As a part of its yearly review exercise, A.M. Best Co. has
undertaken a rating action on U.S. property and casualty insurer
American Financial Group Inc.
. The company's issuer credit rating (ICR) of "a-" and all debt
ratings were affirmed.
The rating agency also reiterated the financial strength ratings
(FSR) of A+ (Excellent) and ICR of "aa-" of Great American
Insurance Companies, the subsidiaries of American Financial Group.
The outlook remains stable.
The rating affirmations of the units account for the company's
sturdy risk-adjusted capitalization and continued solid operational
results reflecting strong underwriting performances at varied lines
of business. The rating agency also acknowledges astute management
in maintaining underwriting discipline, which has kept its
The company's bouquet of insurance offerings also makes possible
premium writings in different lines that provide a huge buffer for
the business. The company's manageable exposure to catastrophe
losses also provides an extra edge to its underwriting margins.
The rating agency positively views the company's leverage ratio
which comfortably satisfies the rating agency benchmark. The
company also carries sufficient liquidity given its reach in
capital markets and line of credit and no material debt maturing
However, these positives are dwarfed by considerable dividend
payments made to the parent company, higher common stock leverage
and loss development in certain lines of business.
Concurrently, A.M. Best reiterated the FSR of A+ (Superior) and
ICRs of "aa" of the property/casualty members of American Empire
Surplus Lines and FSR of A (Excellent) and ICRs of "a" of the units
of the Republic and Summit Insurance Pool. The outlook remains
The ratings reflect excellent risk-adjusted capitalization,
sustained solid operating performance within the excess and surplus
lines marketplace (owing to underwriting profitability, low-cost
operating model and strong investment income) and management's
successful efforts to sail through different phases of the market
cycle. The ratings also account for financial support provided by
American Financial Group. The rating agency specifically
acknowledges the acquisition of Summit which has added revenue
streams to the Republic and Summit Insurance Pool.
Nevertheless, the positive factors of these entities were
overshadowed by some integration risks from the Summit acquisition
and weakened profitability over the past five years as reflected by
the combined ratio. Also, while the company has a diverse range of
business it is particularly accumulated in a single line of
insurance which increases the odds of business risk.
Additionally, the rating agency affirmed the FSR of A+ (Superior)
from A (Excellent) along with the ICRs of "aa-" of the
property/casualty members of the Mid-Continent Group, with a stable
The ratings upgrade came on the back of its dominant footprint,
sustained solid operating results, sturdy risk-adjusted
capitalization and financial support provided by American Financial
Group. However, geographic limitations of the business and
considerable dividend payment are drags on the positives.
A stable outlook negates any chance of a rating upgrade in the near
term. But A.M. Best might consider rating upgrades if the company
and its subsidiaries continue to perform better than their peers,
and maintain a sturdy risk-adjusted capitalization.
On the flip side, a dip in underwriting and operating results
subsequently affect risk-adjusted capitalization or lead to higher
leverage or lower interest coverage. These might lead to a rating
Rating affirmations or upgrades from credit rating agencies play
important roles in building investor confidence in the stock as
well as maintaining creditworthiness in the market.
American Financial Group carries a Zacks Rank #3 (Hold). Some
better-ranked property & casualty insurers are Allied World
Assurance Company Holdings, AG
, AmTrust Financial Services, Inc.
and Arch Capital Group Ltd.
with a Zacks Rank #1 (Strong Buy) each.
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