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Fitch Affs Rtgs of Great American Financial Resources, Inc. & Subs.

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Fitch, the international rating agency formed through the merger of Duff & Phelps Credit Rating Co. and Fitch IBCA, affirmed the `AA-' insurer financial strength ratings of Great American Life Insurance Co. (GALIC), Loyal American Life Insurance Co. (Loyal) and Annuity Investors Life Insurance Co. (AILIC), which are the insurance operating subsidiaries of Great American Financial Resources, Inc. (GAFR). Fitch also affirmed GAFR's senior debt and remarketed preferred securities at `A-' and trust originated preferred securities (TOPrS) at `BBB'. The Rating Outlook is Negative due to high leverage at GAFR and its parent, American Financial Group.

GAFR's strengths include its established niche in the qualified annuity market, a history of strong profitability and a solid capital position. Balanced against these strengths is GAFR's high leverage.

[pilcrow (paragraph sign)] The quality of GAFR's GAAP profitability remains high due to healthy spreads and strong persistency of its annuity business, especially the 403(b) business. Qualified annuities continue to represent a greater than 80% share of total annuity reserves. Annualized consolidated GAAP operating return on average assets for the first half of 2000, excluding the impact of a $21 million litigation provision, was 1.39% and return on average equity was 17.7%.

GAFR offers fixed, equity-indexed and variable annuities to both qualified and non-qualified markets, life and accident and health insurance through its insurance operating subsidiaries GALIC, Loyal and AILIC. Consolidated premium and deposits reached $714 million in 1999, bolstered by variable annuities and life and accident and health premium. Premium improved period-to-period, adjusting for the 1998 sale of GAFR's pre-need division, which accounted for $100 million in premium during 1998. GAFR reported total assets of $7.7 billion and stockholders' equity of $509 million as of June 30, 2000.

Debt-to-capital, adjusted for 50% equity credit of GAFR's TOPrS, the effects of FAS 115 and $30 million of cash held at the holding company level for strategic reasons, reached nearly 33% at June 30, 2000. Leverage exceeded Fitch's 30% expectations, spurred by the United Teachers Associates Insurance Co. (UTA) acquisition late in 1999.

GAFR acquired UTA near year-end 1999. UTA provides supplemental health and retirement annuities to retired and active teachers, complementing GAFR's existing qualified business. However, the acquisition was modest in proportion to GAFR's consolidated operations, representing less than 10% of pro-forma 1999 total premium and deposits.

Fitch is an international rating agency that provides global capital market investors with the highest quality ratings and research. Dual headquartered in New York and London with a major office in Chicago, Fitch rates entities in 75 countries and has some 1,100 employees in more than 40 local offices worldwide. The agency, which is a combination of Fitch IBCA and Duff & Phelps Credit Rating Co., provides ratings for Financial Institutions, Corporates, Structured Finance, Insurance, Sovereigns and Public Finance Markets worldwide.
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Publication:Business Wire
Date:Sep 1, 2000
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