Fitch Upgrades American Family's Ratings; Outlook Stable

CHICAGO--(BUSINESS WIRE)-- Fitch Ratings has upgraded American Family Mutual Insurance Company and its subsidiaries' (American Family) Insurer Financial Strength (IFS) ratings to 'A+' from 'A'. The Rating Outlook is revised to Stable from Positive. A complete list of rating actions follows at the end of this release.

KEY RATING DRIVERS

Fitch's upgrade 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 severe weather regional risk that influences profitability but not capital.

American Family maintains low financial leverage of approximately 9% as of year-end 2014 and has interest coverage based off of statutory net operating gain of approximately 9.3 times(x), though the majority of the debt is housed at the lead operating company thereby the entire asset position is available to service the debt as there are no constraints tied to statutory dividends. American Family's statutory operating leverage was 1.1x at year end 2014 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 2014.

American Family reported a 2014 statutory combined ratio of 100.4%, improved from 100.8% prior year and a 103.0% average from 2010-2013. In particular, 2014 results benefitted from the integration of the Homesite Group, Inc. (Homesite), which represents 10% of overall premiums.

American Family acquired direct homeowners' insurance writer, Homesite in December 2013 and direct nonstandard auto insurance writer, The Permanent General Companies (The General), in December 2012. Fitch is monitoring the integration and risk profile of American Family of these acquisitions to the overall company profile. In particular, Fitch has concerns about the additional homeowners insurance exposure and the associated earnings volatility that is associated with this line of business from weather related claims.

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.

Midvale Indemnity Company's (Midvale) rating reflects its status as an 'important' insurer within the American Family group of companies. Midvale's inclusion within the American Family group IFS rating is based on its position within American Family's organizational structure and overall business strategy. This includes Midvale's 100% intercompany quota share reinsurance agreement with American Family. As a result, Midvale's rating receives upward lift to the American Family group rating level.

RATING SENSITIVITIES

The key rating triggers that could result in an upgrade include:

--Sustained improvement in the combined ratio approaching 95% or better without deterioration in other parameters.

--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 upgraded 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 to 'A+' from 'A'.

The Rating Outlook is revised to Stable from Positive.

Additional information is available on www.fitchratings.com

Applicable Criteria

Insurance Rating Methodology (pub. 14 Jul 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=868367

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=989651

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=989651

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

View source version on businesswire.com: http://www.businesswire.com/news/home/20150819005775/en/

Fitch Ratings
Primary Analyst
Gerald Glombicki, CPA
Director
+1-312-606-2354
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
or
Secondary Analyst
Jim Auden, CFA
Managing Director
+1-312-368-3146
or
Committee Chairperson
Mark Rouck, CFA, CPA
Senior Director
+1-312-368-2085
or
Media Relations:
Alyssa Castelli, New York, +1 212-908-0540
Email: [email protected]

Source: Fitch Ratings

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