Recently, Fitch Ratings affirmed the issuer default rating
American Financial Group Inc.
) at "A-" along with the debt rating on its senior unsecured
notes at "BBB+". Additionally, the credit rating agency affirmed
the insurer financial strength (IFS) rating of American
Financial's principal operating subsidiaries at "A+". The outlook
for all these ratings is stable.
The rating affirmation was based on American Financial's
strong capital and liquidity position, satisfactory financial
leverage and a history of outperforming peers in terms of
profitability. However, the company's reducing underwriting
profitability in the property & casualty business and the
weak interest rate environment are causes of concern for the
rating agency. Moreover, the rapid growth in the annuity business
amid the low interest rate environment is also concerning, as it
could adversely impact future earnings.
Fitch may revise the ratings upward if American Financial's
underwriting and investment results increase to the level of
companies with a higher credit rating, its property &
casualty reserve adequacy level improves or the company reduces
the higher end of the target range for long-term financial
leverage to less than 15%.
On the other hand, Fitch may downgrade the ratings of American
Financial if the property and casualty combined ratio stays above
100% over the long term or the property & casualty Prism
score falls to 'adequate'. Other factors that could result in a
downward revision in ratings are a surge in the financial
leverage beyond 30% and a rise in surrender rates or decline in
operating results of the annuity business. Further, the IFS
rating of the subsidiaries could be lowered if Fitch deems their
strategic importance to be reduced.
American Financial currently carries a Zacks Rank #3 (Hold).
Other property and casualty insurers worth considering are
Cincinnati Financial Corp.
Arch Capital Group Ltd.
Navigators Group Inc.
). All these companies carry a Zacks Rank #1 (Strong Buy).
ARCH CAP GP LTD (ACGL): Free Stock Analysis
AMER FINL GROUP (AFG): Free Stock Analysis
CINCINNATI FINL (CINF): Free Stock Analysis
NAVIGATORS GRP (NAVG): Free Stock Analysis
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