Another American Family Downgrade :Fitch
NU Online News Service, Dec. 10, 3:26 p.m. EST?Fitch Ratings, citing its concerns for American Family Insurance Group's falling capitalization, downgraded its financial strength rating for the company to "double-A-minus" from ?double-A," with a "Stable" outlook.[@@]
Fitch's ratings action follows a similar downgrade by Oldwick, N.J.-based A.M. Best Co., which at the end of October lowered its financial strength rating for the property-casualty affiliates of American Family Insurance Group to "A" from "A-Plus," citing the insurer's declining surplus.
In explaining its downgrade, the New York-based Fitch said the ratings action reflects American Family's falling capitalization over the last several years. This decline, Fitch said, is seen both on an absolute basis and relative to an increased amount of business written by American Family.
Fitch observed that American Family has suffered a 24 percent fall in its policyholders' surplus, from $3.1 billion at year-end 1999 to $2.4 billion as of the end of September this year. (That $2.4 billion figure, though, is still an improvement from $2.1 billion recorded at year-end 2002.) This surplus decline during the past few years, Fitch explained, was driven mostly by operating losses in 2000 and 2001 and investment losses last year.
But, at the same time, American Family's business has grown, which had the effect of deteriorating the company's operating leverage. Its net premium written rose from $3.6 billion in 1999 to $4.9 billion last year and is expected to reach $5.5 billion overall this year.
Despite the downgrade, though, American Family's ratings stand at a "very strong ?double-A-minus'" level, Fitch added. Some of the positive developments at the company include its "solid brand name and exceptional franchise value in their target market," even though there is some concern for the relative lack of geographic diversification.
Within American Family's target market of 17 states predominately in the Midwest, Fitch said, the company was the second largest private passenger auto writer and the third largest homeowner's writer last year.
Furthermore, the insurer's underwriting results have also been getting better, with a 101.7 percent combined ratio for the 2003 first nine months, thanks to price hikes and "a more normal level" of catastrophe losses. Fitch said it expects American Family's combined ratios to be around a break-even 100 percent this year and in 2004.
American Family, based in Madison, Wis., specializes in property-casualty insurance, but also offers life, health and homeowners' coverage, as well as investment and retirement-planning products. Last year, the insurer posted $58.2 in net profit, with $5.3 billion in sales.
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