KEY RATING DRIVERS
The Positive Rating Outlook reflects American Family's very strong capitalization and improved underwriting performance. The ratings continue to reflect the company's strong market position in the Midwest. The above positive factors are partially offset by recent acquisition activity and the associated execution and growth risk, particularly given increased homeowners' insurance exposure.
Fitch's Prism capital model score for American Family in 2012 was 'extremely strong', the highest category. Fitch expects a similar high score for 2013. As of
American Family has low financial leverage of roughly 8%, all acquisition related. Operating leverage (net premium written to surplus) was moderate at 0.97 times (x) in 2013, and 1.1x in 2012 and 2011, down from historically higher levels due to reduced premium written and increased surplus.
American Family reported a 2013 statutory combined ratio of 101.9%, improved from 102.6% in 2012 and 106.7 in 2011 due partly to better homeowners' insurance results and a return to lower catastrophe-storm loss levels. The company's reinsurance program and a heightened focus on surplus protection is anticipated to reduce future earnings volatility. Fitch notes that the recent results compare favorably to the company's five and 10 year average combined ratio .
American Family has concentration risk related to the company's more limited geographic diversification versus peers. The company's top five states (
American Family acquired direct homeowners' insurance writer,
The key rating triggers that could result in an upgrade include maintaining a 'very strong' Prism score, low financial leverage and moderate operating leverage, and show continued improvement in underwriting profitability with an average combined ratio and operating ratio approaching 100% and 95%, respectively, including some seasoning of recent acquisitions. Fitch expects a certain amount of earnings volatility given American Family's natural catastrophe exposure.
The key rating triggers that could result in a return to a Stable Outlook include a sharp reduction in surplus or a material deterioration in operating performance due to recent acquisitions.
Fitch has affirmed the following ratings with a Positive Outlook:
--IFS at 'A'.
Additional information is available on Fitch's web site at 'www.fitchratings.com'.
--'Insurance Rating Methodology' (
Insurance Rating Methodology
Source: Fitch Ratings
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