Moody’s Ratings (Moody’s) has downgraded the insurance financial strength (IFS) rating of American Family Mutual Insurance Company from A1 to A2, assigning a stable outlook for the company and its subsidiaries.
Additionally, Moody’s downgraded the senior unsecured notes rating of AmFam Holdings, a subsidiary of American Family Insurance Mutual Holding Company, from Baa1 to Baa2.
The downgrades are attributed to the group’s net losses in recent years, which have led to lower capital levels. High loss cost inflation and frequent weather-related claims have adversely affected American Family.
On a consolidated GAAP basis, American Family reported a net loss of $891 million for 2023, driven by high auto insurance claims severity due to loss cost inflation, as well as significant catastrophe losses from severe convective storms.
Moody’s states, “American Family also faces the challenge of integrating past acquisitions and continues to lower its expense base to compete with national carriers and low-cost direct response personal lines insurers. Given its mutual structure, American Family cannot readily access the equity capital markets.”
However, the group has made progress in improving its weak underwriting results by raising premium rates, tightening underwriting standards, and reducing expenses through streamlining operations.
The stable outlook reflects the company’s significant progress in improving its auto insurance results and achieving rate adequacy in most states, which will help rebuild capital.
Moody’s notes that achieving a combined ratio below 100%, improved risk-adjusted capitalisation, financial leverage below 25%, and earnings coverage above 4x could lead to a rating upgrade.
