American Family’s ‘AA’ IFS Rating Affirmed

Fitch Ratings has affirmed the “AA” insurer financial strength rating of American Family Mutual Insurance Company (American Family) and its three property- casualty insurance subsidiaries, American Standard Insurance Company of Wisconsin, American Family Insurance Company and American Standard Insurance Company of Ohio. The rating outlook is stable.

Additionally, Fitch has affirmed its “F1+” commercial paper rating of American Family Financial Services Inc. (AFFS), a subsidiary primarily engaged in the business of making consumer loans and providing lines of credit.

Fitch said the very strong insurer financial strength rating reflects the group’s excellent market position and brand name, exceptional capitalization and favorable expense structure. Partially offsetting these positives are recent poor operating earnings, limited geographic diversification and larger than industry average exposure to common stocks.

American Family has a solid brand name and exceptional franchise value in their target market, which is currently in 17 states, predominately in the Midwest. The company looks to provide a high level of service and broad range of quality products to customers. American Family predominantly sells individual automobile and homeowners insurance, but also offers health, commercial lines coverage, life insurance and consumer loans.

Geographic diversification of the company’s insured portfolio is somewhat limited, in that the top five states (Wisconsin, Missouri, Minnesota, Illinois, and Colorado) accounted for about 70 percent of premiums written in 2001. However, diversification should improve somewhat going forward as the company continues its growth strategy of selectively expanding into new states at a moderate and controlled pace, ultimately seeking to be one of the market leaders in the states they operate.

Underwriting results have not been particularly good in recent years, with a five year (1997-2001) average combined ratio of 108.0 percent, including 114.4 percent posted in 2001. Significant catastrophe claims, primarily from Midwest storms, which have been unusually high in frequency and severity the last several years, were responsible for earnings shortfalls in 1998, 2000, and 2001. Reserve strengthening in personal automobile lines affected 1999 results. Positively, the company’s 2001 expense ratio of 22.8 percent continues to be among the lowest of the larger property/casualty writers.

In spite of recent operating losses and declines in equity portfolio market values, the company’s capitalization remains exceptionally strong and is a key factor in support of the rating. In addition, American Family’s profile as a regional, Midwest focused, predominately personal lines insurer, has generally insulated the company from many significant issues that have impacted more national property/casualty writers, including New Jersey automobile, toxic mold, automobile diminished value, and Sept 11th event losses.

Fitch believes that American Family is well positioned to post improved operating results in the continuing competitive and challenging personal lines market environment.

Topics Carriers Property Casualty