American Financial Group Inc. and P/C Subsidiaries Outlook Revised to Stable; Ratings Affirmed.Business Editors NEW YORK--(BUSINESS WIRE)--May 18, 2004 Credit Rating:BBB/Stable/-- On May 18, 2004, Standard & Poor's Ratings Services Ratings Service A company, such as Moody's or Standard & Poor's, that rates various debt and preferred stock issues for safety of payment of principal, interest, or dividends. revised its outlook on American Financial Group Inc. (NYSE NYSE See: New York Stock Exchange :AFG AFG Afghanistan (international vehicle registration) AFG American Financial Group AFG Assistance to Firefighters Grant AFG Arbeitsförderungsgesetz (German: Labor Advancement Law) AFG Accreditation for Growth ) and the members of the Great American Insurance Co. pool, the Republic Indemnity Co. pool, the American Empire For other uses, see American Empire (disambiguation). American Empire is a term relating to the historical expansionism and the current political, economic, and cultural influence of the United States on a global scale. Pool, the Great American Holdings Pool, and the MidContinent Pool, which primarily consist of AFG's specialty property/casualty lines, to stable from negative. At the same time, Standard & Poor's affirmed its 'A' counterparty Counterparty The other participant, including intermediaries, in a swap or contract. credit and financial strength ratings on the operating companies operating company A business that engages in transactions with outsiders. . In addition, Standard & Poor's affirmed its 'BBB' counterparty credit rating on AFG. The revised outlook reflects the group's strong business position in its specialty property/casualty markets, continued strengthening of operating results, improved financial flexibility, and strong capital adequacy. Partially offsetting these factors are AFG's marginal historical operating performance, exacerbated by a multitude of material charges and reserve development in recent years. In addition, AFG's earnings diversification decreased following the IPO (Initial Public Offering) The first time a company offers shares of stock to the public. While not a computer term per se, many founders, employees and insiders of computer companies have found this acronym more exciting than any tech term they ever heard. of its personal lines business in February 2003. Outlook Standard & Poor's expects that the group's operating results--unblemished by material charges and reserve deficiencies--will be strong, with a combined ratio of 95% in the specialty line. The group's consolidated capital adequacy, supported by organic earnings, is expected to remain at least at 145%. Debt plus preferred financial leverage (excluding unrealized fixed maturity gains) is expected to remain at or less than 35%, with fixed-charge coverage fixed-charge coverage The number of times that a firm's operating income exceeds its fixed payments. Fixed-charge coverage is a measure of a firm's ability to meet contractually fixed payments, with high coverage indicating significant flexibility for making exceeding 5x. Major Rating Factors -- Strong competitive position. Standard & Poor's believes AFG's competitive position, as defined by its diversified portfolio of specialty lines business, is strong. The operating performance of AFG's specialty lines has consistently outperformed industry averages, with the combined ratio--measured on a GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). basis--improving to 96.0% in 2003 from 98.4% in 2002 and 101.7% in 2001. Although AFG is not a market leader in any sub-segment, it does have a sufficient premium base ($3.2 billion in gross written specialty premium in 2003) to support a competitive infrastructure. Standard & Poor's believes AFG's managerial and organizational experience, combined with its competitive infrastructure, will enable it to sustain its strong competitive position. -- Improving operating results. Consolidated GAAP pretax pre·tax adj. Existing before tax deductions: pretax income. pretax adj [profit] → vor (Abzug der) Steuern operating earnings Operating Earnings Profits after subtracting expenses such as marketing, cost of goods sold, administration and general operating costs from revenue. Notes: Tax and interest expenses are not subtracted - operating earnings are synonymous with EBIT (earnings before improved to $301 million in 2003 from $176 million in 2002 and $86 million in 2001. The property/casualty segment's pretax operating earnings of $231 million constitute a 12% return on earned premium Earned premium is the portion of an insurance written premium which is considered "earned" by the insurer, based on the part of the policy period that the insurance has been in effect, and during which the insurer has been exposed to loss. , an improvement from 11% in 2002 and 7% in 2001. Underwriting Underwriting 1. The process by which investment bankers raise investment capital from investors on behalf of corporations and governments that are issuing securities (both equity and debt). 