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A.M. Best Affirms Ratings of American Financial Group, Inc.’s Key Annuity Subsidiaries

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A.M. Best has affirmed the financial strength rating (FSR) of A (Excellent) and the issuer credit ratings (ICR) of “a+” of Great American Life Insurance Company (GALIC) and its wholly owned subsidiary, Annuity Investors Life Insurance Company (AILIC), the key life/health annuity subsidiaries of American Financial Group, Inc. (AFG) [NYSE:AFG]. The outlook for all ratings is stable. The above companies are headquartered in Cincinnati, OH.

The ratings of GALIC and AILIC reflect their leading market position in the sale of fixed-indexed annuity products through the bank channel, as well as their consistent net operating earnings and solid risk-adjusted capitalization. Additionally, strong growth in the annuity business over the past several years has helped GALIC and AILIC become material contributors to AFG’s consolidated revenue and earnings. As a result, A.M. Best believes that the strategic importance of these companies to the overall organization continues to support the rating enhancement currently afforded by AFG.

Together, GALIC and AILIC have generated significant amounts of single premium fixed and fixed- indexed annuity premium for five consecutive years. Both companies have been able to remain price competitive through modifying commission schedules, actively managing crediting rates and opportunistic investing. Additionally, several new bank channel distributors have been added in recent years, including Key Bank, Citizens Bank (Boston) and Wells Fargo, which also has contributed to premium growth. As a result, GALIC and AILIC reported over $3 billion of annuity deposits annually in recent years driven by fixed-indexed annuity sales through their bank and independent agent channels. The sharp increase in annuity sales since 2009 has enabled GALIC to report continued improvement in its core statutory operating earnings. Moreover, the growth in operating earnings, in addition to a sizable capital contribution to GALIC during the fourth quarter of 2012, has enabled GALIC to maintain a solid level of risk-adjusted capitalization, despite the significant increase in annuity premiums and reserves, as measured by Best’s Capital Adequacy Ratio (BCAR).

Although sales of fixed and fixed-indexed annuities have remained strong, the growth in the most recent period has been attributable to its bank distribution channel. A.M. Best remains concerned with the prolonged premium challenges within the education channel, also referred to as the 403(b) public education marketplace, and the retail channel. While sales in retail are down this year due to aggressive pricing by some new entrants into the fixed traditional and indexed annuity marketplace, the impact of low interest rates, ongoing budgetary constraints and volatility of the labor market continue to have a direct impact on the level of new premiums flowing into the company’s 403(b) plans. As a result, AFG’s first-year 403(b) premiums continue to decline, although this is partially mitigated by favorable persistency, driven in part by strong surrender charge protection. A.M. Best also notes that bank channel sales in GALIC have been able to mostly offset the decline in premiums in its retail and education marketplaces. Additionally, A.M. Best notes that the annuity companies continue to maintain sizable investments in financial sector corporate bonds and real estate-related securities (in particular, non-agency residential mortgage-backed securities and commercial mortgage-backed securities), which have enhanced investment returns. However, A.M. Best’s concerns are somewhat mitigated by GALIC’s and AILIC’s solid risk-adjusted capitalization, favorable net unrealized gain positions within their investment portfolios and their long-standing expertise in real estate-related investments.

A.M. Best believes the potential for positive rating actions for the members of Great American Group in the near to medium term would be limited to positive rating actions taken by A.M. Best on the core property/casualty operations of AFG. Factors that could lead to negative rating movement include negative rating actions taken by A.M. Best on the core property/casualty operations of AFG, significant and sustained spread compression as a result of the ongoing low interest rate environment, an increased concentration of non-agency residential mortgage-backed securities and commercial mortgage-backed securities within the group’s investment portfolio, or a material deterioration in risk-adjusted capitalization.

Concurrently, A.M. Best has affirmed the FSR of B++ (Good) and the ICR of “bbb+” of Manhattan National Life Insurance Company (Manhattan National) (headquartered in Cincinnati, OH), a life/health subsidiary of AFG. The outlook for both ratings is stable.

The ratings reflect Manhattan National’s diminished premium and statutory earnings. A.M. Best continues to believe that the run-off block of ordinary life business remaining at the company is no longer central to the organization’s long-term strategy. Although the life insurance line should continue to provide some revenue and earnings diversification for AFG’s life and annuity operations, the percentage has been steadily decreasing.

A.M. Best also has affirmed the FSR of B++ (Good) and the ICRs of “bbb” of Continental General Insurance Company and United Teacher Associates Insurance Company (both headquartered in Austin, TX), life/health subsidiaries of AFG. The outlook for these ratings is stable.

The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Best’s Credit Rating Methodology can be found at

Key insurance criteria reports utilized:

  • A.M. Best’s Liquidity Model for U.S. Life Insurers
  • A.M. Best’s Perspective on Operating Leverage
  • Rating Members of Insurance Groups
  • Risk Management and the Rating Process for Insurance Companies
  • Understanding BCAR for U.S. and Canadian Life/Health Insurers

This press release relates to rating(s) that have been published on A.M. Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please visit A.M. Best’s Ratings & Criteria Center.

A.M. Best Company is the world’s oldest and most authoritative insurance rating and information source. For more information, visit

Copyright (c) 2015 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.

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