A.M. Best has affirmed the Financial Strength Rating
(FSR) of A+ (Superior) and the Long-Term Issuer Credit Rating
(Long-Term ICR) of “aa-” of Great American Insurance Company
and its pooling affiliates, collectively referred to as Great
American Insurance Companies (Great American). Concurrently,
A.M. Best has affirmed the Long-Term ICR of “a-” and the Long-Term
Issue Credit Ratings (Long-Term IR) of American Financial Group,
Inc. (AFG) (Cincinnati, OH) [NYSE:AFG]. The outlook of these
Credit Ratings (ratings) is stable.
Additionally, A.M. Best has downgraded the Long-Term ICR to
“aa-” from “aa” and affirmed the FSR of A+ (Superior) of the
property/casualty members of American Empire Surplus Lines
Pool (American Empire). The outlook of the Long-Term ICR has
been revised to stable from negative, while the FSR outlook remains
stable.
Concurrently, A.M. Best has revised the outlook of the Long-Term
ICR to positive from stable and affirmed FSR of A (Excellent) and
the Long-Term ICR of “a” of the property/casualty members of the
Republic and Summit Insurance Pool. The outlook for the FSR
remains stable. Two pool members – Republic Indemnity Company of
America and Republic Indemnity Company of California –
are headquartered in Encino, CA. The remaining members –
Bridgefield Employers Insurance Company and Bridgefield
Casualty Insurance Company (collectively, the Summit companies)
– are headquartered in Lakeland, FL.
In addition, A.M. Best has affirmed the FSR of A+ (Superior) and
the Long-Term ICRs of “aa-” of the property/casualty members of the
Mid-Continent Group (Mid-Continent) (headquartered in Tulsa,
OK). The outlook of these ratings is stable.
A.M. Best also has affirmed the FSR of A (Excellent) and the
Long-Term ICR of “a+” of National Interstate Insurance
Company (headquartered in Richfield, OH) and its affiliates
(collectively referred to as National Interstate). The outlook of
these ratings is stable.
At the same time, A.M. Best has affirmed the FSR of A
(Excellent) and the Long-Term ICRs of “a+” of Great American
Life Insurance Company (GALIC) and its wholly owned subsidiary,
Annuity Investors Life Insurance Company (AILIC), the key
annuity subsidiaries of AFG. The outlook of these ratings is
stable.
Furthermore, A.M. Best has affirmed the FSR of B++ (Good) and
the Long-Term ICR of “bbb+” of Manhattan National Life Insurance
Company (Manhattan National) (Cincinnati, OH), a life
subsidiary of AFG. The outlook of these ratings is stable.
All companies are subsidiaries of AFG and are headquartered in
Cincinnati, OH, unless otherwise specified. (Please see link below
for a detailed listing of the property/casualty and life and
annuity companies and ratings.)
The ratings of Great American reflect the group’s solid
risk-adjusted capitalization, consistently strong operating
profitability, which has been sustained over the long term, and
diversified business profile, which serves to protect its earnings
stream. Great American’s strong operating performance reflects the
profitable underwriting results derived through management’s
disciplined operating strategy and specialty market 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.
These positive ratings factors are somewhat offset by elevated
common stock leverage and adverse prior- year loss reserve
development occurring in certain lines of business. While Great
American has reported overall favorable loss reserve development in
recent calendar years, adverse reserve development in certain areas
persists, particularly relating to the run-off of its asbestos and
environmental claims.
The downgrade of the Long-Term ICR of American Empire reflects
A.M. Best’s view that although the group historically reported very
favorable underwriting and operating results, recent results have
sharply deteriorated and no longer support a Long-Term ICR of “aa”.
The decline in performance has been driven by adverse development
of prior years’ loss reserves reported in recent years that have
caused underwriting results to deteriorate from their highly
profitable historical level. In 2016, adverse prior-year loss
reserve development caused the calendar year combined ratio to
deteriorate by approximately 41 points. The unfavorable development
has been driven by the other liability line of business,
specifically relating to the New York contractors business for
accident years 2009 through 2014.
