Back to top

Analyst Blog

A.M. Best Co. reiterated the issuer credit rating (ICR) of “bbb+” and all debt ratings of American Financial Group, Inc. (AFG - Analyst Report). Subsequently, the rating agency reiterated the FSR of A (Excellent) and ICR of “a” of Great American Insurance Companies. The outlook remains stable.

The rating affirmations of Great American account for its sturdy risk-adjusted capitalization, continued solid operational results reflecting strong underwriting performances and varied lines of businesses.

However, these positives are dwarfed by considerable dividend payments made to the parent company, higher common stock leverage besides adverse 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 Indemnity Insurance Pool. The outlook remains stable.

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.

Nevertheless, the positive factors were overshadowed by the affectability of the group's premium volume to the property/casualty market, the brunt of lower premiums and the higher dividends paid over the last five years.

Additionally, the rating agency revised the FSR upward to A+ (Superior) from A (Excellent) and the ICRs to “aa-” from “a+” of the property/casualty members of the Mid-Continent Group. However, the outlook moves to stable from positive.

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.M. Best might consider rating upgrades if the company and its subsidiaries continue to perform in line with its peers, besides maintaining sturdy risk-adjusted capitalization. Also, rating upgrades of subsidiaries might trigger upward revision of the parent company’s ratings.

On the flip side, a dip in underwriting and operating results subsequently affecting risk-adjusted capitalization or higher leverage or lower interest coverage might lead to a ratings downgrade.

American Financial Group carries a Zacks Rank #2 (Buy). Other property & casualty insurers like EMC Insurance Group Inc. (EMCI - Snapshot Report), Cincinnati Financial Corp. (CINF - Analyst Report) and  Navigators Group Inc. (NAVG - Snapshot Report), carry a Zacks Rank #1 (Strong Buy) and are worth noting.
 

Please login to Zacks.com or register to post a comment.