National Security Unveils Prelim Gustav Losses

On Aug. 31, Hurricane Gustav, a Category 2 hurricane, made landfall on the Louisiana Gulf Coast.

According to Alabama-based National Security Group, damage caused by the hurricane and tropical storm force winds of Hurricane Gustav as well as spin-off tornadoes has occurred in company coverage areas in Louisiana, Mississippi and Alabama. As a result, insured losses have been incurred by company subsidiaries National Security Fire and Casualty Company and Omega One Insurance Company.

Management maintains a comprehensive risk management program to mitigate the impact of events such as Hurricane Gustav. A primary component of the risk management program is catastrophe reinsurance, which limits losses to the company as a result of catastrophic events such as Hurricane Gustav. As a result of risk management programs in place, the impact of Hurricane Gustav is not expected to have a material impact on the company’s overall financial condition, but will have a material impact on the company’s current year results of operations.

Under the company's catastrophe reinsurance program, they retain the first $3.5 million in losses from each event. The company maintains reinsurance in four layers as follows:

Layer		Reinsurers' Limits of Liability
First Layer		95% of $ 6,500,000 in excess of $ 3,500,000
Second Layer		95% of $ 7,500,000 in excess of $10,000,000
Third Layer		100% of $25,000,000 in excess of $17,500,000
Fourth Layer		100% of $15,000,000 in excess of $42,500,000
Total Coverage $57,500,000

Based on preliminary estimates, 2008 net income will be reduced within the range of $2.2 million to $3.0 million, or a reduction in earnings per share as a result of this event is expected to be in the range of $0.88 to $1.20 per share. The projected impact on earnings is based on total company insured losses falling within the range of $3.3 million to $6.7 million, before reductions for reinsurance recoveries. After consideration of amounts to be recovered through reinsurance, company net losses and associated claims settlement costs are expected to range from $3.3 to $4.5 million on a pre-tax basis.

Loss estimates were derived by an evaluation of company specific exposures and computer aided modeling of the path of Hurricane Gustav and is the best information available to management at this time.

The estimates could be materially affected by, among other things, the number of insureds impacted by the hurricane, the amount and timing of losses actually incurred and reported by insureds, the preliminary nature of current estimates and the amount and timing of reinsurance recoverable collections.