Management has taken a number of steps to restore the group's
profitability to historically strong levels. These steps include
but are not limited to rate increases, more restrictive
underwriting guidelines and a refined approach to claims mediation.
While results in the first half of 2017 appear to be stabilizing,
it is too early to gauge the ultimate effectiveness of these
initiatives.
American Empire’s ratings reflect the group’s supportive
risk-adjusted capitalization, very strong operating performance
over the long term within the excess and surplus lines market
(despite the more recent deterioration in performance) and the
executive team’s longer term successful track record in managing
operations through all phases of the market cycle. The ratings also
recognize the implicit and explicit support afforded by AFG, which
has infused capital as needed to maintain risk-adjusted
capitalization at a level in line with the ratings.
The positive Long-Term ICR outlook for the members of the
Republic and Summit Insurance Pool reflects the pool’s continued
strong operating performance on an absolute basis and relative to
the results of similarly rated peers within the workers’
compensation composite, while maintaining solid-risk adjusted
capitalization through profitable operations. The ratings also
reflect management’s successful cycle navigation and the expanded
geographic diversification of business following the addition of
the Summit companies to the pool in 2014. The positive Long-Term
ICR outlook further recognizes the pool's smooth integration of the
Summit companies, as evidenced by the group’s steadily improved
combined ratios and overall profitability since the Summit
companies were acquired. If the pool continues to generate overall
operating performance comparable to recent results while
maintaining excellent risk-adjusted capitalization over the next
24-36 months, positive rating action is possible.
The ratings of the Republic and Summit Pool also recognize the
implicit and explicit support afforded by AFG, which has infused
capital as needed to maintain risk-adjusted capitalization at a
level in line with the ratings.
These positive rating factors are somewhat offset by the
concentrated nature of the group’s business in a single line of
insurance and geographic concentration in two states, Florida and
California, which accounted for approximately 66% of 2016 direct
premiums written. This concentration creates an elevated exposure
to legislative, judicial and regulatory changes.
Mid-Continent’s ratings reflect its solid risk-adjusted
capitalization, very strong operating performance sustained 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 and commitment to maintaining
accurate pricing.
These positive rating factors are partially offset by adverse
prior-year loss reserve development in recent years arising from
the product liability line of business, which has pressured
underwriting results for the past several years. Additional
offsetting factors include the group’s relatively limited
geographic spread of business as the majority of business is
derived from Texas, Oklahoma and Florida, which exposes the
operations to an elevated degree of regulatory, legislative and
competitive risks.
National Interstate’s ratings reflect the group’s strong
long-term operating performance; solid risk-adjusted capitalization
achieved through generally profitable underwriting results; and
demonstrated expertise within its niche transportation market. In
addition, the ratings acknowledge the group’s experienced
management team and conservative operating philosophy. The positive
rating attributes are derived from management’s focus on
maintaining rate integrity, controlled claims handling and detailed
segmentation of risks that are supported by effective technology
resources. Additionally, National Interstate’s focus on providing
alternative risk transfer programs for the specialty transportation
segment provides the group with a sustainable competitive
advantage, particularly in terms of pricing, claims adjusting and
loss control.
Partially offsetting these positive rating factors are adverse
development of some recent calendar year loss reserves (although
the 2014 and 2015 accident years have both developed favorably) and
the associated deterioration in underwriting results in recent
calendar years; as well as the concentration of business within the
passenger and truck transportation industries.
The ratings of GALIC and AILIC reflect their leading market
position in the sale of fixed-indexed annuity products through the
bank distribution channel, and their consistent net operating
earnings and strong risk-adjusted capitalization. Additionally,
strong growth in the annuity business over the past several years
has helped GALIC and AILIC become material contributors to AFG’s
consolidated revenue and earnings. As a result, A.M. Best believes
that the strategic importance of these companies to the overall
organization continues to support the rating enhancement currently
afforded by AFG.
