A.M. Best has affirmed the financial strength rating of
A+ (Superior) and the issuer credit rating 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 issue ratings of American
Financial Group, Inc. (AFG) (Cincinnati, OH) [NYSE/NASDAQ:AFG].
The outlook for each of these ratings is stable.
Additionally, A.M. Best has revised the ICR outlook to negative
from stable and affirmed the FSR of A+ (Superior) and the ICR of
“aa” of the property/casualty members of American Empire Surplus
Lines Pool (American Empire). The outlook for the FSR remains
stable.
Concurrently, A.M. Best has affirmed the FSR of A (Excellent)
and the ICR of “a” of the property/casualty members of the
Republic and Summit Insurance Pool. The outlook for each of
these ratings is stable. Two of the group’s members – Republic
Indemnity Company of America and Republic Indemnity Company
of California – are headquartered in Encino, CA. The group’s
other members – Bridgefield Employers Insurance Company and
Bridgefield Casualty Insurance Company – 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 the
Mid-Continent Group (Mid-Continent) (headquartered in Tulsa,
OK). The outlook for each of these ratings is stable.
A.M. Best also has affirmed the FSR of A (Excellent) and the
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 for each of these ratings is stable.
Further, A.M. Best has affirmed the FSR of B++ (Good) and the
ICR of “bbb+” of Manhattan National Life Insurance Company
(Manhattan National), a life subsidiary of AFG. The outlook for
each rating 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 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.
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, areas of adverse reserve development
persist, particularly relating to the run-off of its asbestos and
environmental claims.
The revised ICR outlook for American Empire reflects adverse
development of prior years’ loss reserves reported in recent years
that have caused underwriting results to deteriorate from their
highly profitable historical level, which significantly
outperformed the average results of the group’s composite. The
adverse 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. In 2015, adverse prior-year
loss reserve development increased the calendar year combined ratio
by approximately 12 points. The ratings affirmation reflects
American Empire’s excellent risk-adjusted capitalization, very
strong operating performance over the long term within the excess
and surplus lines market and the executive team’s successful track
record in managing operations through all phases of the market
cycle. American Empire’s historically strong operating performance
reflects its profitable underwriting results due in part to its low
cost operating structure, augmented by solid investment income.
The ratings assigned to the members of the Republic and Summit
Insurance Pool reflect the group’s historically strong operating
performance, solid risk-adjusted capitalization achieved through
profitable operations and management’s successful market cycle
navigation, as well as the expanded geographical diversification of
business following the addition of the Summit companies to the pool
in 2014. 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 underwriting performance earlier in the latest five-year
period, relative to its historical results. Other offsetting
factors include 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
65% of 2015 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 caused
underwriting results to deteriorate. 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.
The ratings of GALIC and AILIC reflect their leading market
position in the sale of fixed-indexed annuity products through the
bank 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 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 and commercial mortgage-backed securities, relative to
its peers.
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 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 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
property/casualty subsidiaries' FSRs, ICRs and issue ratings,
please visit American Financial Group, Inc.
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 see A.M.
Best’s Recent Rating Activity web page.
A.M. Best is the world’s oldest and most authoritative
insurance rating and information source. For more information,
visit www.ambest.com.
Copyright © 2016 by A.M. Best Rating
Services, Inc. ALL RIGHTS RESERVED.
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version on businesswire.com: http://www.businesswire.com/news/home/20160512006341/en/
A.M. BestMichael Russo, +1 908-439-2200, ext.
5372Senior Financial
Analyst—P/Cmichael.russo@ambest.comorThomas Rosendale, +1
908-439-2200, ext. 5201Assistant Vice
President—L/Hthomas.rosendale@ambest.comorChristopher
Sharkey, +1 908 439 2200, ext. 5159Manager, Public
Relationschristopher.sharkey@ambest.comorJim Peavy, +1 908
439 2200, ext. 5644Assistant Vice President, Public
Relationsjames.peavy@ambest.com
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