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Rating Action:

MOODY'S CONFIRMS AMERICAN FINACIAL GROUP'S RATINGS, OUTLOOK CHANGED TO NEGATIVE FROM STABLE

28 Feb 2003
MOODY'S CONFIRMS AMERICAN FINACIAL GROUP'S RATINGS, OUTLOOK CHANGED TO NEGATIVE FROM STABLE

New York, February 28, 2003 -- Moody's Investors Service confirmed the A3 insurance financial strength ratings of the property and casualty insurance subsidiaries of American Financial Group (NYSE: AFG). In the same action, Moody's also confirmed the company's debt ratings (senior unsecured at Baa3) and changed its ratings outlook on all of the company's ratings to negative from stable.

Moody's noted that the change in outlook to negative reflects a number of concerns, including AFG's leverage profile, the reduction in proceeds from the spin-off of its personal auto operations and its constrained financial flexibility.

Moody's expects AFG's core commercial insurance operations will continue to report improved earnings, however, the rating agency believes this trend needs to persist without disruption over the medium-term to reduce financial leverage and improve financial flexibility. Moody's noted AFG's modest coverage of its fixed charges and the fact that the holding company's need for subsidiary dividends could constrain statutory capital generation were key factors contributing to the outlook change. Furthermore, Moody's sees as a risk AFG's dependence on its bank credit facility to meet ongoing working capital needs, which may inhibit the company's ongoing efforts to further moderate financial leverage. Moody's also believes that pricing and reserving risks continue as the company grows its specialty commercial segments and transitions its operations to focus entirely on commercial risks.

Moody's noted that proceeds from the company's initial public offering of its personal automobile insurer, Infinity Property and Casualty Corporation, fell significantly below expectations and are expected to include a $30 million net charge in the first quarter of 2003. Although, the spin-off allowed AFG to somewhat lower its financial leverage profile by reducing bank borrowings, Moody's notes that the decrease in proceeds modestly lowers expected coverage levels of the holding company's near-term obligations.

Moody's added that the ratings confirmation reflects AFG's specialty commercial underwriting expertise and its focus on underwriting profit. Moody's noted that the company's business segments continue to benefit from the improved rate and underwriting environment in commercial lines, which is expected to benefit earnings and capital generation.

The following ratings were confirmed and outlook changed to negative from stable:

American Financial Group, Inc. -- Baa3 senior debt Baa3, (P)Baa3 prospective senior debt and (P)Ba1 prospective subordinated debt;

American Financial Capital Trust I -- Ba1 capital securities;

American Financial Capital Trust II -- (P)Ba1 prospective capital securities;

American Financial Corporation -- Ba2 preferred stock;

Great American Fidelity Insurance Company -- A3 insurance financial strength;

Great American Spirit Insurance Company -- A3 insurance financial strength;

Great American Contemporary Insurance Company -- A3 insurance financial strength;

Great American Security Insurance Company -- A3 insurance financial strength;

Great American Protection Insurance Company -- A3 insurance financial strength;

Great American Alliance Insurance Company -- A3 insurance financial strength;

Great American Assurance Company -- A3 insurance financial strength;

Great American E & S Insurance Company -- A3 insurance financial strength;

Great American Insurance Company -- A3 insurance financial strength;

Great American Insurance Company of New York -- A3 insurance financial strength;

Republic Indemnity Company of America -- A3 insurance financial strength;

Worldwide Casualty Insurance Company -- A3 insurance financial strength;

The ratings of Great American Life Insurance Company (rated A3 for insurance financial strength, negative outlook) and the debt ratings associated with Great American Financial Resources (senior debt rated Baa3, negative outlook) were not included in this rating action. Nor did this rating action include the ratings of Worldwide Direct Insurance Company and Worldwide Insurance Corporation which were previously placed on review for possible downgrade following AFG's announcement of its intent to sell these operations to Direct Response Incorporated.

AFG is an Ohio-based holding company that, through its operating subsidiaries, currently provides specialty property and casualty commercial insurance coverages, as well as tax-deferred annuities and life insurance products. For the twelve months ended December 31, 2002, AFG reported revenues and net earnings of $3.8 billion and $85 million, respectively. This compares with revenues and a net loss of $3.9 billion and $15 million, respectively, for the year ended 2001. Pre-tax operating earnings increased to $247 million from $159 million in 2001 and the company's net results were tempered by a $40 million after tax impairment charge on goodwill, a $19.5 million charge to strengthen asbestos reserves and approximately $45 million in after tax realized losses on investments. These charges were partially offset by a $31 million reduction in tax reserves during the year.

New York
Marc Serafin
Analyst
Property & Casualty Insurance
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Ted Collins
Managing Director
Property & Casualty Insurance
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

No Related Data.
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