[April 17, 2014]

A.M. Best Affirms Ratings for Republic Indemnity Company of America and Its Affiliates

A.M. Best has affirmed the financial strength rating of A (Excellent) and issuer credit ratings of "a" of Republic Indemnity Company of America (RICA) and its 100% reinsured subsidiary, Republic Indemnity Company of California (RICC) (both collectively referred to as Republic), as well as RICA's 100% reinsured affiliates, Bridgefield Employers Insurance Company (BEIC) and its subsidiary, Bridgefield Casualty Insurance Company (BCIC). (BEIC and BCIC are collectively referred to as Summit, and the four companies are collectively known as the Republic and Summit Insurance Pool). All companies are subsidiaries of American Financial Group, Inc. (AFG) (Cincinnati, OH) (NYSE:AFG). The outlook for all ratings is stable. RICA and RICC are headquartered in Encino, CA (News - Alert), and BEIC and BCIC are headquartered in Lakeland, FL.

The Summit companies were acquired by AFG from Liberty Mutual Insurance Company as part of its acquisition of Summit Holdings Southeast, Inc. in a transaction that closed on April 1, 2014. It is anticipated that the operations of the Republic and Summit companies will continue to be managed independently under the ownership of AFG.

The ratings reflect Republic and Summit Insurance Pool's historically strong operating performance, supportive level of risk-adjusted capitalization achieved through profitable operations and management's successful track record through all phases f the market cycle, as well as the expanded geographical diversity of the pool's business following the addition of the Summit companies to the pool. The ratings also recognize the implicit and explicit support afforded by AFG, which has infused capital as needed to maintain risk-adjusted capitalization at a level in line with the ratings.

These positive rating factors are somewhat offset by the downturn in underwriting performance at Republic in 2009 through 2012, relative to its historical profitability levels (given the impact of the macroeconomic environment), as well as a degree of uncertainty regarding the future net financial performance of the Summit companies. This uncertainty is driven by the lack of published financial performance of the Summit companies on a stand-along basis as they were previously pooled with a large group of companies under the prior owner. Other offsetting rating factors include the cumulative impact of stockholder dividends paid to AFG and the concentrated nature of the group's business in a single line of insurance, although the geographically diversified nature of the pool's business reduces A.M. Best's concern. Despite these offsetting rating factors, the outlook reflects the group's supportive level of risk-adjusted capitalization, its long-term presence and established expertise within its major workers' compensation markets, as well as the financial support available from AFG if needed.

While A.M. Best believes positive rating actions are unlikely in the near term, key factors that could trigger negative rating actions include additional deterioration in the organization's underwriting and operating results that develop into a weakening of its risk-adjusted capitalization.

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.

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

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