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Press Release - APRIL 17, 2015

A.M. Best Downgrades Ratings of the Subsidiaries of Fortegra Financial Corporation and Removes Ratings From Under Review


CONTACTS:
 Brian O’Larte
Senior Financial Analyst
(908) 439-2200, ext. 5138
brian.o’larte@ambest.com

Steven Faulks
Senior Financial Analyst
(908) 439-2200, ext. 5035
steven.faulks@ambest.com
Christopher Sharkey
Manager, Public Relations
(908) 439-2200, ext. 5159
christopher.sharkey@ambest.com

Jim Peavy
Assistant Vice President, Public Relations
(908) 439-2200, ext. 5644
james.peavy@ambest.com

FOR IMMEDIATE RELEASE

OLDWICK - APRIL 17, 2015
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Concurrently, A.M. Best has withdrawn the ICR of "bbb-" of Fortegra, as Fortegra is no longer the ultimate parent of the rated insurance entities.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.


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