Moody's puts American Financial on review

Moody's Investors Service put American Financial Group on review for downgrade including its senior debt at Baa3, American Financial Capital Trust I's capital securities at Ba1, AAG Holding Co., Inc.'s senior debt at Baa3 and American Annuity Group Capital Trust I & II's capital securities at Ba1.

Moody's said the it began the review due to continued concerns about American Financial's holding company liquidity profile.

The review will focus on the cash coverage of holding company requirements going forward considering the restricted unencumbered statutory dividend capacity from its main operating subsidiary, Great American Insurance Co.

Due to the depletion of unassigned surplus at Great American, Moody's is concerned that American Financial presently depends on less reliable sources of cash flow - including tax allocation payments, bank credit lines and extraordinary dividends - to service its ongoing holding company fixed charges.

Moody's noted that in recent years the holding company has received approval from insurance regulators for extraordinary dividends from its subsidiaries.

Unrestricted ordinary dividend capacity has fallen from over $186 million in 2000 to under $25 million in 2003, compared to fixed holding company expenses in excess of $100 million, Moodys' said. However, the rating agency expects improved underwriting profitability will contribute to building the company's unrestricted dividend capacity. Moody's believes the review will either result in a ratings confirmation or a one-notch downgrade.

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