A.M. Best has upgraded the issuer credit rating (ICR) to "a-"
from "bbb+" and the debt ratings of American Financial Group, Inc.
(AFG) [NYSE/NASDAQ: AFG]. Concurrently, A.M. Best has upgraded the
financial strength rating (FSR) to A+ (Superior) from A (Excellent) and
the ICRs to "aa-" from "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 above
ratings has been revised to stable from 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.
Concurrently, 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
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 companies and ratings.)
The ratings of Great American reflect its excellent risk-adjusted
capitalization, strong operating profitability 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, as well as 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 lines 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 has constrained organic surplus growth, as well as 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, areas of adverse reserve
development persist, particularly relating to the run-off of its
asbestos and environmental (A&E) claims. Depite 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
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 has 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.
American Empire's ratings acknowledge its superior 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,
low-cost operating structure and solid investment yield despite a
reduction in the invested asset base, which has reduced 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.
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 afforded by 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 beginning in 2009 through 2012, relative to the
group's historical profitability levels given the impact of the
macroeconomic environment, 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 California.
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
with parent company cash of approximately $525 million at December 31,
2013, as well as 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
Due to recent rating actions taken by A.M. Best on the organization in
recent years, additional positive rating actions are unlikely in the
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 American Financial Group, Inc. and its
subsidiaries' FSRs, ICRs and debt ratings, please visit www.ambest.com/press/022110americanfinancial.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. Best's Credit Rating Methodology can be
found at www.ambest.com/ratings/methodology.
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 © 2014 by A.M. Best Company, Inc. ALL RIGHTS
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