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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Methodologies

• Insurance: Insurer & Insurance Holding Company Global Rating Methodology
• ESG Global Rating Methodology

Disclosures

Further information on key credit considerations, sensitivity analyses that consider what factors can affect these credit ratings and how they could lead to an upgrade or a downgrade, and ESG factors (where they are a key driver behind the change to the credit rating or rating outlook) can be found in the full rating report referenced above.

A description of all substantially material sources that were used to prepare the credit rating and information on the methodology(ies) (inclusive of any material models and sensitivity analyses of the relevant key rating assumptions, as applicable) used in determining the credit rating is available in the Information Disclosure Form(s) located here.

Information on the meaning of each rating category can be located here.

Further disclosures relating to this rating action are available in the Information Disclosure Form(s) referenced above. Additional information regarding KBRA policies, methodologies, rating scales and disclosures are available at www.kbra.com.

About KBRA

Kroll Bond Rating Agency, LLC (KBRA), one of the major credit rating agencies (CRA), is a full-service CRA registered with the U.S. Securities and Exchange Commission as an NRSRO. Kroll Bond Rating Agency Europe Limited is registered as a CRA with the European Securities and Markets Authority. Kroll Bond Rating Agency UK Limited is registered as a CRA with the UK Financial Conduct Authority. In addition, KBRA is designated as a Designated Rating Organization (DRO) by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized as a Qualified Rating Agency by Taiwan’s Financial Supervisory Commission and is recognized by the National Association of Insurance Commissioners as a Credit Rating Provider (CRP) in the U.S.

Doc ID: 1009576

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