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Rating Action:

MOODY'S DOWNGRADES AFG'S DEBT RATINGS (SENIOR UNSECURED TO Baa3); AFFIRMS P&C FINANCIAL STRENGTH RATINGS; LIFE RATINGS OUTLOOK CHANGED TO NEGATIVE

30 Jan 2003
MOODY'S DOWNGRADES AFG'S DEBT RATINGS (SENIOR UNSECURED TO Baa3); AFFIRMS P&C FINANCIAL STRENGTH RATINGS; LIFE RATINGS OUTLOOK CHANGED TO NEGATIVE

New York, January 30, 2003 -- Moody's Investors Service announced today that it has affirmed the A3 insurance financial strength ratings of the property and casualty members of the Great American Insurance Group members as well as confirmed the insurance financial strength of the group's affiliated life and annuity insurer - Great American Life Insurance Company. Consistent with its view that the relative risk to holding company creditors is better expressed by a three notch gap from the financial strength ratings of the primary operating insurers, Moody's downgraded the debt and preferred stock ratings (senior unsecured debt to Baa3 from Baa2) of American Financial Group (NYSE: AFG) and of its subsidiaries. In the same action, Moody's changed its rating outlook on Great American Life Insurance Company and the debt of its affiliated holding company, Great American Financial Resources, Inc. to negative from stable. The property and casualty ratings carry a stable outlook. This action concludes a review of the debt ratings that was initiated on November 13, 2002.

Moody's noted that the pending auto insurance spin-off reduces an incremental source of diversification for the non-life business, which will now focus on various specialty commercial classes. While the transaction is expected to result in a moderate reduction of financial leverage, Moody's believes AFG's effective leverage profile remains high relative to its peers.

Elaborating on the rationale for the stable outlook on ratings of the group's property and casualty insurer's, Moody's noted that given AFG's focused underwriting approach, it stands to benefit from a significantly improved specialty commercial lines market, characterized by escalating prices. In addition to its expectations of improved operating results, the rating agency noted that it believes that the company will continue to take steps to moderate both its financial and operating leverage over the near term, as well as to simplify its organizational structure.

The negative outlook for Great American Life Insurance Company and debt at the affiliated holding company reflects the company's modest cash on cash coverage of holding company fixed charges and declining capitalization. The outlook for the rating is heavily dependent on the company's ability to improve core statutory earnings to support growth and service debt at the holding company level. Partially offsetting these risk exposures is Great American Life's stable earnings from core annuity operations as well as recent improvements made in the company's expense structure.

In the same action, Moody's withdrew its ratings on the revolving credit facility at American Financial Corporation, which is guaranteed by AFG, and also withdrew the ratings on the subordinated debt securities at American Premier Underwriters, Inc as only a modest amount of these securities remain outstanding.

The following debt ratings associated with AFG and its P&C subsidiaries were downgraded and carry a stable outlook:

American Financial Group, Inc. - senior debt to Baa3 from Baa2, prospective senior debt to (P)Baa3 from (P)Baa2 and prospective subordinated debt to (P)Ba1 from (P)Baa3;

American Financial Capital Trust I - capital securities to Ba1 from Baa3;

American Financial Capital Trust II - prospective capital securities to (P)Ba1 from (P)Baa3;

American Financial Corporation - preferred stock to Ba2 from Ba1;

American Premier Underwriters, Inc. - subordinated debt to Ba1 from Baa3.

The following P&C insurance financial strength ratings were affirmed at A3 with a stable outlook:

Great American Fidelity Insurance Company;

Great American Spirit Insurance Company;

Great American Contemporary Insurance Company;

Great American Security Insurance Company;

Great American Protection Insurance Company;

Great American Alliance Insurance Company;

Great American Assurance Company;

Great American E & S Insurance Company;

Great American Insurance Company;

Great American Insurance Company of New York;

Republic Indemnity Company of America;

Worldwide Casualty Insurance Company;

Worldwide Insurance Company;

Worldwide Direct Auto Insurance Company.

The following ratings associated with AFG and its P&C subsidiaries were withdrawn:

American Premier Underwriters, Inc. - Ba1 subordinated debt;

American Financial Corporation - Baa3 revolving credit facility.

The following life insurance financial strength rating was confirmed at A3 with a negative outlook:

Great American Life Insurance Company

The following debt ratings associated with Great American Financial Resources, Inc. were downgraded and the outlook was changed to negative:

AAG Holding Company, Inc. - senior debt to Baa3 from Baa2, prospective senior notes to (P)Baa3 from (P)Baa2, prospective subordinated debt to (P)Ba1 from (P)Baa3;

Great American Financial Resources Inc. - prospective preferred stock to (P)Ba2 from (P)Ba1;

American Annuity Group Capital Trust I & II - capital securities to Ba1 from Baa3.

AFG is an Ohio-based holding company that, through its operating subsidiaries, currently provides specialty property and casualty and private passenger automobile insurance, as well as tax-deferred annuities and life insurance products. For the first nine months of 2002, AFG reported over $2.8 billion in revenues and net earnings approaching $81 million, driven lower by over $51 million in realized investment losses. The combined ratio for the 2002 period for the P&C operations was 100.8%, versus 105.2% for the 2001 period, with the specialty commercial lines reporting a YTD combined ratio of 98.4%.

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

New York
Scott Robinson
Vice President - Senior Analyst
Life Insurance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

No Related Data.
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