A.M. Best Raises Ratings, Assigns New Group Rating for AFG’s Specialty Auto Companies

A.M. Best Co. has raised the financial strength ratings to A (Excellent) from A- (Excellent) for some of the core auto subsidiaries of Ohio-based American Financial Group, Inc.

Additionally, A.M. Best assigned a financial strength rating of A (Excellent) to a new group, Specialty Auto Group, of which these subsidiaries are now members. These ratings reflect Specialty Auto’s solid capitalization, favorable overall operating performance and strong non-standard automobile market presence. The group’s solid capital position is driven by moderate investment risk profile, commitment to loss reserve adequacy and conservative underwriting leverage. Despite the downturn in underwriting experienced in recent years related to a sharp increase in claim severity and frequency in key operating territories, the group’s five-year average combined ratio approximates the industry composite average.

Historical underwriting profitability is attributable to management’s product expertise, local market knowledge and utilization of sophisticated technologies within the pricing, risk selection and claims handling processes. Underwriting returns are also aided by the group’s low cost operating structure, which is partially facilitated by technology and consolidations of select back office functions. Finally, the ratings recognize the group’s strong non-standard private passenger automobile market presence as one of the top non-standard insurance groups in the United States, with net premiums written of $724 million.

Somewhat offsetting these positive factors are the earnings fluctuations due to localized competitive market conditions and fraud activity prevalent in some key non-standard automobile markets. The group’s premium is focused in three key states: California, Florida and New York, which represent approximately 50 percent of the total book of business. The operating climate in these states has trended very poorly over recent years due to high competition and increasing claim costs, particularly within New York and Florida’s personal injury protection market. However, the group has pursued aggressive premium rate increases, tightened underwriting guidelines and will benefit from recent price firming throughout non standard auto markets.

Additionally, the parent organization, American Financial Group, Inc., and its subsidiaries maintain high financial leverage and low fixed coverage ratios. A.M. Best does not anticipate a significant reduction in financial leverage, thereby placing greater emphasis on the group’s need to generate sustainable earnings and cash flows for debt service.

Nonetheless, A.M. Best views the rating outlook as stable due to the group’s excellent capitalization, historically favorable operating results and solid non-standard automobile market position.

Topics Auto AM Best