AM Best

A.M. Best Affirms Ratings of American Financial Group, Inc. and Its Property/Casualty Subsidiaries


Gordon McLean
Senior Financial Analyst
(908) 439-2200, ext. 5304

Jennifer Marshall
Assistant Vice President
(908) 439-2200, ext. 5327
Christopher Sharkey
Manager, Public Relations
(908) 439-2200, ext. 5159

Jim Peavy
Assistant Vice President, Public Relations
(908) 439-2200, ext. 5644


OLDWICK - MARCH 20, 2015 02:23 PM (EDT)
A.M. Best has affirmed the financial strength rating (FSR) of A+ (Superior) and the issuer credit ratings (ICR) of "aa-" of Great American Insurance Company and its pooling affiliates, collectively referred to as Great American Insurance Companies (Great American). Concurrently, A.M. Best has affirmed the ICR of "a-" and the debt ratings of American Financial Group, Inc. (AFG) (Cincinnati, OH) [NYSE/NASDAQ: AFG]. The outlook for the above ratings remains stable.

Concurrently, A.M. Best has affirmed the FSR of A (Excellent) and the ICRs of "a" of Republic Indemnity Company of America (RICA) and its 100% reinsured subsidiary, Republic Indemnity Company of California (RICC) (collectively referred to as Republic), as well as RICA's 100% reinsured affiliates, Bridgefield Employers Insurance Company (BEIC) and its subsidiary, Bridgefield Casualty Insurance Company (BCIC). BEIC and BCIC are collectively referred to as Summit, and the four companies are collectively members of the Republic and Summit Insurance Pool. The outlook for all ratings is stable. RICA and RICC are headquartered in Encino, CA. BEIC and BCIC are headquartered in Lakeland, FL.

In addition, A.M. Best has affirmed the FSR of A+ (Superior) and the 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+ (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 the ratings of American Empire and Mid-Continent 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 the group's excellent risk-adjusted capitalization, strong operating profitability, which has been 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, and 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 line 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 have constrained organic surplus growth, as well as elevated common stock leverage and adverse loss development occurring 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 claims. Despite 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 diversification.

The ratings assigned to the members of the Republic and Summit Insurance Pool reflect the group's historically strong operating performance, solid capitalization achieved through profitable operations and management's successful track record through all phases of the market cycle, as well as the expanded geographical diversification of business following the addition of the Summit companies to the pool. The ratings also recognize the implicit and explicit support afforded by AFG, which has infused capital as needed to maintain risk-adjusted capitalization at a level in line with the ratings.

These positive rating factors are somewhat offset by the weakened five-year underwriting performance as measured by the combined ratio relative to its historical profitability levels given the impact of the macroeconomic environment, as well as some integration risk following the acquisition of the Summit companies. Other offsetting factors include the cumulative impact of stockholder dividends paid to AFG and the concentrated nature of the group's business in a single line of insurance, although the geographically diversified nature of the pool's business reduces this concern.

American Empire's ratings reflect the group's excellent 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 due in part to its low cost operating structure, augmented by solid 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.

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 have 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, which somewhat exposes the operations to potential regulatory, legislative and competitive risks.

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, as well as access to a revolving credit facility. AFG has no material debt maturing until 2019, further benefiting 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.

While A.M. Best does not anticipate positive rating actions in the near term, positive rating actions could be taken in the future if underwriting and operating results materially outperform other similarly rated surplus lines carriers, while maintaining an excellent level of risk-adjusted capitalization. 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 the FSRs, ICRs and debt ratings of American Financial Group, Inc. and its property/casualty subsidiaries, please visit American Financial Group, Inc.

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

Key insurance criteria reports utilized:

  • Analyzing Insurance Holding Company Liquidity

  • Catastrophe Analysis in A.M. Best Ratings

  • Insurance Holding Company and Debt Ratings

  • Rating Members of Insurance Groups

  • Risk Management and the Rating Process for Insurance Companies

  • The Treatment of Terrorism Risk in the Rating Evaluation

  • Understanding BCAR for Property/Casualty Insurers

  • Understanding Universal BCAR

  • Equity Credit for Hybrid Securities

This press release relates to rating(s) that have been published on A.M. Best's website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please visit A.M. Best's Ratings & Criteria Center .

A.M. Best Company is the world's oldest and most authoritative insurance rating and information source.

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