A.M. Best Upgrades Ratings of American Financial Group, Inc., Great American Insurance Company and Its Pooling Affiliates

  A.M. Best Upgrades Ratings of American Financial Group, Inc., Great American
  Insurance Company and Its Pooling Affiliates

Business Wire

OLDWICK, N.J. -- February 21, 2014

A.M. Best has upgraded the issuer credit rating (ICR) to “a-” from “bbb+” and
the debt ratings of American Financial Group, Inc. (AFG) [NYSE/NASDAQ: AFG].
Concurrently, A.M. Best has upgraded the financial strength rating (FSR) to A+
(Superior) from A (Excellent) and the ICRs to “aa-” from “a+” of Great
American Insurance Company and its pooling affiliates (collectively referred
to as Great American Insurance Companies or Great American). The outlook for
the above ratings has been revised to stable from positive.

In addition, A.M. Best has affirmed the FSR of A+ (Superior) and ICRs of “aa”
of the property/casualty members of American Empire Surplus Lines Pool
(American Empire). A.M. Best also has affirmed the FSR of A (Excellent) and
ICRs of “a” of the members of the Republic Indemnity Insurance Pool (Republic
Indemnity) (headquartered in Encino, CA). The outlook for the ratings of
American Empire and Republic Indemnity is stable.

Concurrently, A.M. Best has affirmed the FSR of A+ (Superior) and the ICRs of
“aa-” of the property/casualty members of the Mid-Continent Group
(Mid-Continent) (headquartered in Tulsa, OK). The outlook for these ratings is
stable. All companies are subsidiaries of AFG and are headquartered in
Cincinnati, OH, unless otherwise specified. (Please see link below for a
detailed listing of the companies and ratings.)

The ratings of Great American reflect its excellent risk-adjusted
capitalization, strong operating profitability 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, excellent geographic
spread of risk, as well as access to data through its sophisticated technology
platform. Great American’s strong underwriting performance also reflects the
diversification of its premium writings and its modest exposure to natural
catastrophes. The group 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 lines of credit. A.M. Best expects that earnings and cash flows
from AFG’s operating subsidiaries will allow it to support Great American’s
risk-adjusted capitalization, should the need arise.

These positive rating factors are somewhat offset by the significant
stockholder dividends paid to AFG over the recent five-year period, which has
constrained organic surplus growth, as well as elevated common stock leverage
and adverse loss development in certain lines of business. While Great
American has reported favorable loss reserve development in recent calendar
years, areas of adverse reserve development persist, particularly relating to
the run-off of its asbestos and environmental (A&E) claims. Despite these
offsetting factors, the outlook for the ratings acknowledges the group’s
excellent risk-adjusted capitalization, solid underwriting performance
throughout the underwriting cycle, experienced management team and balanced
portfolio of specialty risks that are enhanced by its geographic
diversification.

Mid-Continent’s ratings reflect its solid risk-adjusted capitalization, very
strong 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, accurate
pricing and commitment to maintaining conservative reserving standards. The
group also benefits from the financial flexibility provided by AFG.

These positive rating factors are partially offset by the significant
stockholder dividends paid to AFG, which has reduced policyholder surplus
during the recent five-year period, and the group’s relatively limited
geographic spread of business as the majority of business is derived from
Oklahoma, Texas and Florida.

American Empire’s ratings acknowledge its superior risk-adjusted
capitalization, very strong operating performance over the long term (within
the excess and surplus lines marketplace) and the successful track record of
the executive team in managing operations through all phases of the market
cycle. American Empire’s strong operating performance reflects its highly
profitable underwriting results, low-cost operating structure and solid
investment yield despite a reduction in the invested asset base, which has
reduced investment income. The group’s underwriting results are reflective of
management’s disciplined underwriting approach, accurate pricing, market
expertise and strong product knowledge. The ratings also recognize the
benefits of the financial flexibility provided by AFG.

These positive rating factors are partially offset by the sensitivity of the
group’s premium volume to the property/casualty market cycle, the impact of
reduced premium on operating results and the significant level of stockholder
dividends paid during the recent five-year period.

The ratings of Republic Indemnity are based on its historically strong
operating performance, solid capitalization achieved through profitable
operations and the executive management team’s successful track record in
managing operations through all phases of the market cycle, primarily within
California. The ratings also recognize the implicit and explicit support
afforded by AFG, which has infused capital as needed to maintain Republic
Indemnity’s risk-adjusted capitalization.

These positive rating factors are somewhat offset by the downturn in
underwriting performance beginning in 2009 through 2012, relative to the
group’s historical profitability levels given the impact of the macroeconomic
environment, the cumulative impact of stockholder dividends paid to AFG and
the group’s concentrated business risk, operating as a monoline workers’
compensation insurer with a high concentration of premium volume in
California.

AFG’s total debt-to-total capital (excluding accumulated other comprehensive
income) and interest coverage ratios remain within A.M. Best’s guidelines for
its current ratings. AFG maintains sound liquidity with parent company cash of
approximately $525 million at December 31, 2013, as well as access to a $500
million revolving credit facility. AFG has no material debt maturing until
2019, further benefitting its liquidity position. AFG relies on stockholder
dividends from its subsidiaries to fund interest expenses, repurchase company
stock, redeem debt, re-allocate 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.

Due to recent rating actions taken by A.M. Best on the organization in recent
years, additional positive rating actions are unlikely in the near term.

Key factors that could trigger negative rating actions include a material
deterioration of underwriting and operating results, particularly if the
resulting performance is materially below similarly rated peers, a significant
weakening in risk-adjusted capitalization, or an increase in the financial
leverage or reduction in the interest coverage at AFG to a level that is out
of line with its current ratings.

For a complete listing of American Financial Group, Inc. and its subsidiaries’
FSRs, ICRs and debt ratings, please visit
www.ambest.com/press/022110americanfinancial.pdf.

The methodology used in determining these ratings is Best’s Credit Rating
Methodology, which provides a comprehensive explanation of A.M. Best’s rating
process and contains the different rating criteria employed in the rating
process. Best’s Credit Rating Methodology can be found at
www.ambest.com/ratings/methodology.

A.M. Best Company is the world’s oldest and most authoritative insurance
rating and information source. For more information, visit www.ambest.com.

       Copyright © 2014 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.

Contact:

A.M. Best
Gordon McLean, 908-439-2200, ext. 5304
Senior Financial Analyst
gordon.mclean@ambest.com
or
Jennifer Marshall, CPCU, 908-439-2200, ext. 5327
Assistant Vice President
jennifer.marshall@ambest.com
or
Rachelle Morrow, 908-439-2200, ext. 5378
Senior Manager, Public Relations
rachelle.morrow@ambest.com
or
Jim Peavy, 908-439-2200, ext. 5644
Assistant Vice President, Public Relations
james.peavy@ambest.com
 
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