The principal methodology used in determining these ratings is Best’s Credit Rating Methodology -- Global Life and Non-Life Insurance Edition, which provides a comprehensive explanation of A.M. Best’s rating process and highlights the different rating criteria employed. Additional key criteria utilized include: “Understanding BCAR for Property/Casualty Insurers”; “Risk Management and the Rating Process for Insurance Companies”; “Rating Members of Insurance Groups”; “Rating Health Insurance Companies”; “Understanding BCAR for Life and Health Insurers”; “A.M. Best’s Ratings & the Treatment of Debt”; and “Equity Credit for Hybrid Securities.” Methodologies can be found at www.ambest.com/ratings/methodology.Founded in 1899, 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 © 2011 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.
A.M. Best Co. has affirmed the financial strength rating (FSR) of A (Excellent) and issuer credit rating (ICR) of “a” of American Southern Group (American Southern) and its members. These ratings apply to American Southern Insurance Company (Topeka, KS) and its wholly owned and 100% reinsured subsidiary, American Safety Insurance Company. Additionally, A.M. Best has affirmed the FSR of B++ (Good) and ICR of “bbb+” of Bankers Fidelity Life Insurance Company (Bankers Fidelity). Concurrently, A.M. Best has affirmed the ICR of “bbb-” of the parent company, Atlantic American Corporation (Atlantic American) (NASDAQ: AAME). The outlook for all ratings is stable. All companies are domiciled in Atlanta, GA, unless otherwise specified. American Southern’s ratings reflect its strong risk-adjusted capitalization, long history of profitability, management’s disciplined underwriting approach, its historically conservative loss reserving practices and local market knowledge. Somewhat offsetting these positive rating factors is American Southern’s history of paying substantial stockholder dividends, which historically have been used to service the debt held at Atlantic American, and the continuing soft market conditions throughout most commercial lines. The stable outlook reflects A.M. Best’s expectation that a solid level of profitability will be maintained over the near term, further supporting American Southern’s strong risk-adjusted capitalization. The affirmation of Bankers Fidelity’s ratings recognizes its strong risk-adjusted capital position and continued business diversification strategy. Additionally, the company recently has been strategically focused on the development of a complete worksite marketing channel. Bankers Fidelity continues to emphasize the sale of senior life and niche individual life businesses, while maintaining its Medicare supplement presence. The ratings also consider the financial leverage and interest coverage of Atlantic American. Although leverage in the past detracted from the ratings in prior years, they improved significantly in recent years as Atlantic American retired a portion of its outstanding preferred stock and bank debt with the proceeds from the 2008 sale of two former subsidiaries (Georgia Casualty & Surety Company and Association Casualty Insurance Company). Altogether, adjusted debt-to-capital and interest coverage ratios were roughly 21% and 1.5 times, respectively, at June 30, 2011. Interest coverage is slightly below A.M. Best’s expectation for the current rating level; however, this is offset by the insurance operating companies’ ability to historically generate sufficient earnings to cover obligations at Atlantic American. In addition, Atlantic American holds $17.5 million of cash and short-term investments and $7.5 million in other marketable securities at June 30, 2011.