A.M. Best Revises Outlook to Positive for American Financial Group, Inc. and Most of Its Property/Casualty Subsidiaries
30 3월 2012 - 5:20AM
Business Wire
A.M. Best Co. has revised the outlook to positive from
stable and affirmed the issuer credit ratings (ICR) of “bbb+” and
all debt ratings of American Financial Group, Inc. (AFG)
(NYSE: AFG) and AAG Holding Company, Inc. (AAG).
Concurrently, A.M. Best has revised the outlook to positive from
stable and affirmed the financial strength rating (FSR) of A
(Excellent) and ICRs of “a+” of Great American Insurance
Companies (Great American) and Mid-Continent Group
(Mid-Continent) and their property/casualty members (headquartered
in Tulsa, OK).
In addition, A.M. Best has upgraded the ICRs to “aa” from “aa-”
and affirmed the FSR of A+ (Superior) of the American Empire
Surplus Lines Pool (American Empire) and its property/casualty
members. A.M. Best also has affirmed the FSR of A (Excellent) and
ICRs of “a” of the Republic Indemnity Pool (Republic
Indemnity) and its property/casualty members 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.)
The ratings of Great American reflect its solid risk-adjusted
capitalization, strong operating profitability and diversified
business profile. Great American’s operating performance has been
driven by consistently favorable underwriting results, which are
reflective of management’s disciplined operating strategy and
product knowledge. The group also benefits from its multiple
distribution channels, diversified product offerings, excellent
geographic spread of risk, access to data through its sophisticated
technology platform and a modest exposure to natural catastrophes,
as demonstrated in recent years with the group reporting relatively
low catastrophe-related losses. Moreover, Great American 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.
These positive rating factors are somewhat offset by the payment
of significant stockholder dividends to AFG over the recent
five-year period, elevated common stock leverage and pockets of
adverse loss development, particularly related to the run-off of
the group’s asbestos and environmental liabilities. While Great
American’s capitalization was strained in 2008, following
deteriorating underwriting results and significant realized and
unrealized capital losses, its strong underwriting results combined
with recovery of the financial markets in recent years have
resulted in a supportive level of risk-adjusted capitalization.
Mid-Continent’s ratings recognize its solid risk-adjusted
capitalization, strong operating performance and successful
position within its targeted markets. The group’s favorable
underwriting and operating results have been driven by management’s
proven product knowledge, niche-focused marketing efforts and
adherence to disciplined pricing standards. Mid-Continent also
benefits from the financial flexibility afforded by AFG. These
positive rating factors are partially offset by the significant
stockholder dividends paid to AFG in recent years and
Mid-Continent’s limited geographic spread of business.
American Empire’s ratings acknowledge its superior risk-adjusted
capitalization, strong operating performance, experience as a
provider of excess and surplus lines products 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 is reflective of excellent underwriting results, a
low-cost operating structure and a solid stream of investment
income. The group’s underwriting results are attributable to
management’s disciplined underwriting approach, pricing integrity
and strong product and market knowledge. American Empire benefits
from the financial flexibility provided by AFG.
These positive rating factors are partially offset by the
demonstrated sensitivity of the group’s premium volume to the
property/casualty market cycle and the impact of reduced premiums
on operating results and the significant amount of stockholder
dividends paid in recent years.
The ratings of Republic Indemnity are based on its historically
strong operating performance, adequate capitalization and
management’s experience in providing workers’ compensation
insurance coverage, primarily in California. The ratings also
recognize the implicit and explicit support provided by AFG, which
has historically demonstrated its commitment to maintaining
Republic Indemnity’s capital adequacy by infusing capital when
needed.
These positive rating factors are somewhat offset by challenging
market conditions in the workers’ compensation line of business,
the underwriting results in more recent years, which are not in
line with the group’s historical performance levels, the relatively
high underwriting expenses, the accumulation 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 (including accumulated other
comprehensive income) and interest coverage ratios remain in line
with its current ratings. Also, AFG maintains sound liquidity with
approximately $1.3 billion in cash and cash equivalents at December
31, 2011 and access to a $500 million revolving credit facility.
AFG has no material debt maturing until 2019, further benefitting
its liquidity position. AFG continues to rely 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 Great
American and Mid-Continent if their underwriting and operating
results continue to outperform other similarly-rated peers and are
consistently in-line with higher rated peers in the commercial
casualty composite while maintaining a strong level of
risk-adjusted capitalization. Positive rating 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 AFG or
any of its subsidiaries include the deterioration of risk-adjusted
capitalization and/or operating results, particularly if the
resulting performance is 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/032907americanfinancial.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:: “Risk Management and the Rating Process
for Insurance Companies”; “Understanding BCAR for Property/Casualty
Insurers”; “Rating Members of Insurance Groups”; “Catastrophe
Analysis in A.M. Best Ratings”; “The Treatment of Terrorism Risk in
the Rating Evaluation”; and “A.M. Best’s Ratings & the
Treatment of Debt.” Best’s Credit Rating Methodology can be found
at www.ambest.com/ratings/methodology.
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 © 2012 by A.M. Best Company, Inc.
ALL RIGHTS RESERVED.
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