AM Best Affirms Credit Ratings of Atlantic American Corporation and Its Subsidiaries
- AM Best affirms credit ratings for American Southern Group and Bankers Fidelity Life Insurance Group.
- Stable outlooks for both groups and parent company, Atlantic American Corporation.
- Positive factors include strong balance sheet strength and operating performance.
- American Southern Group's balance sheet strength supported by strongest level of risk-adjusted capitalization.
- Financial flexibility sufficient with access to capital markets through Atlantic American.
- Operating profitability historically driven by underwriting income and net investment income.
- Underwriting results declined in 2023 due to increased losses in auto liability and general liability lines.
- Bankers Fidelity Life Insurance Group maintains strongest level of risk-adjusted capitalization.
- Operating performance fluctuated due to underwriting performance in Medicare supplement segment.
- Corrective measures undertaken to improve operating performance.
- Neutral business profile assessments for both groups.
- AM Best is a global credit rating agency specializing in the insurance industry.
- Increased stockholder dividend payments impacting parent company's debt.
- Underwriting results declined in 2023 due to increased losses in auto liability and general liability lines.
Insights
The affirmation of the Financial Strength Rating (FSR) and Long-Term Issuer Credit Ratings (Long-Term ICR) for American Southern Insurance Company and its subsidiary, along with the Bankers Fidelity Life Insurance Group, by AM Best indicates a stable outlook for these entities. This stability is crucial for investors as it suggests a lower risk of default on obligations and a solid foundation for future operations. The ratings, particularly the 'A' (Excellent) FSR, signal to the market that the company maintains a high level of financial health, which can influence investor confidence and potentially affect the stock price of the publicly traded parent company, Atlantic American Corporation.
The detailed analysis of the balance sheet strength, operating performance, business profile and enterprise risk management (ERM) by AM Best provides investors with a comprehensive view of the companies' financial and operational health. The mention of 'strongest level of risk-adjusted capitalization' as measured by Best's Capital Adequacy Ratio (BCAR) highlights a robust capital structure that can absorb potential losses, an essential aspect for stakeholders evaluating the company's resilience in adverse market conditions.
The financial leverage and interest coverage ratios mentioned in the ratings report are critical metrics for assessing the parent company, Atlantic American's, ability to service its debt. A debt-to-capital ratio of 22.9% as of September 30, 2023, falls within a reasonable range, indicating a manageable level of debt that could be favorable for the company's creditworthiness and stock valuation. However, the substantial and recently increased annual stockholder dividend payments raise questions about the sustainability of such distributions, especially since they are used to service the parent's debt. This could be a point of concern for investors, as it potentially indicates a dependency on subsidiary performance for debt servicing, which may not be sustainable in the long term.
The report's mention of a disciplined underwriting approach and local market expertise provides insight into American Southern Group's strategy for profitability. This approach has led to a decade of operating profitability, underpinned by positive underwriting income and net investment income. However, the decline in underwriting results due to increased losses in auto liability and general liability lines suggests market-specific challenges. The reduction in auto physical damage line losses due to decreased exposure indicates a strategic response to market conditions. For stakeholders, this demonstrates the company's ability to adapt to changing market dynamics, which is essential for long-term sustainability.
Bankers Fidelity Life Insurance Group's corrective measures in their Medicare supplement segment, including rate increases and more stringent underwriting practices, reflect a proactive approach to improving operating performance. The diversification into lower-risk ancillary products is a strategic move that could mitigate risk and lead to more stable earnings. For investors, the success of these measures could indicate a potential for improved profitability and a positive impact on the company's valuation.
The ratings of American Southern Group reflect its balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management (ERM).
American Southern Group’s balance sheet strength is supported by the strongest level of risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR). Financial flexibility is sufficient considering the group’s strongest BCAR scores and access to capital markets through the publicly traded parent company, Atlantic American. These positive rating factors are offset partially by the group’s substantial and recently increased annual stockholder dividend payments to the parent, which Atlantic American uses to service its debt. The ratings also consider the financial leverage and interest coverage at Atlantic American, with an adjusted debt-to-capital ratio of
American Southern Group has exhibited operating profitability historically over the past decade, driven by positive underwriting income and net investment income. Underwriting results have been profitable since 2014, attributed to management’s disciplined underwriting approach and local market expertise. While they remained positive, underwriting results declined through the first nine months of 2023, driven by increased losses. The increase in losses was due mainly to a higher frequency and severity of claims in the auto liability and general liability lines of business. Countering this increase, were lower losses related to the auto physical damage line of business due to a decrease in exposure. The neutral business profile assessment reflects American Southern Group’s established position as an experienced writer of specialty program business, primarily for state governments, local municipalities and other large motor pools and fleets.
The ratings of BFLIG reflect its balance sheet strength, which AM Best assesses as very strong, as well as its marginal operating performance, neutral business profile and appropriate ERM.
BFLIG maintains the strongest level of risk-adjusted capitalization, as measured by BCAR, for its insurance and investment risks. Despite volatility in operating results in recent years, the organization’s capital and surplus levels have been supported by material capital contributions from its parent, Atlantic American. Balance sheet strength is enhanced further by solid liquidity measures and access to an external borrowing capacity that has not been drawn on. While operating performance has fluctuated due to underwriting performance in its Medicare supplement segment, results have trended favorably since 2022 as the organization has undertaken several corrective measures. These measures included rate increases, more stringent underwriting practices, and the gradual diversification of business to lower risk ancillary products. BFLIG’s neutral business profile assessment reflects the continued diversification of its business mix through the expansion of these ancillary accident and health and life products. BFLIG’s ratings also reflect its strategic role within the Atlantic American organization.
This press release relates to Credit Ratings that have been published on AM Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best's Credit Ratings. For information on the proper use of Best’s Credit Ratings, Best’s Performance Assessments, Best’s Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best’s Ratings & Assessments.
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Christine DePalma, CPCU
Financial Analyst
+1 908 882 1732
christine.depalma@ambest.com
Christopher Sharkey
Associate Director, Public Relations
+1 908 882 2310
christopher.sharkey@ambest.com
Timothy Willey
Financial Analyst
+1 908 882 2433
timothy.willey@ambest.com
Al Slavin
Senior Public Relations Specialist
+1 908 882 2318
al.slavin@ambest.com
Source: AM Best
FAQ
What are the credit ratings affirmed by AM Best for American Southern Group and Bankers Fidelity Life Insurance Group?
What is the outlook for the credit ratings of these groups and the parent company?
What factors support American Southern Group's balance sheet strength?
Why did underwriting results decline for American Southern Group in 2023?
What measures did Bankers Fidelity Life Insurance Group undertake to improve operating performance?
What is the business profile assessment for both American Southern Group and Bankers Fidelity Life Insurance Group?
What is the specialization of AM Best as a global credit rating agency?
