A.M. Best Affirms Financial Strength Ratings of American National Group and Its Subsidiaries

A.M. Best Co. has affirmed the financial strength rating (FSR) of A (Excellent) and issuer credit rating (ICR) of "a+” of American National Insurance Company (ANICO) (Galveston, TX) (NASDAQ:ANAT), the lead life insurer and an ultimate parent company of the members of American National Group (ANG). Additionally, A.M. Best has affirmed the FSR of A (Excellent) and ICRs of "a” of American National Life Insurance Company of Texas, Garden State Life Insurance Company, Standard Life and Accident Insurance Company and Farm Family Life Insurance Company (Glenmont, NY), all remaining members of ANG. A.M. Best also has assigned an FSR of A (Excellent) and ICR of "a” to American National Life Insurance Company of New York (ANICONY) (Glenmont, NY). The outlook for all the above ratings is stable.

In addition, A.M. Best has downgraded the ICRs to "a” from "a+” and affirmed the FSR of A (Excellent) of American National Property and Casualty Group (ANPAC) and its member companies; American National Property and Casualty Company, American National General Insurance Company and American National County Mutual Insurance Company (Galveston, TX). The outlook for the ICRs has been revised to stable from negative, while the outlook for the FSR is stable. All companies above are domiciled in Springfield, MO, unless otherwise specified.

The rating affirmations of ANICO are based on its strengthened consolidated risk-adjusted capitalization, improved GAAP, statutory earnings in the most recent year, diverse product offerings and its distribution channels, which cover life, annuities, health, multi-line, property/casualty insurance segments. The ratings recognize the continuing recovery in ANICO’s investment portfolio performance in 2009 and 2010, which has resulted in higher net investment income, lower other than temporary impairments and unrealized aggregate gains in its fixed income portfolio. ANICO benefits from revenue and income from diverse sources, which include its life/health and property/casualty affiliates, as well as from its non-insurance affiliates.

Partially offsetting these factors are ANICO’s increasing exposure to interest-sensitive liabilities and underlying spread compression due to the current low interest rate environment, variability in GAAP and statutory earnings over the past five years, particularly in its property/casualty lines as well as its accident and health lines of business, growing exposure to mortgage loans and challenges of optimizing returns on a sustained basis.

The ratings of the life insurance subsidiaries of ANICO acknowledge their mixed operating trends, their generally more than adequate risk-adjusted capitalization and their continuing contribution to ANICO’s consolidated results. Partially offsetting these factors are the life subsidiaries’ somewhat fluctuating premiums and earnings trends, limited business profiles and the challenges to grow their business lines.

The downgrading of ANPAC’s ICR reflects its diminished capital base and elevated underwriting leverage, combined with its exposure to frequent weather events within its geographic footprint. ANPAC is challenged in the near to mid term to stabilize its results with regards to its exposure to the earnings volatility inherent in the company’s geographic footprint.

Partially offsetting these negative rating factors are ANPAC’s well-established regional market presence and partially improved operational metrics, as well as the financial commitment of its life/health parent, ANICO.

Additionally, A.M. Best has affirmed the FSR of A (Excellent) and ICRs of "a+” of the Farm Family Insurance Companies (Farm Family) and its two pooled property/casualty member companies, Farm Family Casualty Insurance Company and United Farm Family Insurance Company. The outlook for these ratings is stable. These companies are domiciled in Albany, NY.

The ratings and outlook of Farm Family recognize its consistently favorable operating earnings, adequate capitalization and well-established market position in the Northeast. The ratings also consider Farm Family’s ownership by ANICO and the synergies that are being enhanced with its affiliated group, ANPAC. Somewhat offsetting these positive factors are Farm Family’s elevated, but improving, underwriting leverage and its susceptibility to severe weather losses as seen in the company’s spring 2010 results.

Concurrently, A.M. Best has affirmed the FSRs of A (Excellent) and ICRs of "a” of Pacific Property & Casualty Company (San Jose, CA) and American National Lloyds Insurance Company (Galveston, TX). The outlook for these ratings is stable.

In addition, A.M. Best has revised the outlook to negative from stable and affirmed the FSR of A- (Excellent) and ICR of "a-” of ANPAC Louisiana Insurance Company (ANPAC LA) (Mandeville, LA). All the above companies are affiliates of American National Property and Casualty Company.

The revised outlook of ANPAC LA, acknowledges the continued operational drain on surplus, which is slowly endangering the company’s capital base. This is caused in part by ANPAC LA’s own need to protect itself from catastrophes with a large amount of reinsurance.

Partially mitigating this situation is the continued support that ANPAC LA receives from its direct parent, ANPAC.

The ratings of ANG reflect the strong support provided by ANICO, its adequate level of risk-adjusted capitalization, improved investment portfolio values and the strategic value that each company’s marketing niches and product offerings bring to ANICO.

ANICONY is a new wholly owned subsidiary of ANICO, incorporated in New York. ANICONY will operate as a special marketing arm of ANICO focusing on fixed annuities. A.M. Best expects ANICO will support ANICONY’s capitalization level at the current rating level.

For Best’s Credit Ratings, an overview of the rating process and rating methodologies, please visit www.ambest.com/ratings.

The principal methodologies used in determining these ratings, including any additional methodologies and factors that may have been considered, can be found at www.ambest.com/ratings/methodology.

Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers. For more information, visit www.ambest.com.