OLDWICK, N.J., August 27, 2021–(BUSINESS WIRE)–AM Best has revised the outlooks to negative from stable and affirmed the Financial Strength Rating of B (Fair) and the Long-Term Issuer Credit Ratings of “bb” (Fair) of American Federated Insurance Company (AFIC) and American Federated Life Insurance Company (AFLIC). Both companies are known collectively as American Federated Insurance Companies and are domiciled in Flowood, MS.
These Credit Ratings (ratings) reflect AFIC’s balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, limited business profile and marginal enterprise risk management (ERM). The ratings also reflect drag from the parent holding company, First Tower Finance Company LLC (First Tower Finance).
The ratings of AFLIC reflect its balance sheet strength, which AM Best categorizes as very strong, as well as its adequate operating performance, limited business profile and marginal ERM. The ratings also reflect drag from the parent holding company, First Tower Finance.
The American Federated Insurance Companies are indirect, wholly owned subsidiaries of First Tower Finance, a multiline specialty finance company. Prospect Capital Corporation [NASDAQ: PSEC], a publicly traded closed-end investment company, indirectly owns an 80.1% majority interest in First Tower Finance and its subsidiaries.
AFIC provides credit insurance coverage on collateralized personal loans originated by the consumer finance subsidiaries of First Tower Finance, and involuntary unemployment insurance. AFLIC provides credit life and credit accident and health insurance coverages for the same individuals.
The drag on the ratings of AFIC and AFLIC reflects the considerable financial leverage with 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 revisions to negative reflect AM Best’s concern that high financial leverage, high interest expenses and growing negative equity at First Tower Finance, the intermediate holding company, may place further pressure on AFIC and AFLIC for additional dividends or increased expense sharing.
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 Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best’s Ratings & Assessments.
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