AM Best Affirms Credit Ratings of American Financial Group, Inc. and Most of Its Insurance Subsidiaries; Upgrades Credit Ratings of Key Life and Workers’ Compensation Entities
November 4, 2020 by AM Best
OLDWICK, N.J.–(BUSINESS WIRE)–AM Best has affirmed the Financial Strength Rating (FSR) of A+ (Superior) and the Long-Term Issuer Credit Ratings (Long-Term ICR) of “aa-” of Great American Insurance Company and its pooling affiliates, collectively referred to as Great American Insurance Companies (Great American). Concurrently, AM Best has affirmed the Long-Term ICR of “a-” and the Long-Term Issue Credit Ratings (Long-Term IRs) of American Financial Group, Inc. (AFG) (Cincinnati, OH). The outlook of these Credit Ratings (ratings) is stable.
At the same time, AM Best has upgraded the FSR to A+ (Superior) from A (Excellent) and the Long-Term ICR to “aa-” from “a+” of the property/casualty (P/C) members of the Republic and Summit Insurance Pool (collectively Republic and Summit). The outlook of these ratings has been revised to stable from positive. Two pool members — Republic Indemnity Company of America and Republic Indemnity Company of California — are domiciled in Encino, CA. The remaining members – Bridgefield Employers Insurance Company and Bridgefield Casualty Insurance Company (collectively, the Summit companies) – are domiciled in Lakeland, FL.
AM Best also has affirmed the FSR of A+ (Superior) and the Long-Term ICRs of “aa-” of the P/C members of the Mid-Continent Group (Mid-Continent) (headquartered in Tulsa, OK). Additionally, AM Best has affirmed the FSR of A+ (Superior) and the Long-Term ICRs of “aa-” of National Interstate Insurance Company (headquartered in Richfield, OH) and its affiliates (collectively referred to as National Interstate). The outlook of the aforementioned ratings is stable.
Concurrently, AM Best has upgraded the FSR to A+ (Superior) from A (Excellent) and the Long-Term ICRs to “aa-” from “a+” of Great American Life Insurance Company (GALIC) and its wholly owned subsidiary, Annuity Investors Life Insurance Company (AILIC), the key annuity subsidiaries of AFG. In addition, AM Best has affirmed the FSR of B++ (Good) and the Long-Term ICR of “bbb+” of Manhattan National Life Insurance Company (Manhattan National), a life subsidiary of AFG. The outlook of these ratings is stable.
All companies are subsidiaries of AFG and headquartered in Cincinnati, OH, unless otherwise specified. (Please see link below for a detailed listing of the P/C and life and annuity companies and ratings.)
The ratings of Great American reflect its balance sheet strength, which AM Best categorizes as strongest, as well as its strong operating performance, favorable business profile and appropriate enterprise risk management (ERM). Great American’s ratings are aided by its risk-adjusted capital, which has been consistently measured in recent years in the strongest category by Best’s Capital Adequacy Ratio (BCAR)without material volatility. Great American also has consistent operating performance on par with peers similarly assessed at strong, which is reflective of its profitable underwriting results that are supported by a diversified product portfolio and business profile through its multiple distribution platforms. Offsetting factors include an elevated investment risk profile compared with its peers, which includes higher allocations to private placements and BA assets, along with a high dividend payout ratio to the parent company.
The ratings of Republic and Summit reflect their balance sheet strength, which AM Best categorizes as very strong, as well as their strong operating performance, neutral business profile and appropriate ERM. The ratings of Republic and Summit also reflect rating lift from the lead rating unit, Great American. Republic and Summit maintains risk-adjusted capital at the strongest level, as measured by BCAR, which is supported by consistently strong operating performance that despite some underwriting volatility has been profitable in the last five years and outperformed composite peers. Despite its more narrow focus in the workers’ compensation segment, the group is among the largest in its focused geographical areas, ranking as the largest provider in Florida through an extensive network of independent agents and advisers. Despite its leadership position, it remains concentrated in Florida and California, which exposes the group to regulatory and legislative risks. The group members also maintain higher underwriting leverage than peers with a high dividend payout to its parent, limiting surplus growth.
The ratings of Mid-Continent reflect its balance sheet strength, which AM Best categorizes as very strong, as well as its adequate operating performance, neutral business profile and appropriate ERM. The ratings also reflect ratings lift from the lead rating unit, Great American, recognizing the historical support provided by ultimate parent AFG to Mid-Continent. Mid-Continent’s ratings are supported by its very strong risk-adjusted capital position, as measured by BCAR, and consistent ability to maintain this level of capital support through positive organic operating earnings. These factors are offset by its more concentrated earning segments and limited geographical profile, which exposes the group to increased regulatory, legislative and competitive risks.
The ratings of National Interstate reflect its balance sheet strength, which AM Best categorizes as very strong, as well as its strong operating performance, neutral business profile and appropriate ERM. The ratings also reflect lift from the lead rating unit, Great American. National Interstate’s ratings are supported by risk-adjust capitalization assessed at the strongest level, a prudent investment portfolio and high quality of reinsurance partners. The group has shown significant expertise in its niche focused market of captive risk transfer products for the transportation market, and despite this more limited focus, it has demonstrated consistent favorable operating results on par with peers with a similar balance sheet assessment of strong through strong underwriting results. Offsetting factors include a high dividend payout to its parent, and a more concentrated market focus.
The ratings of GALIC and AILIC reflect their balance sheet strength, which AM Best categorizes as strong, as well as their strong operating performance, neutral business profile and appropriate ERM. The ratings also reflect lift from the lead rating unit, Great American. The group maintains an assessed risk-adjusted capital position of strong, and has a high quality of capital as the surplus is not aided by surplus notes or other forms of debt, with lower use of reinsurance than peers. The group maintains consistent spreads and sales in its fixed-index annuity book of business, which has produced returns consistent with similarly assessed peers. Offsetting factors include a more concentrated business profile, with a strong focus on fixed-index annuities, and a more challenging forward-looking environment due to economic uncertainty and even lower interest rates.
Manhattan National’s ratings reflect its balance sheet strength, which AM Best categorizes as strong, as well as its marginal operating performance, limited business profile and appropriate ERM. The ratings also recognize the strength and support of AFG. The run-off life company, which is focused on ordinary life insurance policies, has risk-adjusted capital assessed at the very strong level, but is being impacted negatively by volatile operating results. AM Best expects the parent company to continue supporting this entity if required in the future.
Each of the groups discussed above also benefits from the financial flexibility provided by AFG, which has additional liquidity sources given its access to capital markets and lines of credit. AM Best expects that earnings and cash flows from AFG’s operating subsidiaries will allow it to support risk-adjusted capitalization, should the need arise. At the same time, surplus growth at each group has been limited over the past five years by the payment of significant stockholder dividends to AFG. These dividends vary based on capital needs at the various subsidiaries. AM Best also recognizes that financial leverage is maintained within our methodology tolerance levels, and continues to be supportive of the ratings; however, it has increase materially over the past 12 months due to several new debt issuances. AFG maintains coverage ratios that remain favorable to the ratings.
A complete listing of American Financial Group, Inc.’s subsidiaries’ FSRs, Long-Term ICRs and Long-Term IRs is also available.
This press release relates to Credit Ratings that have been published on AM 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 see AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best’s Credit Ratings. For information on the proper media use of Best’s Credit Ratings and AM Best press releases, please view Guide for Media – Proper Use of Best’s Credit Ratings and AM Best Rating Action Press Releases.
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