A.M. Best has affirmed the financial strength rating
(FSR) of A+ (Superior) and the issuer credit ratings (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 ICR of “a-” and the debt ratings of American
Financial Group, Inc. (AFG) (Cincinnati, OH) [NYSE/NASDAQ:AFG].
The outlook for the above ratings remains stable.
Concurrently, A.M. Best has affirmed the FSR of A (Excellent)
and the ICRs of “a” of Republic Indemnity Company of America
(RICA) and its 100% reinsured subsidiary, Republic Indemnity
Company of California (RICC) (collectively referred to as
Republic), as well as RICA’s 100% reinsured affiliates,
Bridgefield Employers Insurance Company (BEIC) and its
subsidiary, Bridgefield Casualty Insurance Company (BCIC).
BEIC and BCIC are collectively referred to as Summit, and the four
companies are collectively members of the Republic and Summit
Insurance Pool. The outlook for all ratings is stable. RICA and
RICC are headquartered in Encino, CA. BEIC and BCIC are
headquartered in Lakeland, FL.
In addition, A.M. Best has affirmed the FSR of A+ (Superior) and
the 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+ (Superior) and the ICRs of “aa-” of the
property/casualty members of the Mid-Continent Group
(Mid-Continent) (headquartered in Tulsa, OK). The outlook for the
ratings of American Empire and Mid-Continent 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 companies and ratings.)
The ratings of Great American reflect the group’s excellent
risk-adjusted capitalization, 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. Great American’s
strong underwriting performance also reflects the diversification
of its premium writings and its modest exposure to natural
catastrophes. The group also benefits 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 Great American's
risk-adjusted capitalization, should the need arise.
These positive rating factors are somewhat offset by the
significant stockholder dividends paid to AFG over the recent
five-year period, which have constrained organic surplus growth, as
well as elevated common stock leverage and adverse loss development
occurring in certain lines of business. While Great American has
reported favorable loss reserve development in recent calendar
years, areas of adverse reserve development persist, particularly
relating to the run-off of its asbestos and environmental claims.
Despite these offsetting factors, the outlook for the ratings
acknowledges the group’s excellent risk-adjusted capitalization,
solid underwriting performance throughout the underwriting cycle,
experienced management team and balanced portfolio of specialty
risks that are enhanced by its geographic diversification.
The ratings assigned to the members of the Republic and Summit
Insurance Pool reflect the group's historically strong operating
performance, solid capitalization achieved through profitable
operations and management’s successful track record through all
phases of the market cycle, as well as the expanded geographical
diversification of business following the addition of the Summit
companies to the pool. 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.
These positive rating factors are somewhat offset by the
weakened five-year underwriting performance as measured by the
combined ratio relative to its historical profitability levels
given the impact of the macroeconomic environment, as well as some
integration risk following the acquisition of the Summit companies.
Other offsetting factors include the cumulative impact of
stockholder dividends paid to AFG and the concentrated nature of
the group's business in a single line of insurance, although the
geographically diversified nature of the pool’s business reduces
this concern.
American Empire’s ratings reflect the group’s excellent
risk-adjusted capitalization, very 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 its highly
profitable underwriting results due in part to its low cost
operating structure, augmented by solid investment income. The
group’s underwriting results are reflective of management’s
disciplined underwriting approach, accurate pricing, market
expertise and strong product knowledge. The ratings also recognize
the benefits of the financial flexibility provided by AFG.
These positive rating factors are partially offset by the
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 five-year period.
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, accurate pricing and
commitment to maintaining conservative reserving standards. The
group also benefits from the financial flexibility provided by
AFG.
These positive rating factors are partially offset by the
significant stockholder dividends paid to AFG, which have reduced
policyholder surplus during the recent five-year period and the
group’s relatively limited geographic spread of business as the
majority of business is derived from Oklahoma, Texas and Florida,
which somewhat exposes the operations to potential regulatory,
legislative and competitive risks.
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. AFG maintains sound
liquidity, as well as 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, 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.
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 surplus lines carriers, while maintaining an
excellent 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; a significant weakening 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 listing of the FSRs, ICRs and debt ratings of
American Financial Group, Inc. and its property/casualty
subsidiaries, please visit American Financial Group, Inc.
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. Best’s
Credit Rating Methodology can be found at
www.ambest.com/ratings/methodology.
Key insurance criteria reports utilized:
- Analyzing Insurance Holding Company
Liquidity
- Catastrophe Analysis in A.M. Best
Ratings
- Insurance Holding Company and Debt
Ratings
- Rating Members of Insurance Groups
- Risk Management and the Rating Process
for Insurance Companies
- The Treatment of Terrorism Risk in the
Rating Evaluation
- Understanding BCAR for
Property/Casualty Insurers
- Understanding Universal BCAR
- Equity Credit for Hybrid
Securities
This press release relates to rating(s) 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 visit A.M.
Best’s Ratings & Criteria Center.
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 © 2015 by A.M. Best Company,
Inc. ALL RIGHTS RESERVED.
A.M. BestGordon McLean, 908-439-2200, ext. 5304Senior Financial
Analystgordon.mclean@ambest.comorJennifer Marshall, 908-439-2200,
ext. 5327Assistant Vice
Presidentjennifer.marshall@ambest.comorChristopher Sharkey,
908-439-2200, ext. 5159Manager, Public
Relationschristopher.sharkey@ambest.comorJim Peavy, 908-439-2200,
ext. 5644Assistant Vice President, Public
Relationsjames.peavy@ambest.com
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