A.M. Best Revises Issuer Credit Rating Outlook to Positive for Great American Financial Resources, Inc.’s Key Annuity Subsi...
23 2월 2013 - 5:57AM
Business Wire
A.M. Best Co. has revised the issuer credit rating (ICR)
outlook to positive from stable and affirmed the financial strength
rating (FSR) of A (Excellent) and ICRs of “a” of Great American
Life Insurance Company (GALIC) and its wholly owned subsidiary,
Annuity Investors Life Insurance Company (AILIC), the key
life/health annuity subsidiaries of Great American Financial
Resources, Inc. (GAFRI). The outlook for the FSR remains
stable. GAFRI is a wholly owned subsidiary of American Financial
Group, Inc. (AFG) [NYSE: AFG]. Both companies are headquartered
in Cincinnati, OH.
The revised outlook for the ICRs reflects the fact that GAFRI’s
recent disposition of much of its supplemental health insurance
business is indicative of a more focused commitment to its core
annuity lines. Additionally, the strong growth in its annuity
business over the past several years has helped GAFRI become a more
material contributor to AFG’s consolidated revenue and earnings. As
a result, A.M. Best believes that the strategic importance of GAFRI
to AFG has increased to a level that now warrants partial rating
enhancement.
The rating affirmations of GAFRI’s principal annuity
subsidiaries reflect the companies’ market leading positions in the
sale of fixed indexed annuity products in the 403(b) and banking
market, consistent net operating earnings and improved
risk-adjusted capitalization. GALIC and AILIC have reported a
significant amount of single premium fixed and fixed indexed
annuity statutory premium for three consecutive years. Both
companies have been able to remain price competitive through
actively managing crediting rates, modifying commission schedules
and opportunistic investing. As a result, GALIC and AILIC reported
over $2 billion of fixed annuity deposits in recent years, driven
by indexed annuities and sales through their bank and independent
channels. The sharp increase in annuity sales since 2009 has
enabled GAFRI to report continued improvement of its statutory
operating earnings. Moreover, the growth in operating earnings, in
addition to a sizeable capital contribution to GALIC during the
fourth quarter of 2012, has enabled GAFRI’s risk-adjusted
capitalization to increase considerably as measured by A.M. Best’s
capital model.
While sales of fixed and indexed annuities have remained strong,
A.M. Best remains concerned with the prolonged premium challenges
within the 403(b) market. The uncertainty of the 403(b) public
education marketplace, specifically the ongoing budgetary
constraints and volatility of the labor market since the economic
crisis, has resulted in a reduction in premiums throughout the
403(b) segment. As a result, GAFRI’s first-year premiums within the
403(b) marketplace continue to decline. A.M. Best notes that the
persistency of the group’s annuity products has been relatively
strong due to its surrender charge protection, helping to preserve
overall revenue growth. However, A.M. Best remains cautious that a
prolonged low interest rate environment will adversely impact not
only annuity sales within the 403(b) market but also those within
GAFRI’s bank and independent distributors. Additionally, the
annuity companies maintain a sizeable investment in financial
sector corporate bonds and real estate-related investments (in
particular, non-agency residential mortgage-backed securities and
commercial mortgage-backed securities – areas in which the company
has expertise), which has enhanced investment returns. However,
A.M. Best’s concerns are somewhat mitigated by the companies’
improved capitalization and increasing net unrealized gain
positions within their investment portfolios.
Concurrent with the rating actions outlined above, A.M. Best has
downgraded the ICR to “bbb” from “bbb+” and affirmed the FSR of B++
(Good) for United Teacher Associates Insurance Company (UTA)
(headquartered in Austin, TX), a life/health subsidiary of GAFRI.
The outlook for the ratings is stable.
The rating action primarily reflects UTA’s diminished strategic
value within the organization, and its rating is now reflective of
its stand-alone credit profile. A.M. Best believes that the
supplemental health business remaining at UTA, primarily a run-off
block of long-term care, is no longer central to the organization’s
long-term strategy. Although the supplemental benefits line should
continue to provide some revenue and earnings diversification for
GAFRI, the percentage is expected to decrease considerably in the
near term.
Factors that could result in a favorable rating action for the
key annuity companies within GAFRI over the near to medium term
include a positive rating action taken by A.M. Best on the core
property/casualty operations of AFG or changes in the group’s
business profile towards products that are viewed as being more
creditworthy (i.e., life insurance). Factors that could lead to a
negative rating action include a negative rating action taken by
A.M. Best on the core property/casualty operations of AFG,
significant and sustained spread compression as a result of the
ongoing low interest rate environment, an increased concentration
of non-agency residential mortgage-backed securities and commercial
mortgage-backed securities within the group's investment portfolio
or a material deterioration in risk-adjusted capitalization.
The FSR of A- (Excellent) and ICR of “a-” have been affirmed for
Manhattan National Life Insurance Company (headquartered in
Cincinnati, OH), a life/health subsidiary of GAFRI. The outlook for
both ratings is stable.
The FSR of B++ (Good) and ICR of “bbb” have been affirmed for
Continental General Insurance Company (headquartered in
Austin, TX), a life/health subsidiary of GAFRI. The outlook for
these ratings is stable.
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.
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.
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