Best Downgrades American Family Insurance Group

By Michael Ha

NU Online News Service, Oct. 31, 11:35 a.m.EST?A.M. Best Co. has lowered the financial strengthrating of the property-casualty affiliates of American FamilyInsurance Group to "A" (excellent) from "A-Plus" (superior), citingthe insurer's falling surplus and unstable earnings. The Oldwick,N.J.-based insurance ratings agency said the ratings outlook is nowstable.

Best said its ratings action reflects the Madison, Wis.-basedmutual insurer's "surplus decline and substantial premium growthover several years, which caused the group's risk-adjusted capitalto decline significantly over this period."

The ratings firm also pointed out that the company's operatingearnings have been volatile because of weather-related underwritinglosses and lower investment income levels.

On a positive note, Best observed American Family's volatileunderwriting performance is improving, and if the trend issustained, it will help strengthen the company's overallcapitalization.

Best also remarked that at the current rating level, the insurerhas a sound capital position and a well-established regional marketpresence as a leading personal lines insurer in the Midwest.

Commenting on Best's ratings action, an American Familyspokesperson said the company respects the ratings firm's decision,"but we continue to be a very strong and stable companyfinancially, and that's reflected in the ?A' rating wereceived."

"We are doing extremely well in important financial categories:our surplus is increasing, our combined ratio has shown substantialimprovements, and we have increased catastrophe reinsurancecoverage," Ken Muth, spokesperson for the company, toldNational Underwriter.

"We have also reduced our investments in stock markets, so weare now less vulnerable to market shifts," Mr. Muth said.

American Family specializes in property and casualty insurance,but also offers life, health and homeowners' coverage, as well asinvestment and retirement-planning products.

Its insurance products include farm owners, inland marine,commercial multiperil, personal and commercial umbrella, fire andallied lines. Last year, the insurer posted $58.2 in net profit,with $5.3 billion in sales.