A.M. Best Downgrades Ratings of American Federated Insurance Companies

OLDWICK, N.J.--(BUSINESS WIRE)-- A.M. Best has downgraded the financial strength rating (FSR) to B (Fair) from B++ (Good) and the issuer credit rating (ICR) to “bb” from “bbb” of American Federated Insurance Company (AFIC), and the FSR to B (Fair) from B+ (Good) and the ICR to “bb” from “bbb-” of its sister company, American Federated Life Insurance Company (AFLIC) (both domiciled in Flowood, MS) (known collectively as American Federated Insurance Companies). The outlook for all ratings has been revised to negative from stable.

The American Federated Insurance Companies are indirect, wholly owned subsidiaries of First Tower Finance Company LLC (First Tower Finance), a multi-line specialty finance company. Prospect Capital Corporation [NASDAQ: PSEC], a publicly traded closed-end investment company, indirectly owns an 80.05% majority interest in First Tower Finance and its subsidiaries.

The rating action reflects significant financial leverage that has resulted in a deficit in members’ equity at First Tower Finance, stemming from a 2014 transaction involving the return of First Tower Finance’s capital to its members. The outlook reflects the heavy financial leverage at First Tower Finance, an intermediate holding company, and the potential for this to create pressure on AFIC for dividends or increased expense sharing.

The ratings could come under pressure should the financial condition of First Tower Finance weaken significantly, should the company’s underwriting and overall profitability measures underperform its peers, should there be a material decline in risk-adjusted capitalization or should Prospect Capital Corporation fail to provide adequate support for First Tower Finance and its subsidiaries.

The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.

Key insurance criteria reports utilized:

• Catastrophe Analysis in A.M. Best Ratings
• Evaluating Non-Insurance Ultimate Parents
• Insurance Holding Company and Debt Ratings
• Rating Members of Insurance Groups
• Risk Management and the Rating Process for Insurance Companies
• Understanding BCAR for Property/Casualty Insurers
• Understanding BCAR for U.S. and Canadian Life/Health Insurers

This press release relates to rating(s) that have been published on A.M. 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 visit A.M. Best’s Ratings & Criteria Center.

A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

Copyright © 2015 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.

View source version on businesswire.com: http://www.businesswire.com/news/home/20150612005713/en/

A.M. Best Company, Inc.
Robert Valenta, 908-439-2200, ext. 5291
Senior Financial Analyst—P/C
[email protected]
or
Richard McMillan, 908-439-2200, ext. 5615
Managing Senior Financial Analyst—L/H
[email protected]
or
Christopher Sharkey, 908-439-2200, ext. 5159
Manager, Public Relations
[email protected]
or
Jim Peavy, 908-439-2200, ext. 5644
Assistant Vice President, Public Relations
[email protected]

Source: A.M. Best Company, Inc.

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