OLDWICK, N.J. -- (Business Wire)
A.M. Best Co. has affirmed the issuer credit rating (ICR) of
“bbb+” and all debt ratings of American Financial Group, Inc.
(AFG) [NYSE/NASDAQ: AFG]. Concurrently, A.M. Best has affirmed the
financial strength rating (FSR) of A (Excellent) and ICRs of “a+” of Great
American Insurance Company and its pooling affiliates (collectively
referred to as Great American Insurance Companies or Great
American). The outlook for the ratings of AFG and Great American is
positive. In addition, A.M. Best has affirmed the FSR of A+ (Superior)
and ICRs of “aa” of the property/casualty members of American Empire
Surplus Lines Pool (American Empire). A.M. Best also has affirmed
the FSR of A (Excellent) and ICRs of “a” of the members of the Republic
Indemnity Insurance Pool (Republic Indemnity) (headquartered in
Encino, CA). The outlook for the ratings of American Empire and Republic
Indemnity is stable. All companies are headquartered in Cincinnati, OH,
unless otherwise specified. (Please see link below for a detailed
listing of the companies and ratings.)
In addition, A.M. Best has upgraded the FSR to A+ (Superior) from A
(Excellent) and the ICRs to “aa-” from “a+” of the property/casualty
members of the Mid-Continent Group (Mid-Continent) (headquartered
in Tulsa, OK). The outlook has been revised to stable from positive.
The ratings of Great American reflect its excellent risk-adjusted
capitalization, strong operating profitability sustained over the long
term and diversified business profile. Great American's strong operating
performance reflects the profitable underwriting results derived through
management's disciplined operating strategy and product knowledge, as
well as the group's multiple distribution channels, diversified product
offerings, excellent geographic spread of risk and access to data
through its sophisticated technology platform. Great American's strong
underwriting performance also reflects its modest exposure to natural
catastrophes, as demonstrated in recent years with the group reporting
relatively low catastrophe-related losses. Lastly, the group also
benefits from the financial flexibility provided by its parent, AFG,
which maintains financial leverage that is in line with its current
ratings, as well as additional liquidity through its access to capital
markets and lines of credit. A.M. Best expects that earnings and cash
flows from AFG's operating subsidiaries will allow the company to
support Great American's capitalization, if needed.
These positive factors are somewhat offset by the payment of significant
stockholder dividends to AFG over the recent five-year period, elevated
common stock leverage and adverse loss development in certain lines of
business. While Great American has reported favorable loss reserve
development in recent calendar years, there have been areas of adverse
reserve development over the recent five-year period, particularly
relating to the run-off of its environmental and asbestos (A&E) claims.
Despite these offsetting factors, the outlook for the ratings reflects
the group's excellent risk-adjusted capitalization, solid underwriting
performance through all phases of the market cycle, experienced
management team and balanced portfolio of specialty risks that are
enhanced by its geographic diversification.
Mid-Continent’s ratings reflect its solid risk-adjusted capitalization,
very strong operating performance achieved over the long term and
successful position within its targeted markets. The group's favorable
underwriting and operating results reflect management's proven product
knowledge, focus on accurate pricing, and commitment to conservative
reserving standards. The group also benefits from the financial
flexibility provided by its ultimate parent, AFG.
These positive rating factors are partially offset by the significant
stockholder dividends paid to AFG, which has reduced policyholder
surplus during the recent five-year period, and the group's relatively
limited geographic spread of business.
American Empire’s ratings acknowledge its superior risk-adjusted
capitalization, strong operating performance over the long term within
the excess and surplus lines marketplace, and the successful track
record of the executive team in managing operations through all phases
of the market cycle. American Empire’s strong operating performance
reflects the highly profitable underwriting results, a low-cost
operating structure and solid investment income despite a reduction in
the invested asset base. The group's underwriting results are reflective
of management's disciplined underwriting approach, pricing integrity and
strong product and market knowledge. The ratings also reflect the
benefits of the financial flexibility provided by its ultimate parent,
These positive rating factors are partially offset by the demonstrated
sensitivity of the group's premium volume to the property/casualty
market cycle, the impact of reduced premium on operating results and the
significant level of stockholder dividends paid during the recent
The ratings of Republic Indemnity are based on its historically strong
operating performance, solid capitalization achieved through profitable
operations and the executive management team's successful track record
in managing operations through all phases of the market cycle, primarily
within California. The ratings also recognize the implicit and explicit
support provided by its ultimate parent, AFG, which has infused capital
as needed to maintain Republic Indemnity's risk-adjusted capitalization.
These positive rating factors are somewhat offset by the downturn in
underwriting performance in recent years relative to the group's
historical profitability levels, an elevated underwriting expense
measure that has increased as premium volume declined, the cumulative
impact of stockholder dividends paid to AFG, and the group's
concentrated business risk, operating as a monoline workers'
compensation insurer with a high concentration of premium volume in
AFG’s total debt to total capital (excluding accumulated other
comprehensive income) and interest coverage ratios remain within A.M.
Best’s guidelines for its current ratings. Also, AFG maintains sound
liquidity with approximately $1.7 billion in cash and cash equivalents
at December 31, 2012, with access to a $500 million revolving credit
facility.AFG has no material debt maturing until 2019, further
benefitting its liquidity position.AFG relies on stockholder
dividends from its subsidiaries to fund interest expenses, repurchase
company stock, redeem debt, re-allocate capital to support its operating
entities and for other corporate purposes. Nonetheless, management
remains committed to maintaining capital at the rated entities at levels
commensurate with their ratings.
Positive rating actions could be taken on the ratings of AFG’s
property/casualty subsidiaries if operating results remain in line with
higher rated peers in the commercial casualty composite while
maintaining a strong level of risk-adjusted capitalization. Positive
actions on the ratings of AFG could result from favorable actions on the
ratings of its key subsidiaries.
Key factors that could trigger negative rating actions on the group's
ratings include a material deterioration of underwriting and operating
results, particularly if the resulting performance is materially below
similarly rated peers, which results in weakening in risk-adjusted
capitalization below A.M. Best’s expectations, and an increase in the
financial leverage or reduction in the interest coverage at AFG to a
level that is out of line with its current ratings.
For a complete listing of American Financial Group, Inc. and its
subsidiaries’ FSRs, ICRs and debt ratings, please visit www.ambest.com/press/022203americanfinancialgroup.pdf.
The methodology used in determining these ratings is Best’s Credit
Rating Methodology, which provides a comprehensive explanation of A.M.
Best’s rating process and contains the different rating criteria
employed in the rating process. Key criteria utilized include:
“Understanding BCAR for Property/Casualty Insurers”; “Understanding
Universal BCAR”; “Catastrophe Analysis in A.M. Best Ratings”; “Insurance
Holding Company and Debt Ratings”; “Rating Members of Insurance Groups”;
“Rating Natural Catastrophe Bonds”; “Risk Management and the Rating
Process for Insurance Companies”; and “The Treatment of Terrorism Risk
in the Rating Evaluation.” Best’s Credit Rating Methodology can be found
Founded in 1899, A.M. Best Company is the world's oldest and most
authoritative insurance rating and information source. For more
information, visit www.ambest.com.
Copyright © 2013 by A.M. Best Company, Inc.ALL RIGHTS
A.M. Best Co.
Gordon McLean, 908-439-2200 ext. 5304
Morrow, 908-439-2200 ext. 5378
Senior Manager, Public Relations
Marshall, CPCU, 908-439-2200 ext. 5327
Managing Senior Financial
Peavy, 908-439-2200 ext. 5644
Assistant Vice President, Public
Source: A.M. Best Co.
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