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Rating Action:

Moody’s rates American Financial Group’s subordinated notes Baa2(hyb)

09 September 2020

New York , September 9, 2020 – Moody's Investors Service has assigned a Baa2(hyb) rating to $200 million of subordinated debt due 2060 being issued by American Financial Group, Inc. (NYSE: AFG, Baa1 senior). The transaction is a drawdown from AFG's multi-purpose US shelf registration. Net proceeds from the offering will be used for general corporate purposes. The rating outlook for AFG is stable.

RATINGS RATIONALE

According to Moody's, AFG's ratings reflect its long-standing track record and underwriting expertise in a diverse set of commercial specialty segments, good geographic and line of business diversification with low catastrophe risk, its position in the traditional fixed and fixed-indexed annuity markets and strong profitability. These strengths are offset by relatively elevated gross underwriting leverage, exposure to certain long-tail lines of business including workers' compensation and spread compression and lower earnings in its annuity business.

For AFG and other insurers, the coronavirus-related economic downturn is raising claim costs in certain businesses and adding volatility to investment performance. AFG reported a net loss of $124 million for the first half of 2020, down from net income of $539 million for the prior year period, primarily due to net realized losses, lower core net operating earnings and losses from its run-off Lloyd's business, Neon. Given low interest rates, sales and investment income in AFG's annuity business will be under pressure. Moody's expects AFG to maintain a strong liquidity and solid capital adequacy during the economic downturn.

The group has historically maintained moderate adjusted financial leverage in the low to mid 20% range, with good cash flow and earnings coverage of interest. Giving effect to the incremental debt issuance, financial leverage on a pro forma basis will remain within the range.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING

The following factors could lead to an upgrade of the ratings: 1) upgrade of the insurance financial strength (IFS) ratings of the P&C and life subsidiaries; 2) earnings coverage consistently at or above 8x; and 3) financial leverage in the low 20% range. Factors that could lead to a downgrade include: 1) a downgrade of the IFS ratings of the P&C and/or life subsidiaries; 2) earnings coverage consistently at or below 6x; and 3) financial leverage consistently in the mid-to-high 20% range.

The following rating has been assigned:

American Financial Group, Inc. – subordinated debt at Baa2(hyb).

The outlook for AFG is stable.

American Financial Group, Inc., based in Cincinnati, Ohio, is a holding company that, through its operating subsidiaries, provides specialty commercial property and casualty insurance as well as fixed, fixed-indexed and variable-indexed annuities in the retail, financial institution, registered investment advisor and educational markets. In the first half of 2020, AFG reported revenues of $3.2 billion and a net loss of $124 million. Shareholders' equity was approximately $6.1 billion on June 30, 2020.

The methodologies used in this rating were Property and Casualty Insurers Methodology published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1187352 , and Life Insurers Methodology published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1187348 . Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004 .

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The rating has been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

This rating is solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569 .

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Michael Dion, CFA
VP-Senior Analyst
Financial Institutions Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS : 1 212 553 0376
Client Service : 1 212 553 1653

Sarah Hibler
Associate Managing Director
Financial Institutions Group
JOURNALISTS : 1 212 553 0376
Client Service : 1 212 553 1653

Releasing Office :
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS : 1 212 553 0376
Client Service : 1 212 553 1653

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