Offsetting rating factors include the group’s continued
concentrated business profile within the individual annuity market,
premium declines within the retail and educational channels, and
the group’s exposure to real estate-related investments, in
particular, residential mortgage-backed securities, relative to its
peers, and additional high exposure to collateralized loan
obligations as a percentage of total capital.
Manhattan National’s ratings reflect its strong risk-adjusted
capitalization offset by its declining premium and statutory
earnings trends. A.M. Best believes that the run-off block of
ordinary life business remaining at the company is no longer
central to the organization’s long-term strategy. Although the life
insurance line should continue to provide some revenue and earnings
diversification for AFG’s annuity operations, the contribution has
been steadily decreasing.
Each of the groups also benefit from the financial flexibility
provided by AFG, which maintains financial leverage that is in line
with its current ratings, as well as additional liquidity sources
given its access to capital markets and line of credit. A.M. Best
expects that earnings and cash flows from AFG’s operating
subsidiaries will allow it to support risk-adjusted capitalization,
should the need arise. At the same time, surplus growth at each
group has been limited over the past five years by the payment of
significant stockholder dividends to AFG. These dividends vary
based on capital needs at the various subsidiaries.
AFG’s debt-to-capital (excluding accumulated other comprehensive
income) and interest coverage ratios remain within A.M. Best’s
guidelines for its current ratings. AFG maintains sound liquidity
and access to a revolving credit facility. AFG has no material debt
maturing until 2019, further benefiting its liquidity position. AFG
relies on stockholder dividends from its subsidiaries to fund
interest expenses, repurchase company stock, redeem debt,
reallocate 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.
While A.M. Best does not anticipate positive rating actions in
the near term, positive rating actions could be taken in the future
if underwriting and operating results materially outperform other
similarly rated carriers, while maintaining an appropriate level of
risk-adjusted capitalization. Key factors that could trigger
negative rating actions include a material deterioration of
underwriting and operating results, particularly if the resulting
performance is materially below similarly rated peers, or, in the
case of American Empire and Mid-Continent, a failure of
underwriting performance to return to its outperformance of
similarly rated peers; a significant deterioration in risk-adjusted
capitalization; or 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 list of American Financial Group, Inc.’s
subsidiaries’ FSRs, Long-Term ICRs and Long-Term IRs, please visit
American Financial Group, Inc.
This press release relates to Credit Ratings that have been
published on A.M. Best’s website. For all rating information
relating to the release and pertinent disclosures, including
details of the office responsible for issuing each of the
individual ratings referenced in this release, please see A.M.
Best’s Recent Rating Activity web page. For
additional information regarding the use and limitations of Credit
Rating opinions, please view Understanding Best’s Credit
Ratings. For information on the proper media use of Best’s
Credit Ratings and A.M. Best press releases, please view
Guide for Media - Proper Use of Best’s Credit Ratings and A.M.
Best Rating Action Press Releases.
A.M. Best is the world’s oldest and most authoritative
insurance rating and information source. For more information,
visit www.ambest.com.
Copyright © 2017 by A.M. Best Rating
Services, Inc. and/or its subsidiaries. ALL RIGHTS
RESERVED.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20170811005572/en/
A.M. BestGregory Dickerson, +1 908-439-2200, ext.
5161Senior Financial
Analyst—P/Cgregory.dickerson@ambest.comorChristopher
Sharkey, +1 908-439-2200, ext. 5159Manager, Public
Relationschristopher.sharkey@ambest.comorIgor Bass,
+1 908-439-2200, ext. 5109Financial
Analyst—L/Higor.bass@ambest.comorJim Peavy, +1
908-439-2200, ext. 5644Director, Public
Relationsjames.peavy@ambest.com
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