AM Best Affirms Credit Ratings of Atlantic American Corporation and Its Subsidiaries
AM Best has affirmed the Financial Strength Rating (FSR) of A (Excellent) and the Long-Term Issuer Credit Ratings (Long-Term ICR) of "a" (Excellent) of American Southern Insurance Company (Topeka, KS) and its wholly owned and 100% reinsured subsidiary, American Safety Insurance Company (collectively referred to as American Southern Group). Additionally, AM Best has affirmed the FSR of A- (Excellent) and the Long-Term ICRs of "a-" (Excellent) of Bankers Fidelity Life Insurance Company and its wholly owned and 100% reinsured subsidiaries, Bankers Fidelity Assurance Company and Atlantic Capital Life Assurance Company (collectively referred to as Bankers Fidelity Life Insurance Group [BFLIG]). Concurrently, AM Best has affirmed the Long-Term ICR of "bbb-" (Good) of the parent company, Atlantic American Corporation (Atlantic American) (NASDAQ:AAME). All companies are domiciled Atlanta, GA, unless otherwise specified. The outlook of these Credit Ratings (ratings) is stable.
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 22.9% as of Sept. 30, 2023. The interest coverage ratios benefit from a trend of underwriting and operating earnings in the insurance operating companies.
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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