Fitch Affirms American Family's Ratings; Outlook Positive

CHICAGO--()--Fitch Ratings has affirmed the 'A' Insurer Financial Strength (IFS) rating of American Family Mutual Insurance Company and its subsidiaries (American Family). The Rating Outlook remains Positive. A complete list of ratings follows at the end of this release.

KEY RATING DRIVERS

Fitch's affirmation of American Family's ratings with a Positive Rating Outlook reflects the company's very strong capitalization, favorable reserve position, improved underwriting performance, and 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.

American Family maintains low financial leverage of approximately 8% as of year-end 2014 and has an interest coverage based off of statutory net operating gain of approximately 26x though the majority of the debt is housed at the lead operating company thereby the entire asset position is available to service the debt as there are no constraints of statutory dividends. American Family's operating leverage was 1.1x at year end 2014 in line with prior years. Fitch also adjusted American Family's operating leverage to exclude the life insurance subsidiary that is stacked underneath the property/casualty operations and operating leverage increases to 1.3x at year end 2014.

American Family reported a 2014 statutory combined ratio of 99.4%, improved from 102.2% prior year and a 103.2% average for years 2010 - 2013. In particular, 2014 results benefitted from the integration of the Homesite Group, Inc. (Homesite) which represents 10% of overall premiums.

American Family acquired direct homeowners' insurance writer, Homesite in December 2013 and direct nonstandard auto insurance writer, The Permanent General Companies (The General), in December 2012. Fitch is monitoring the integration and risk profile of American Family of these acquisitions to the overall company profile. In particular, Fitch has concerns about the additional homeowner's insurance exposure and the associated earnings volatility that is associated with this line of business from weather related claims.

American Family Life Insurance Co.'s (AFLIC) rating reflects its status as a 'core' insurer within the American Family group of companies based on Fitch's Group Rating Methodology, as Fitch believes AFLIC's traditional life insurance products are complementary to American Family's exclusive agent distribution system. As a result, AFLIC's rating receives upward lift to the American Family group rating level.

Midvale Indemnity Company's (Midvale) rating reflects its status as an 'important' insurer within the American Family group of companies. Midvale's inclusion within the American Family group IFS rating is based on its position within American Family's organizational structure and overall business strategy. This includes Midvale's 100% intercompany quota share reinsurance agreement with American Family. As a result, Midvale's rating receives upward lift to the American Family group rating level.

RATING SENSITIVITIES

The key rating triggers that could result in an upgrade include:

--Maintaining a 'very strong' Prism score;

--Low financial leverage and moderate operating leverage,

--Continued improvement in underwriting profitability with an average combined ratio and operating ratio approaching 100% and 95%, respectively;

--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:

American Family Mutual Insurance Co.

American Family Insurance Company

American Standard Insurance Co. of Ohio

American Standard Insurance Co. of Wisconsin

American Family Life Insurance Co.

Midvale Indemnity Company

--IFS at 'A'.

Additional information is available on Fitch's web site at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Insurance Rating Methodology' (Sep. 4, 2014).

Applicable Criteria and Related Research:

Insurance Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=756650

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=981798

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Contacts

Fitch Ratings
Primary Analyst
Gerald Glombicki, CPA
Director
+1 312-606-2354
Fitch Ratings, Inc.
70 West Madison Street
Chicago, IL 60602
or
Secondary Analyst
Douglas Pawlowski, CFA
Senior Director
+1 312-368-2054
or
Committee Chairperson
R. Andrew Davidson, CFA
Senior Director
+1 312-368-3144
or
Media Relations:
Alyssa Castelli, +1 212-908-0540
alyssa.castelli@fitchratings.com
Elizabeth Fogerty, +1 212-908-0526
elizabeth.fogerty@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Gerald Glombicki, CPA
Director
+1 312-606-2354
Fitch Ratings, Inc.
70 West Madison Street
Chicago, IL 60602
or
Secondary Analyst
Douglas Pawlowski, CFA
Senior Director
+1 312-368-2054
or
Committee Chairperson
R. Andrew Davidson, CFA
Senior Director
+1 312-368-3144
or
Media Relations:
Alyssa Castelli, +1 212-908-0540
alyssa.castelli@fitchratings.com
Elizabeth Fogerty, +1 212-908-0526
elizabeth.fogerty@fitchratings.com