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American Financial Units' Ratings Under Review on Divestiture - Analyst Blog

Rating agency, A. M. Best has put its current financial ratings on American Financial Group Inc. 's AFG run-off long-term care operations - Continental General Insurance Company and United Teacher Associates Insurance Company ("UTA") - under review with negative implications.

A. M. Best had assigned Continental General and UTA financial strength rating of B++ (Good) and the issuer credit ratings of "bbb" earlier.

The rating actions follow American Financial's decision to divest these companies to HC2 Holdings, Inc. HCHC .

Moreover, the current status of the units reflects the uncertainty over their future financial and strategic direction. Also, HC2 Holdings' relatively weak credit profile.

American Financial and HCHC Deal

On Apr 14, 2015, American Financial had announced the divestiture of Continental and UTA operations to HCHC in exchange of an initial payment of $7 million in cash and HCHC securities. Moreover, the company will receive up to $13 million of additional proceeds in the future, based on the release of certain statutory liabilities.

Subject to customary conditions, the transaction is expected to close in the third quarter of 2015. Post transaction, the ratings will no longer be under review.

As of Dec 31, 2014, UTA and Continental's statutory capital was approximately $77.6 million with nearly $1.2 billion in total combined investment assets.

Further, the divestiture will allow American Financial to focus on its annuity business and move out of the supplemental medical insurance business after the sale. As of Dec 31, 2014, American Financial had approximately 492,000 annuity policies in force. Going forward, the number is expected to increase.

Currently, American Financial carries a Zacks Rank #3 (Hold).

Stocks to Consider

Better-ranked stocks in the property and casualty insurance industry include Cincinnati Financial Corp. CINF and Fidelity National Financial, Inc. FNF . Both the stocks sport a Zacks Rank #1 (Strong Buy).

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CINCINNATI FINL (CINF): Free Stock Analysis Report

FNF GROUP (FNF): Free Stock Analysis Report

AMER FINL GROUP (AFG): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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