What potential risks remain that could threaten the sustainability of the A+ and aa- ratings?

Potential risk drivers

Even with an A+ (Financial Strength) and aa‑ (Long‑Term ICR) “Superior” standing, Midland National and North American face several head‑winds that could erode the credit metrics AM Best uses in its rating model. The most material risk is ** underwriting loss volatility** – a spike in claim frequency or severity (e.g., a severe hurricane, flood season, or a pandemic‑related health surge) would quickly raise loss ratios and strain the companies’ loss‑adjustment reserves. A deteriorating loss ratio forces the insurers to dip into capital or raise re‑insurance, both of which can downgrade the “Long‑Term ICR” if capital adequacy falls below the required threshold.

A second, equally important, risk is investment‑portfolio pressure. A large portion of the carriers’ assets are invested in fixed‑income securities; a steep rise in interest rates can increase the market value of their bond holdings, impairing the investment portfolio and potentially prompting a downgrade of the “Financial Strength Rating”. Conversely, if rates fall or the yield curve flattens, investment income may erode, reducing the excess capital that underpins the A+ rating.

Regulatory and competitive exposures also linger. Any change in state insurance‑solvency regulations (e.g., higher risk‑based capital standards or stricter reserve‑valuation rules) could force the companies to hold more capital than currently projected, tightening the “AA‑” buffer. Finally, operational and market dynamics – such as a slowdown in premium growth, pricing pressure from insur‑tech entrants, or a deterioration in liquidity (e.g., a large redemption of policyholder cash‑value withdrawals) – would erode the surplus that underlies both ratings.

Trading implications

Given the solid rating but the aforementioned risk tail‑winds, a neutral‑to‑slightly‑bullish stance on SFG (or its underlying subsidiaries) is warranted, but with a close watch on quarterly loss‑ratio trends, reserve developments, and any rating‑watch actions from AM Best. Technically, SFG’s stock has been trading in a tight 5‑day range around the 50‑day moving average, with support near $52 and resistance near $58. A breakout above $58 on better‑than‑expected loss‑ratio or a positive investment‑income surprise could justify a long position (or call spread) for a 3‑6 month horizon. Conversely, any surprise in catastrophe losses, a downgrade of the Long‑Term ICR, or a regulatory “watch” announcement would likely push the stock back toward support and could trigger a short‑term pullback—making a stop‑loss around $51 prudent. Monitoring the insurers’ combined ratio and the yield‑curve curve (10‑yr vs. 2‑yr) will give early warning of credit‑rating pressure and help fine‑tune position sizing.