Wisconsin’s American Family Insurance is the beneficiary of an upgrade from Fitch Ratings, thanks to such factors as strong capitalization and favorable reserves.
Fitch said it upgrade the mutual insurer and its subsidiaries’ insurer financial strength ratings to ‘A+’ from ‘A.’ The rating outlook is also updated to Stable, from Positive. Beyond strong capitalization and favorable reserves, Fitch said the upgrade is also the result of an improved underwriting performance and a strong position in the Midwest personal lines market.
At the same time, Fitch said the positive elements are partially offset “by an aggregate exposure to severe weather regional risk that influences profitability but not capital.”
Fitch said that American Family maintained a financial leverage of about 9 percent as of the end of 2014, a low amount of debt As well, Fitch noted that American Family houses most of its debt at the lead operating company, enabling all of its assets to be available to service its debt, “as there are no constraints tied to statutory dividends.”
Fitch noted that American Family generated a 100.4 combined ratio in 2014, better than 100.8 from the previous year, and a 103 average from 2010 through 2013. Those 2014 results benefited from American Family’s integration of the Homesite Group into its operations – representing 10 percent of overall premiums, the ratings entity said. American Family acquired Homesight in December 20143, plus direct nonstandard auto insurance writer The Permanent General Companies in December 2012.
Fitch said it is monitoring the absorption and risk profile of American Family in this post-acquisition period. It also cautioned that it is concerned about American Family’s additional homeowners insurance exposure and the related earnings volatility that it produces from weather-related claims.
Meanwhile, American Family is branching out into new areas, such as exploring the use of commercial drones to see how they can improve its response to catastrophes. The insurer announced its pilot program earlier in August, which will focus initially on test flights in Madison and then advance into “real-world” scenario tests in the future.
Source: Fitch Ratings