KBRA Affirms and Withdraws Rating for Fortegra Financial Corp, Assigns Ratings for The Fortegra Group, Inc., and Fortegra Specialty Insurance Company, and Affirms Ratings for Debt and Fortegra's Key Insurance Subsidiaries

KBRA assigns an issuer rating of BBB to The Fortegra Group, Inc. (TFG or Fortegra) and assigns an insurance financial strength rating (IFSR) of A- to Fortegra Specialty Insurance Company. At the same time, KBRA is affirming and withdrawing the BBB issuer rating for Fortegra Financial Corporation. In addition, KBRA affirms the A- IFSRs for the key U.S. insurance subsidiaries of The Fortegra Group, Inc.: 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. Finally, KBRA also affirms the BBB- ratings of Fortegra's junior subordinated debt. 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 its 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. The company’s product portfolio is well diversified, and geographic diversification has improved in recent years as the company has expanded its business in Europe. The company also has a strong market position. TFG’s EBITDA interest coverage is solid, which includes significant fee income from its unregulated businesses.

Balancing these strengths are the insurance operating companies’ moderately elevated but recently declining net and gross premium leverage, extensive use of reinsurance and high reinsurance recoverables, moderate financial leverage and elevated intangible assets. Although reinsurance recoverable balances continue to rise in line with the growth in the business, recoverables to lower rated and non-rated reinsurers are well collateralized. In addition, KBRA believes that Fortegra has a somewhat aggressive growth strategy, particularly as the company expands its European business which exposes the company to execution risk. The RBC ratios for the KBRA rated U.S. P&C companies declined in 2024, continuing a recent trend.

Factors that could positively impact the rating include sustained, controlled 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 a reduction in underwriting leverage.

Factors that could negatively impact the rating include an unfavorable change in risk profile, a material decline in net income, adverse modification or discontinuation of the pooling agreement, and sustained elevated financial leverage – including the addition of securities to TFG’s capital structure that are senior to the junior subordinated notes – or a significant decrease in interest coverage.

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