|[July 02, 2014]
Fitch Affirms American Family's Ratings; Outlook Revised to Positive
CHICAGO --(Business Wire)--
Fitch Ratings has affirmed the 'A' Insurer Financial Strength (IFS)
rating of American Family Mutual Insurance Company and its subsidiaries
(American Family). The Rating Outlook is revised to Positive from
Stable. A complete list of ratings follows at the end of this release.
KEY RATING DRIVERS
The Positive Rating Outlook reflects American Family's very strong
capitalization and improved underwriting performance. The ratings
continue to reflect the company's strong market position in the Midwest.
The above positive factors are partially offset by recent acquisition
activity and the associated execution and growth risk, particularly
given increased homeowners' insurance exposure.
Fitch's Prism capital model score for American Family in 2012 was
'extremely strong', the highest category. Fitch expects a similar high
score for 2013. As of March 31, 2014, policyholders' surplus increased
by over $755 million, or 15%, from year-end 2012 to $5.9 billion
primarily due to investment gains and improved earnings and reduced
storm losses. In 2012, surplus increased by over $500 million, or 11%,
from year-end 2011 primarily due to the reasons mentioned above.
American Family has low financial leverage of roughly 8%, all
acquisition related. Operating leverage (net premium written to surplus)
was moderate at 0.97 times (x) in 2013, and 1.1x in 2012 and 2011, down
from historically higher levels due to reduced premium written and
American Family reported a 2013 statutory combined ratio of 101.9%,
improved from 102.6% in 2012 and 106.7 in 2011 due partly to better
homeowners' insurance results and a return to lower catastrophe-storm
loss levels. The company's reinsurance program and a heightened focus on
surplus protection is anticipated to reduce future earnings volatility.
Fitch notes that the recent results compare favorably to the company's
five and 10 year average combined ratio .
American Family has concentration risk related to the company's more
limited geographic diversification versus peers. The company's top five
states (Wisconsin, Missouri, Minnesota, Illinois, and Colorado) account
for a majority of premiums written. Recent acquisitions have expanded
the company's geographic, product, and distribution footprint nationally.
American Family acquired direct homeowners' insurance writer, Homesite
Group Inc., in 2013 and direct nonstandard auto insurance writer, The
Permanent General Companies (The General), in 2012. The Homesite
acquisition in particular adds risk and uncertainty to the overall
company profile given the homeowners insurane exposure and the
associated earnings volatility and a five-year average combined ratio
American Family Life Insurance Co.'s (AFLIC) rating reflects its status
as a 'core' insurer within the American Family group of companies based
on Fitch's Group Rating Methodology, as Fitch believes AFLIC's
traditional life insurance products are complementary to American
Family's exclusive agent distribution system. As a result, AFLIC's
rating receives upward lift to the American Family group rating level.
Midvale Indemnity Company's (Midvale) rating reflects its status as an
'important' insurer within the American Family group of companies.
Midvale's inclusion within the American Family group IFS rating is based
on its position within American Family's organizational structure and
overall business strategy. This includes Midvale's 100% intercompany
quota share reinsurance agreement with American Family. As a result,
Midvale's rating receives upward lift to the American Family group
The key rating triggers that could result in an upgrade include
maintaining a 'very strong' Prism score, low financial leverage and
moderate operating leverage, and show continued improvement in
underwriting profitability with an average combined ratio and operating
ratio approaching 100% and 95%, respectively, including some seasoning
of recent acquisitions. Fitch expects a certain amount of earnings
volatility given American Family's natural catastrophe exposure.
The key rating triggers that could result in a return to a Stable
Outlook include a sharp reduction in surplus or a material deterioration
in operating performance due to recent acquisitions.
Fitch has affirmed the following ratings with a Positive Outlook:
American Family Mutual Insurance Co.
American Family Insurance Company
American Standard Insurance Co. of Ohio
American Standard Insurance Co. of Wisconsin
American Family Life Insurance Co.
Midvale Indemnity Company
--IFS at 'A'.
Additional information is available on Fitch's web site at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Insurance Rating Methodology' (Nov. 13, 2013).
Applicable Criteria and Related Research:
Insurance Rating Methodology
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