2. The process of issuing insurance policies. results have improved, with the property/casualty combined ratio decreasing to 94% in the first quarter of 2004 from 99% in calendar-year 2003, 101% in 2002, and 108% in 2001. Standard & Poor's expects profitability to improve further in 2004. -- Improved financial flexibility. Financial flexibility has improved as a result of management's actions to reduce consolidated financial leverage (excluding unrealized gains Unrealized Gain A profit that results from holding on to an asset rather than cashing it in and using the funds. Notes: Let's say you own a stock that has doubled, but you haven't sold it yet. This is said to be an unrealized gain. and losses on fixed maturities) to 35% by year-end 2003 from 43% in December 2002. Fixed-charge coverage, though less than what is typically required for the rating category, has improved to 4.1x in 2003 from 2.7x in 2002 and 1.6x in 2001. Standard & Poor's expects that GAAP fixed-charge coverage, bolstered by the continued improvement in earnings, will improve to 5x, an appropriate level for the rating category, with 2004 financial leverage remaining at no more than 35%. -- Strong capital adequacy. AFG's capital adequacy, incorporating Standard & Poor's belief that reserves are deficient de·fi·cient adj. 1. Lacking an essential quality or element. 2. Inadequate in amount or degree; insufficient. deficient a state of being in deficit. by about 6%, is estimated to exceed 145% as of year-end 2003, which is considered strong. However, the group's considerable equity exposure to Provident Financial Group Provident Financial Group was a bank located in Cincinnati, Ohio. It was purchased in 2004 by National City Corporation for $2.1 billion. Inc. (12.5% of statutory capital) somewhat dampens Standard & Poor's strong view of capital adequacy. -- Marginal historical operating results. Historical operating results, adversely affected by a multitude of special charges and reserve additions, has been marginal, with underwriting losses of $202 million (108% combined ratio) in 2000 and $225 million (108% combined ratio) in 2001. Although underwriting results improved to a $24 million loss in 2002 and a $22 million gain in 2003, results in 2003 were affected by several material charges and adverse reserve development. -- Decreased earnings diversification. With the disposal of the personal auto business in 2003, prospective earnings performance depends on the specialty lines business. Standard & Poor's believes management will be pressured to demonstrate that the strength and diversification of its specialty segments will fuel a consistently strong earnings stream over the long term.
Ratings List
TO FROM
American Empire Pool
American Empire Insurance Co.
American Empire Surplus Lines Insurance Co.
Republic Indemnity Pool
Republic Indemnity Co. of America
Republic Indemnity Co. of California
Great American Insurance Pool
Great American Alliance Insurance Co.
Great American Assurance Co.
Great American E&S Insurance Co.
Great American Fidelity Insurance Co.
Great American Insurance Co. (NY)
Great American Insurance Co. (OH)
Great American Protection Insurance Co.
Worldwide Casualty Insurance Co.
Great American Holdings Pool
Great American Security Insurance Co.
Great American Spirit Insurance Co.
Mid-Continent Pool
Mid-Continent Casualty Co.
Mid-Continent Insurance Co. (OK)
Oklahoma Surety Co.
Counterparty credit rating A/Stable/-- A/Negative/--
Financial strength rating A/Stable A/Negative
American Financial Group Inc.
Counterparty credit rating BBB/Stable/-- BBB/Negative/--
Senior debt rating BBB
Subordinated debt rating BBB-
Preferred stock rating BB+
Complete ratings information is available to subscribers of RatingsDirect, Standard & Poor's Web-based credit analysis system, at www.ratingsdirect.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com; under Credit Ratings in the left navigation bar A set of buttons or graphic images typically in a row or column used as a central point that link you to major topic sections on a Web site. If the navigation bar is a single graphic image with multiple selections, it is known as an imagemap. See imagemap. , select Find Ratings, then Credit Ratings Search. |
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