrophic weather-related losses. Although the negative impact on surplus was offset largely through the issuance of an intercompany surplus note, AM Best is concerned that NSFC’s quality of capital would continue to diminish if there were a need to replenish capital following another active catastrophe year. NSFC’s limited business profile is driven by its geographic concentration in southeastern states exposing results to future weather-related events. Rating pressure may result on the group’s ERM assessment if it fails to execute on specific risk management-related corrective actions including transitioning away from certain catastrophe-prone locations and implementing rate actions in states where it writes business. Negative rating pressure also may occur if operating results fall short of management’s expectations, or if volatility from catastrophe activity results in further outsized losses, or from a significant deterioration in capital strength.

The ratings of NSIC reflect its balance sheet strength, which AM Best assesses as adequate, as well as its adequate operating performance, limited business profile and appropriate ERM. The outlooks of NSIC have been revised to negative from stable following the significant decline in surplus in 2020 as a result of lending capital via a surplus note to its affiliated property/casualty company, NSFC, which experienced an increase in frequency and severity of catastrophe losses.

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 and appropriate ERM. The outlooks of Omega have been revised to negative from stable driven by a recent loss of surplus, with Omega’s ability to absorb future net losses becoming more limited as it reinsures $1 million of its parent’s net catastrophe retention.

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