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American Family Mutual Insurance Co, S.I. -- Moody’s assigns Baa1 senior note rating to AmFam Holdings, outlook stable

·14 min read
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Rating Action:

Moody’s assigns Baa1 senior note rating to AmFam

Holdings, outlook stable

2 March 2021

Company plans to issue senior unsecured notes

New York, March 2, 2021 – Moody’s Investors Service has assigned a Baa1 rating to a proposed

offering of senior unsecured notes by AmFam Holdings, Inc., a subsidiary of American Family

Insurance Mutual Holding Company (together with all subsidiaries, American Family). The company

intends to use the net proceeds to repay borrowings from the Federal Home Loan Bank of Chicago,

some of which were incurred to finance the recent Bold Penguin acquisition, and for general

corporate purposes. The notes are being offered to qualified institutional investors under Rule 144A/

Regulation S of the Securities Act of 1933. The rating outlook for AmFam Holdings is stable.
In the same action, Moody’s affirmed the A1 insurance financial strength (IFS) rating of American

Family Mutual Insurance Company, S.I, which also has a stable rating outlook.
RATINGS RATIONALE
According to Moody’s, the ratings reflect American Family's established personal lines business in

the Midwest, its growing national presence driven by its acquisition strategy, and its sound balance

sheet with conservative financial leverage and a high-quality fixed income portfolio. The group's

mutual ownership structure further supports its credit profile, aligning the interests of policyholders

and owners.
Tempering these strengths are the group’s weak but improving personal auto underwriting results,

and its exposure to convective storms as well as New Madrid earthquakes given its concentration

in the Midwest. American Family also faces intense competition in personal lines from the largest

national carriers. Given its mutual structure, American Family cannot readily access the equity

capital markets.
American Family is among the top 10 US personal lines insurers and has strong brand recognition,

particularly in the Midwest. The group has completed a number of acquisitions in the past several

years, which has expanded its distribution channels and product offerings but increased its

integration risk. The rating agency expects American Family to report improved auto combined ratios

for 2020 based on reduced vehicle usage and lower accident frequencies during the pandemic,

partly offset by premium relief provided to policyholders.
American Family’s proposed note issuance will increase its financial leverage, with the offsetting

benefit of extending its debt maturity profile. Moody's expects the group to continue its opportunistic

acquisition strategy while maintaining conservative financial metrics.
The three-notch spread between AmFam Holdings’ Baa1 senior unsecured debt rating and the A1

IFS ratings of its lead P&C subsidiary is consistent with Moody's typical US notching practices.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Factors that could lead to an upgrade of American Family’s ratings include: (i) increased scale and

expansion of its geographic footprint with continued strong capitalization and earnings, (ii) combined

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ratios, including catastrophes, consistently at or below 95%, and (iii) financial leverage below 15%,

and earnings coverage above 8x.
Factors that could lead to a rating downgrade include: (i) combined ratios consistently above

102%, (ii) erosion of policyholders’ surplus by more than 5% over a 12-month period, (iii) large

acquisition(s) with heightened financing and integration risk, or (iv) financial leverage above 25% and

earnings coverage less than 4x.
Moody’s has assigned the following rating:
AmFam Holdings, Inc. – senior unsecured at Baa1.
Outlook Actions:
AmFam Holdings, Inc. – outlook is stable.
Moody’s has affirmed the following rating:
American Family Mutual Insurance Company, S.I. – insurance financial strength at A1.
The rating outlook for American Family Mutual Insurance Company, S.I. remains stable.
The principal methodology used in these ratings was Property and Casualty Insurers

Methodology published in November 2019 available at

https://www.moodys.com/

researchdocumentcontentpage.aspx?docid=PBC_1187352

. Alternatively, please see the Rating

Methodologies page on www.moodys.com for a copy of this methodology.
Wisconsin-based American Family writes auto, home, commercial, and a small amount of life

insurance. On a consolidated GAAP basis, the group generated $13 billion in revenues and

$404 million in net income in 2020. Consolidated GAAP members' equity was $10.6 billion as of

December 31, 2020.
REGULATORY DISCLOSURES
For further specification of Moody’s key rating assumptions and sensitivity analysis, see

the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure

form. Moody’s Rating Symbols and Definitions can be found at:

https://www.moodys.com/

researchdocumentcontentpage.aspx?docid=PBC_79004

.

For ratings issued on a program, series, category/class of debt or security this announcement

provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or

note of the same series, category/class of debt, security or pursuant to a program for which the

ratings are derived exclusively from existing ratings in accordance with Moody's rating practices.

For ratings issued on a support provider, this announcement provides certain regulatory disclosures

in relation to the credit rating action on the support provider and in relation to each particular credit

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For provisional ratings, this announcement provides certain regulatory disclosures in relation to the

provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent

to the final issuance of the debt, in each case where the transaction structure and terms have not

changed prior to the assignment of the definitive rating in a manner that would have affected the

rating. For further information please see the ratings tab on the issuer/entity page for the respective

issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit support from the primary entity(ies)

of this credit rating action, and whose ratings may change as a result of this credit rating action, the

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associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach

exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated

entity, Disclosure from rated entity.
The ratings have been disclosed to the rated entities or their designated agent(s) and issued with no

amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody’s Policy for Designating and Assigning Unsolicited

Credit Ratings available on its website www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the

related rating outlook or rating review.
Moody’s general principles for assessing environmental, social and governance (ESG) risks in our

credit analysis can be found at

https://www.moodys.com/researchdocumentcontentpage.aspx?

docid=PBC_1243406

.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s

affiliates outside the EU and is endorsed by Moody’s Deutschland GmbH, An der Welle 5, Frankfurt

am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No

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affiliates outside the UK and is endorsed by Moody’s Investors Service Limited, One Canada

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Please see www.moodys.com for any updates on changes to the lead rating analyst and to the

Moody's legal entity that has issued the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory

disclosures for each credit rating.
Paulette Truman

VP-Senior Analyst

Financial Institutions Group

Moody's Investors Service, Inc.

250 Greenwich Street

New York, NY 10007

U.S.A.

JOURNALISTS: 1 212 553 0376

Client Service: 1 212 553 1653
Sarah Hibler

Associate Managing Director

Financial Institutions Group

JOURNALISTS: 1 212 553 0376

Client Service: 1 212 553 1653
Releasing Office:

Moody's Investors Service, Inc.

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250 Greenwich Street

New York, NY 10007

U.S.A.

JOURNALISTS: 1 212 553 0376

Client Service: 1 212 553 1653

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