KBRA Affirms Ratings for Fortegra Financial Corporation and Key Rated Insurance Subsidiaries
31 May 2024 | New York
KBRA affirms the A- insurance financial strength ratings (IFSRs) for the key insurance subsidiaries of Fortegra Financial Corporation (FFC or Fortegra): Lyndon Southern Insurance Company; Insurance Company of the South; Response Indemnity Company of California; Life of the South Insurance Company; Southern Financial Life Insurance Company; and Bankers Life of Louisiana. In addition, KBRA affirms the BBB issuer rating and BBB- junior subordinated debt rating of Fortegra. The Outlook for all ratings is Stable. Fortegra is a leading provider of warranty and specialty underwriting products and services. The organization is headquartered in Jacksonville, Florida and is majority owned by Tiptree Inc. (NASDAQ: TIPT).
Fortegra's ratings reflect favorable underwriting results, balanced mix of revenue and earnings, adequate capitalization, and prudent operating strategy. Historically, Fortegra has exhibited solid underwriting results that have been supplemented by significant fee income. Investment results have generally enhanced the firm’s net earnings while maintaining a high quality and liquid investment portfolio.
Balancing these strengths are the insurance operating companies’ moderate gross premium leverage, extensive use of reinsurance and high recoverables, moderate financial leverage and elevated intangible assets. Although reinsurance leverage continues to rise, recoverables are well collateralized. Additionally, KBRA believes that Fortegra has a somewhat aggressive growth strategy. The RBC ratios for four of the five P&C companies declined in 2023, in some cases significantly. Finally, although FFC’s ultimate controlling shareholder, Tiptree Inc. (NASDAQ: TIPT), has been a patient capital partner, with the sale of a 24% stake to Warburg Pincus in 2022, KBRA will continue to monitor any potential changes to strategy that could impact the financial strength of Fortegra.
Factors that could positively impact the rating include sustained growth in earnings across both regulated and non-regulated subsidiaries, material organic growth in insurance operating company capital, sustained improvement in risk adjusted capitalization at U.S. insurance companies, and reduction in underwriting leverage.
Factors that could negatively impact the rating include an unfavorable change in risk profile, material decline in net income, adverse modification or discontinuation of the pooling agreement, and sustained elevated financial leverage – including the addition of securities to FFC’s capital structure that are senior to the junior subordinated notes – or a significant decrease in interest coverage.
To access rating and relevant documents, click here.
Click here to view the report.