A.M. Best Affirms Ratings of American Financial Group, Inc., Most of Its P/C Subsidiaries and Upgrades Ratings of Mid-Continent
23 2월 2013 - 5:56AM
Business Wire
A.M. Best Co. has affirmed the issuer credit rating (ICR)
of “bbb+” and all debt ratings of American Financial Group,
Inc. (AFG) [NYSE/NASDAQ: AFG]. Concurrently, A.M. Best has
affirmed the financial strength rating (FSR) of A (Excellent) and
ICRs of “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
ratings of AFG and Great American is 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. All companies are headquartered in
Cincinnati, OH, unless otherwise specified. (Please see link below
for a detailed listing of the companies and ratings.)
In addition, A.M. Best has upgraded the FSR to A+ (Superior)
from A (Excellent) and the ICRs to “aa-” from “a+” of the
property/casualty members of the Mid-Continent Group
(Mid-Continent) (headquartered in Tulsa, OK). The outlook has been
revised to stable from positive.
The ratings of Great American reflect its excellent
risk-adjusted capitalization, strong operating profitability
sustained over the long term and diversified business profile.
Great American's strong operating performance reflects the
profitable underwriting results derived through management's
disciplined operating strategy and product 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 its modest exposure
to natural catastrophes, as demonstrated in recent years with the
group reporting relatively low catastrophe-related losses. Lastly,
the group also 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. A.M. Best
expects that earnings and cash flows from AFG's operating
subsidiaries will allow the company to support Great American's
capitalization, if needed.
These positive factors are somewhat offset by the payment of
significant stockholder dividends to AFG over the recent five-year
period, 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, there
have been areas of adverse reserve development over the recent
five-year period, particularly relating to the run-off of its
environmental and asbestos (A&E) claims. Despite these
offsetting factors, the outlook for the ratings reflects the
group's excellent risk-adjusted capitalization, solid underwriting
performance through all phases of the market cycle, experienced
management team and balanced portfolio of specialty risks that are
enhanced by its geographic diversification.
Mid-Continent’s ratings reflect its solid risk-adjusted
capitalization, very strong operating performance achieved 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, focus on accurate pricing,
and commitment to conservative reserving standards. The group also
benefits from the financial flexibility provided by its ultimate
parent, 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.
American Empire’s ratings acknowledge its superior risk-adjusted
capitalization, 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 the highly profitable underwriting results, a
low-cost operating structure and solid investment income despite a
reduction in the invested asset base. The group's underwriting
results are reflective of management's disciplined underwriting
approach, pricing integrity and strong product and market
knowledge. The ratings also reflect the benefits of the financial
flexibility provided by its ultimate parent, AFG.
These positive rating factors are partially offset by the
demonstrated 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 provided by its
ultimate parent, 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 in recent years relative to
the group's historical profitability levels, an elevated
underwriting expense measure that has increased as premium volume
declined, 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. Also, AFG maintains
sound liquidity with approximately $1.7 billion in cash and cash
equivalents at December 31, 2012, with 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 their
ratings.
Positive rating actions could be taken on the ratings of AFG’s
property/casualty subsidiaries if operating results remain in line
with higher rated peers in the commercial casualty composite while
maintaining a strong level of risk-adjusted capitalization.
Positive 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 the
group's ratings include a material deterioration of underwriting
and operating results, particularly if the resulting performance is
materially below similarly rated peers, which results in weakening
in risk-adjusted capitalization 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/022203americanfinancialgroup.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: “Understanding BCAR for
Property/Casualty Insurers”; “Understanding Universal BCAR”;
“Catastrophe Analysis in A.M. Best Ratings”; “Insurance Holding
Company and Debt Ratings”; “Rating Members of Insurance Groups”;
“Rating Natural Catastrophe Bonds”; “Risk Management and the Rating
Process for Insurance Companies”; and “The Treatment of Terrorism
Risk in the Rating Evaluation.” 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 © 2013 by A.M. Best Company,
Inc. ALL RIGHTS RESERVED.
American Financial (NYSE:AFG)
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