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A.M. Best Upgrades Issuer Credit Rating of American Financial Group, Inc. and Certain Subsidiaries


OLDWICK, N.J., May 10, 2010 (BUSINESS WIRE) -- A.M. Best Co. has upgraded the issuer credit ratings (ICR) to "bbb+" from "bbb" and senior debt ratings of American Financial Group, Inc. (AFG) [NYSE/NASDAQ: AFG] and AAG Holding Company, Inc.

Concurrently, A.M. Best has upgraded the ICRs to "a+" from "a" and affirmed the financial strength ratings (FSR) of A (Excellent) of Great American Insurance Companies (Great American) and Mid-Continent Group (Mid-Continent) (Tulsa, OK) and their property/casualty members.

Additionally, A.M. Best has affirmed the FSR of A+ (Superior) and ICRs of "aa-" of American Empire Surplus Lines Pool (American Empire) and its property/casualty members.

A.M. Best also has affirmed the FSR of A (Excellent) and ICRs of "a" of Republic Indemnity Insurance Pool (Republic Indemnity) (Encino, CA) and its property/casualty members. The outlook for all ratings is stable. All companies are domiciled in Cincinnati, OH, except where specified. (See link below for a detailed list of the companies and ratings.) The upgrading of the ratings for Great American reflects its improved risk-adjusted capitalization, positive operating trends in core business lines and favorable reserve development in recent years. These positive factors are driven by Great American's strong business position, experienced management team and balanced portfolio of specialty risks that is enhanced by geographic diversification.

Somewhat offsetting these favorable rating factors are Great American's concentration of structured securities, and to a lesser extent, below investment grade securities relative to surplus, and elevated reinsurance utilization. In addition, Great American remains exposed to uncertainties associated with run-off books of business, asbestos and environmental and other mass torts liabilities.

The upgrading of the ratings for Mid-Continent recognizes its improved risk-adjusted capitalization, very strong underwriting and operating results through underwriting cycles and solid liquidity. These positive factors are driven by Mid-Continent's expertise in providing primarily general liability coverage to the construction and oil and gas industries with a geographic concentration in Texas, Oklahoma and Florida.

Partially offsetting these positive rating factors are Mid-Continent's concentration of structured securities in its investment portfolio relative to surplus and limited geographic spread of risk. Mid-Continent's concentration in the construction industry, in conjunction with increased competitive pressures, has resulted in a significant decline in premium volumes as a result of the continued poor macroeconomic environment.

The ratings of American Empire acknowledge its strong risk-adjusted capitalization, successful strategy as a provider of excess and surplus lines products and management's demonstrated cycle management behavior, as evidenced by superior operating results and changes in premium volumes over an extended period of time.

These positive rating factors are partially offset by American Empire's demonstrated sensitivity of the group's premium volume to the property/casualty market cycle, the impact of reduced premium on operating results and the concentration of structured securities in its investment portfolio relative to surplus.

The ratings of Republic Indemnity reflect its historical operating performance driven by its expertise in providing workers' compensation insurance coverages, primarily in California, and the support provided by its ultimate parent, AFG.

Although Republic Indemnity's underwriting performance was negatively impacted in 2009 by an increase in loss cost trends (driven by medical costs), competitive pressures and unemployment levels in California, the pool continued to generate operating earnings and increased rates in late 2009, into 2010 and is taking other actions to address the difficult workers' compensation environment.

These positive rating factors are offset by Republic Indemnity's geographic and product line concentration risks, which expose the pool to changes in regulatory, legislative and competitive forces (as evidenced in 2009), and the concentration of structured securities in its investment portfolio relative to surplus. In addition, A.M. Best remains concerned with Republic Indemnity's excess workers' compensation program (which it began writing in late 2007) that has resulted in Republic Indemnity being at risk for a large number of locations whose net losses (net of TRIPRA and third-party reinsurance) could significantly impact surplus should a terrorist attack occur. Consequently, Republic Indemnity's terrorism charge increased significantly (and exceeds that from a natural peril) and has resulted in its risk-adjusted capital falling short of supporting the current ratings at year-end 2009. However, the ratings recognize the financial strength of AFG and its commitment to address this issue in the near term.

AFG's total debt-to-total capital (including accumulated other comprehensive income [AOCI]) of 18.6% and interest coverage ratio of over 13 times at year-end 2009 remains well within A.M. Best's guidelines for the current ratings. Also, AFG maintains sound liquidity, with approximately $200 million in cash and cash equivalents at year-end 2009 and access to a $500 million revolving credit facility and has no material debt maturing until 2019. AFG continues to rely on stockholder dividends from its subsidiaries to fund interest expense, 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.

For a complete listing of American Financial Group, Inc. and AAG Holding Company, Inc.'s FSRs, ICRs and debt ratings, please visit

The principal methodologies used in determining these ratings, including any additional methodologies and factors that may have been considered, can be found at

Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers. For more information, visit

SOURCE: A.M. Best Co.

CONTACT: A.M. Best Co. Analysts Charles Meyer, 908-439-2200, ext. 5374 or Michael Lagomarsino, CFA, 908-439-2200, ext. 5810 or Public Relations Rachelle Morrow, 908-439-2200, ext. 5378 or Jim Peavy, 908-439-2200, ext. 5644 Copyright Business Wire 2010 -0- KEYWORD: United States


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