A.M. Best Upgrades Issuer Credit Ratings of American Financial Group’s Key Annuity Subsidiaries

  A.M. Best Upgrades Issuer Credit Ratings of American Financial Group’s Key
  Annuity Subsidiaries

Business Wire

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

A.M. Best has upgraded the issuer credit ratings (ICR) to “a+” from “a” and
affirmed the financial strength rating (FSR) of A (Excellent) of Great
American Life Insurance Company (GALIC) and its wholly owned subsidiary,
Annuity Investors Life Insurance Company (AILIC), the key annuity subsidiaries
of American Financial Group, Inc. (AFG) (NYSE:AFG). The outlook for the ICRs
has been revised to stable from positive, while the outlook for the FSR is
stable. The above companies are headquartered in Cincinnati, OH.

The upgrading of GALIC and AILIC’s ICRs reflects their status as market
leaders of fixed-indexed annuity products in the banking market, as well as
their consistent net operating earnings and improved risk-adjusted
capitalization. Additionally, the strong growth in the annuity business over
the past several years has helped GALIC and AILIC become a more material
contributor to AFG’s consolidated revenue and earnings. As a result, A.M. Best
believes that the strategic importance of these companies to the overall
organization continues to support the partial rating enhancement currently
afforded by AFG.

Together, GALIC and AILIC have generated a significant amount of single
premium fixed and fixed indexed annuity premium for four consecutive years.
Both companies have been able to remain price competitive through actively
managing crediting rates, modifying commission schedules and investing
opportunistically. Additionally, several new bank channel distributors have
been added in recent years, including Wells Fargo in 2013, which also has
contributed to premium growth. As a result, GALIC and AILIC reported over $3
billion of annuity deposits in recent years, driven by indexed annuities and
sales through their bank and independent channels. The sharp increase in
annuity sales since 2009 has enabled GALIC to report continued improvement in
its core statutory operating earnings. Moreover, the growth in operating
earnings, in addition to a sizeable capital contribution to GALIC during the
fourth quarter of 2012, has enabled GALIC’s risk-adjusted capitalization to
increase considerably as measured by Best’s Capital Adequacy Ratio (BCAR).

Although sales of fixed and indexed annuities have remained strong, A.M. Best
remains concerned with the prolonged premium challenges within the 403(b)
market. The uncertainty of the 403(b) public education marketplace,
specifically the ongoing high unemployment rate and ongoing budgetary
constraints, has resulted in a reduction in premiums throughout the 403(b)
segment. As a result, AFG’s first-year premiums within the 403(b) marketplace
continue to decline, although this is partially mitigated by favorable
persistency, driven in part by strong surrender charge protection.
Additionally, A.M. Best notes that the annuity companies continue to maintain
sizeable investments in financial sector corporate bonds and real estate
related securities (in particular, non-agency residential mortgage-backed
securities and commercial mortgage-backed securities), which have enhanced
investment returns. However, A.M. Best’s concerns are somewhat mitigated by
GALIC and AILIC’s improved capitalization, favorable net unrealized gain
positions within their investment portfolios and their long-standing expertise
in real estate related investments.

Factors that could result in favorable rating actions for GALIC and AILIC over
the near to medium term include positive rating actions taken by A.M. Best on
the core property/casualty operations of AFG or changes in the group’s
business profile toward products that are viewed as being more creditworthy
(e.g., life insurance). Factors that could lead to negative rating actions
include negative rating actions taken by A.M. Best on the core
property/casualty operations of AFG, significant and sustained spread
compression as a result of the ongoing low interest rate environment, an
increased concentration of non-agency residential mortgage-backed securities
and commercial mortgage-backed securities within the group's investment
portfolio, or a material deterioration in risk-adjusted capitalization.

Concurrently, A.M. Best has downgraded the FSR to B++ (Good) from A-
(Excellent) and the ICR to “bbb+” from “a-” of Manhattan National Life
Insurance Company (Manhattan National)  (headquartered in Cincinnati, OH), a
life/health subsidiary of AFG. The outlook for both ratings is stable.

The rating actions primarily reflect Manhattan National’s diminished strategic
value within the organization, and the ratings are now reflective of its
stand-alone credit profile. A.M. Best believes that the run-off block of
ordinary life business remaining at the company is no longer central to the
organization’s long-term strategy. Although the life insurance line should
continue to provide some revenue and earnings diversification for AFG’s life
and annuity operations, the percentage has been steadily decreasing.

A.M. Best also has affirmed the FSR of B++ (Good) and ICRs of “bbb” of
Continental General Insurance Company and United Teacher Associates Insurance
Company (both headquartered in Austin, TX), both life/health subsidiaries of
AFG. The outlook for these ratings is stable.

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

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.


A.M. Best Company
Tom Zitelli, 908-439-2200, ext. 5412
Senior Financial Analyst
Tom Rosendale, 908-439-2200, ext. 5201
Assistant Vice President
Rachelle Morrow, 908-439-2200, ext. 5378
Senior Manager, Public Relations
Jim Peavy, 908-439-2200, ext. 5644
Assistant Vice President, Public Relations
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