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Standard & Poor's: American Family Life Insurance Co. Ratings Lowered to 'A+' From 'AA-'; Outlook Stable.

NEW YORK -- Credit Rating:A+/Stable/--

On Aug. 18, 2004, Standard & Poor's Rating Services lowered its counterparty credit and financial strength ratings on American Family Life Insurance Co. (AFLIC) to 'A+' from 'AA-'. The outlook is stable.

The ratings on AFLIC reflect its strategic importance as the core life insurance and annuity operations of its ultimate parent, personal lines property/casualty insurer American Family Mutual Insurance Co. (AFM); strong business position; very strong earnings; extremely strong capital adequacy and liquidity; and strong investments. Partially offsetting these strengths are AFLIC's rising investment risks, sales growth rates that lag those of the industry, and inconsistent execution of strategies to improve AFLIC's modest penetration of property/casualty households.

Outlook

Standard & Poor's expects AFLIC to remain a core member of the American Family Mutual Insurance Group. On a GAAP basis, premium income is expected to increase 3% in 2004 and 6% in 2005. Although individual life insurance sales are expected to grow by 3%, which is on par with historical levels, sales of variable products will increase more rapidly because of more agents becoming licensed to sell these products.

Penetration within its property/casualty agency force and customer household base is expected to remain at 8%. Operating performance is expected to remain extremely strong, with GAAP pretax income of $58 million-$60 million and statutory pretax income exceeding $50 million in 2004. Capitalization is expected to remain extremely strong.

Major Rating Factors

--Business position. AFLIC is considered core to AFM because it serves the life insurance and annuity needs of AFM's property/casualty customer households, and its products are exclusively distributed by AFM's multi-line property/casualty agents. AFLIC depends on, and benefits from, AFM's business position as the 16th-largest project/casualty insurer in the U.S., operating primarily in midwestern states. Penetration of AFM's property/casualty customer households, however, is modest and barely improving.

--Operating performance. AFLIC maintains an extremely strong GAAP earnings adequacy ratio of 325%, as measured by Standard & Poor's model.

--Capital adequacy. The combined group, AFM and AFLIC, maintains a very strong capital adequacy ratio of 178%. On a stand-alone basis, the capital adequacy ratio for AFLIC was 357% at year-end 2003.

--Investments. Investments are viewed as strong and generally managed conservatively, but the company is incrementally increasing its risks to support returns.

--Liquidity. Liquidity remains extremely strong, as demonstrated by a Standard & Poor's liquidity ratio of 307% at year-end 2003.
Ratings List

 TO FROM

American Family Life Insurance Co.
 Counterparty credit rating A+/Stable/-- AA-/Negative/--
 Financial strength rating A+/Stable AA-/Negative



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, select Find a Rating, then Credit Ratings Search.
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Publication:Business Wire
Date:Aug 18, 2004
Words:478
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