Fitch Affirms American Family's IFS Ratings at 'A+'; Outlook Stable
KEY RATING DRIVERS
Fitch's affirmation of American Family's ratings reflects the company's very strong capitalization, favorable reserve position, improved underwriting performance, and strong market position in the Midwest personal lines market. These positive factors are partially offset by an aggregate exposure to regional severe weather risk that can result in meaningful year-to-year earnings volatility but does not result in a meaningful decline in Fitch's view of the company's capital strength.
American Family maintains low financial leverage of approximately 9% as of June 30, 2016 and has high levels of interest coverage due to the low financial leverage. Favorably, the majority of the debt is housed at the lead operating company thereby the entire asset position is available to service the debt and is not constrained by statutory dividend requirements.
American Family's statutory operating leverage was 1.1x at year-end 2015 in line with prior years. Fitch also adjusted American Family's operating leverage to exclude the life insurance subsidiary that is stacked underneath the property/casualty operations and operating leverage increases to 1.3x at year-end 2015. From a Prism capital model perspective, the company scored in the 'Very Strong' category for 2015 consistent with the prior year.
American Family reported a statutory first half 2016 combined ratio of 101% which is higher than 95% for first half 2015 and full year 2015 of 96%. In particular, results from 2015 benefited from a mild catastrophe environment but the second half of 2016 should bring less hail and severe weather storms; therefore, Fitch anticipates a better second half 2016 result barring any large catastrophe event.
Recently the company announced plans to form as a mutual holding company structure from the traditional mutual insurance company structure. This plan is still being reviewed by regulators and is subject to policyholder approval. Fitch notes that execution of this plan does not affect the American Family rating. The ratings would be reviewed if material changes in corporate strategy or capital structure emanated from this new organizational structure.
American Family Life Insurance Co.'s (AFLIC) rating reflects its status as a 'core' insurer within the American Family group of companies based on Fitch's Group Rating Methodology, as Fitch believes AFLIC's traditional life insurance products are complementary to American Family's exclusive agent distribution system. As a result, AFLIC's rating receives upward lift to the American Family group rating level.
The key rating triggers that could result in an upgrade include:
--Sustained improvement in the combined ratio approaching 95% or better.
--Maintaining a 'very strong' or better Prism score.
The key rating triggers that could result in a downgrade include:
--A material deterioration in operating performance, such as a sustained combined ratio approaching 105%.
--A sustained reduction in Prism score to the 'strong' category.
FULL LIST OF RATING ACTIONS
Fitch has affirmed the following ratings:
American Family Mutual Insurance Co.
American Family Insurance Company
American Standard Insurance Co. of Ohio
American Standard Insurance Co. of Wisconsin
American Family Life Insurance Co.
Midvale Indemnity Company
--IFS at 'A+'.
The Rating Outlook is Stable.