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DUFF & PHELPS: GREAT AMERICAN LIFE INSURANCE COMPANY CLAIMS PAYING ABILITY RATED 'A+'

 CHICAGO, July 6 /PRNewswire/ -- Duff & Phelps Credit Rating Co. has assigned an initial claims paying ability rating of `A+' (Single-A-Plus) to Great American Life Insurance Company (GALIC). The rating is based on GALIC's historical success in marketing annuity products to targeted market sectors, as well as the company's reasonable utilization of operating leverage, and strong persistency. These positive factors are offset by the financial leverage of GALIC's parent holding company.
 GALIC is an Ohio-domiciled life insurance company, and is currently relocating its headquarters from Los Angeles, California to Cincinnati, Ohio. The company specializes in offering tax qualified annuity products (both single and flexible premium annuities) in the K-12 education market. Annuity products are distributed through a network of 75 managing general agents who in turn direct the marketing activity of 1,100 independent agents. Two-tier annuities, which are products that are structured to encourage persistency, represented 92 percent of GALIC's statutory reserves at March 31, 1993. GALIC's annuity surrender ratio has consistently been around 8 percent for the last five years.
 Until the end of 1992, GALIC was a wholly owned subsidiary of Great American Insurance Company (GAI), a property-casualty insurer that is ultimately owned by American Financial Corporation (AFC), a privately held holding company. At the end of 1992, GALIC was sold to American Annuity Group (AAG), which was formerly known as Sprague Technologies, Inc. (STI). The $468 million acquisition of GALIC was funded with $230 million in debt, the sale to GAI of $156 million in AAG stock, and cash on hand. At the end of 1991, STI was 39 percent owned by AFC. After the acquisition of GALIC, and a cash tender offer by AFC for additional AAG shares, AFC's ownership of AAG at year end 1992 was 82 percent.
 AAG's debt to total capital ratio was 51.8 percent at March 31, 1993. In April and May of 1993, AAG pre-paid 5 percent of its debt while maintaining its surplus. Since GALIC is the sole operating subsidiary of AAG, the company will be required to service the debt through upstream dividends and tax payments to AAG. These funding obligations will require GALIC to generate consistent operating earnings going forward, and may limit GALIC's surplus growth.
 GALIC reported $4.5 billion in admitted assets and adjusted surplus of $311.7 million at March 31, 1993. Operating leverage, as measured by the ratio of adjusted liabilities to adjusted surplus was 13.5 to 1 at that time. Operating income for the full year 1992 was $33.2 million on premium and deposit volume of $363.4 million. Operating income for the three months ended March 31, 1993 was $10.4 million on premium and deposit volume of $107.4 million. Statutory returns on adjusted surplus for the five year period 1988-1992 have averaged 9.7 percent.
 At March 31, 1993, GALIC's invested assets were allocated: 93.3 percent bonds, 3.6 percent policy loans, 1.1 percent affiliated investments, 0.6 percent equities, and 0.4 percent cash and short-term investments. Approximately 7 percent of all fixed income investments were in non-investment grade bonds; however, continued dispositions of non-investment grade bonds have reduced this percentage to a current level of under 6 percent. The investment exposure to affiliates has also declined significantly as the ratio of affiliated common stock investments to adjusted surplus was 12.6 percent at March 31, 1993 compared to 61.5 percent at year end 1991. Less than 1 percent of GALIC's invested assets are in mortgage loans and real estate.
 -0- 7/6/93
 /CONTACT: James B. Auden, CFA, of Duff & Phelps Credit Rating Co., 312-368-3146/


CO: Great American Life Insurance Company ST: Ohio, California IN: INS SU: RTG

LR -- NY033 -- 8616 07/06/93 12:20 EDT
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Date:Jul 6, 1993
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