AM Best Affirms Credit Ratings of American Financial Group, Inc. and Its Insurance Subsidiaries

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) [NYSE: AFG]. The outlook of these Credit Ratings (ratings) is stable.

Concurrently, AM Best has affirmed the FSR of A (Excellent) and the Long-Term ICR of “a+” of the property/casualty (P/C) members of the Republic and Summit Insurance Pool (collectively, Republic and Summit). The outlook of these ratings remains 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 National Interstate Insurance Company (headquartered in Richfield, OH) and its affiliates (collectively referred to as National Interstate). The outlook of these ratings is stable.

In addition, AM Best 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). The outlook of these ratings is stable.

At the same time, AM Best has affirmed the FSR of A (Excellent) and the Long-Term ICRs of “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. The outlook of these ratings is stable.

Furthermore, 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 consider the group’s balance sheet strength, which reflects its risk-adjusted capitalization being at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR), and the quality of its investments and reinsurance, consistently 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, broad geographic spread of risk and access to data through its sophisticated technology platform.

These positive rating factors are somewhat offset by elevated investment in certain higher risk asset classes and by adverse prior-year loss reserve development occurring in certain lines of business, particularly relating to the run-off of its asbestos and environmental claims.

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 the members of Republic and Summit also reflect ratings lift from the lead rating unit, Great American, based on implicit and explicit support.

Republic and Summit’s ratings reflect the pool’s sustained strong operating performance on an absolute basis and relative to the results of similarly rated peers within the workers’ compensation composite, while maintaining very strong balance sheet strength through its strongest level of risk-adjusted capitalization, favorable development of prior years’ loss reserves and a solid investment portfolio. Republic and Summit also benefits from the expanded geographic diversification of their business that followed the addition of the Summit companies to the pool in 2014. Partially offsetting these positive rating factors is the lack of surplus appreciation over the past three years due significant stockholder dividends to AFG.

The positive outlooks reflect the potential for further rating upgrades over the next 12-24 months, should the group’s surplus appreciate while continuing to generate overall operating performance comparable to recent results and maintaining the strongest level of risk-adjusted capitalization, as measured by BCAR.

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, based on implicit and explicit support.

National Interstate’s ratings reflect the group’s strong long-term operating performance; risk-adjusted capitalization that measures at the very strong level, as measured by BCAR, which is achieved through profitable underwriting results and demonstrated expertise within its niche transportation market. In addition, the ratings acknowledge the group’s experienced management team and conservative operating philosophy. The positive rating attributes are derived from management’s focus on maintaining rate integrity, controlled claims handling and detailed segmentation of risks that are supported by effective technology resources. Additionally, National Interstate’s focus on providing alternative risk transfer programs for the specialty transportation segment provides the group with a sustainable competitive advantage, particularly in terms of pricing, claims adjusting and loss control.

Partially offsetting these positive rating factors are adverse development of some recent calendar year loss reserves and the associated impact on underwriting results in recent calendar years. However, calendar year underwriting results have been trending in a favorable direction. National Interstate’s ratings also consider its concentration of business within the passenger and truck transportation industries.

The ratings of Mid-Continent 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 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 consider its balance sheet strength, which is supported by risk-adjusted capitalization that measures in the very strong category, favorable investment portfolio and a high quality reinsurance panel. The balance sheet strength has benefited from favorable 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 and commitment to maintaining accurate pricing. These positive rating factors are offset partially by adverse prior year loss reserve development in recent years arising from the product liability line of business, which has pressured underwriting results for the past several years. Additional offsetting factors include the group’s relatively limited geographic spread of business with the majority of it derived from Texas, Oklahoma, Kansas and Florida, which exposes the operations to elevated degrees of regulatory, legislative and competitive risks.

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, based on continued implicit and explicit support. The life group continues to maintain strong risk-adjusted capitalization, as measured by BCAR, along with strong liquidity and financial flexibility. The group also maintains a positive quality of capital with low financial leverage. Investment quality remains high; however, GALIC has a higher concentration in Schedule BA assets and structured securities than industry benchmarks. GALIC continues to generate strong earnings with increasing net investment income, although it lacks premium diversification with a concentration within individual fixed and fixed indexed annuities.

GALIC and AILIC maintain a favorable and competitive market position in the individual annuity business with good diversification in distribution channels and continued development of products. These characteristics are offset by concentration within its financial distribution channel. Annuity surrenders as a percentage of reserves were higher than the previous year, and AM Best believes the company will continue to be pressured in the current low interest rate environment on maintaining adequate spreads on its business. Additionally, strong growth in the annuity business over the past several years has helped GALIC and AILIC become material contributors to AFG’s consolidated revenue and earnings.

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.

Each of the groups discussed above 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. 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.

AFG’s debt-to-capital (excluding accumulated other comprehensive income) and interest coverage ratios remain within AM Best’s guidelines for its current ratings. AFG maintains sound liquidity and access to a revolving credit facility. AFG has no material debt maturing until 2026, further benefiting its liquidity position. AFG relies on stockholder dividends from its subsidiaries to fund interest expenses, repurchase company stock, redeem debt, reallocate 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.

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 Understanding 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.

AM Best is a global rating agency and information provider with a unique focus on the insurance industry. Visit www.ambest.com for more information.

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Contacts

Elizabeth Blamble

Senior Financial Analyst—P/C

+1 908 439 2200, ext. 5603

elizabeth.blamble@ambest.com

Igor Bass

Financial Analyst—L/H

+1 908 439 2200, ext. 5109

igor.bass@ambest.com

Christopher Sharkey

Manager, Public Relations

+1 908 439 2200, ext. 5159

christopher.sharkey@ambest.com

Jim Peavy

Director, Public Relations

+1 908 439 2200, ext. 5644

james.peavy@ambest.com