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FOR IMMEDIATE RELEASE
OLDWICK, N.J. - MARCH 27, 2009 12:00 AM (EDT)
A.M. Best Co. has affirmed the financial strength rating (FSR) of A (Excellent) and issuer credit ratings (ICR) of "a" of Great American Insurance Companies, Mid-Continent Group (Tulsa, OK) and Republic Indemnity Insurance Pool (Encino, CA) and their property/casualty members. Concurrently, A.M. Best has affirmed the FSR of A+ (Superior) and ICRs of "aa-" of American Empire Surplus Lines Pool and its property/casualty members. In addition, A.M. Best has affirmed the debt ratings of "bbb" and "bbb-" of their ultimate parent company, American Financial Group, Inc. (AFG) [NYSE/NASDAQ: AFG]. A.M. Best also has affirmed the ICRs of "bbb" of AFG and AAG Holding Company, Inc. All companies are domiciled in Cincinnati, OH, except where specified. The outlook for all ratings is stable. (See link below for a detailed list of the companies and ratings.)
The rating affirmations of AFG and its subsidiaries recognize the various companies' adequate risk-adjusted capitalization, leading market positions in a number of specialty commercial niches, which have led to solid underwriting and pre-tax operating earnings in recent years, and consistently favorable operating cash flows. Underwriting results also have been affected by significant favorable loss reserve development in recent accident years. Although A.M. Best remains concerned with the potential impact of market cycles on each group's operating results, A.M. Best believes that the property/casualty companies' specialty focus and balanced portfolio of insurance products on both an admitted and non-admitted basis enable the property/casualty operations to effectively react to market conditions.
Partially offsetting these rating strengths are ongoing uncertainties associated with run-off books of business and asbestos, environmental and other mass tort liabilities (largely within the Great American Insurance Companies), exposure to structured securities and, to a lesser extent, high yield bonds and significant stockholder dividends paid to AFG. Significant realized and unrealized capital losses, in conjunction with large stockholder dividends, resulted in statutory surplus declining in both 2007 and 2008.
AFG's total debt-to-total capital (including accumulated other comprehensive income [AOCI]) of 28.4% and interest coverage ratio of over five times at year-end 2008 remain within A.M. Best's guidelines for the current ratings, despite a moderate decline in GAAP equity and lower operating earnings. Although AFG maintains a fair amount of liquid assets, it continues to rely on stockholder dividends from its subsidiaries to fund interest expense, redeem debt, reallocated 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.
For a complete listing of American Financial Group, Inc.'s FSRs, ICRs and debt ratings, please visit, American Financial Group, Inc.
The principal methodologies used in determining these ratings, including any additional methodologies and factors, which may have been considered, can be found at Best's Credit Rating Methodology.
Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers.