Assessing Credit Quality and Capital Resilience: AM Best's Rating of AFG's Senior Unsecured Notes

In September 2025, AM Best assigned a Long-Term Issue Credit Rating of “a-” (Excellent) to American Financial Group, Inc. (AFG)'s newly issued $350 million, 5% 10-year senior unsecured notes, with a stable outlookAM Best Assigns Issue Credit Rating to American Financial Group, Inc.’s New Senior Unsecured Notes^[1]. This rating underscores AFG's robust credit profile, even as the company's unadjusted financial leverage ratio rises modestly to nearly 30% post-issuance. For specialty insurers, where capital structure resilience is paramount, this case offers a lens into AM Best's evolving criteria for evaluating credit quality and risk-adjusted capital adequacy.

Credit Quality: Balancing Leverage and Coverage

AFG's ability to maintain a strong credit rating despite increased leverage hinges on its exceptional interest coverage ratio, which exceeds 10 timesAM Best Assigns Issue Credit Rating to American Financial Group, Inc.’s New Senior Unsecured Notes^[1]. This metric, a cornerstone of AM Best's evaluation framework, reflects the company's capacity to service debt while sustaining positive operating earnings from its insurance subsidiaries. AM Best's methodology emphasizes that leverage ratios must remain within predefined thresholds to avoid downgrades. For instance, Humana Inc. faced a “bbb” (Good) rating due to leverage concerns and declining interest coverage (5–8 times), illustrating the sensitivity of credit ratings to these metricsAM Best Assigns Issue Credit Ratings to Humana Inc.’s New^[2]. AFG's leverage, while elevated, remains within AM Best's guidelines for its current ratings, demonstrating disciplined capital managementAM Best Assigns Issue Credit Rating to American Financial Group, Inc.’s New Senior Unsecured Notes^[1].

The company's proceeds from the note issuance—allocated to share repurchases and general corporate purposes—further highlight its strategic use of debt to optimize shareholder value without compromising creditworthinessAM Best Assigns Issue Credit Rating to American Financial Group, Inc.’s New Senior Unsecured Notes^[1]. This aligns with AM Best's emphasis on liquidity measures, such as operating cash flows and access to credit lines, as critical safeguards against default riskAM Best Assigns Issue Credit Rating to Ameriprise Financial, Inc.’s …^[3].

Capital Structure Resilience: AM Best's 2025 Methodology

AM Best's revised Best's Credit Rating Methodology (BCRM) for 2025 introduces nuanced criteria for assessing capital adequacy in specialty insurers. Central to this framework is the Best's Capital Adequacy Ratio (BCAR), which evaluates risk-adjusted capitalization across multiple value-at-risk (VaR) levels, including 95.0%, 99.0%, and 99.6%AM Best Releases Revised Best’s Credit Rating Methodology and …^[4]. For example, AM Specialty Insurance Company's “A-” rating is underpinned by a BCAR score at the 99.6% confidence level, reflecting its ability to withstand extreme stress scenariosAM Specialty Maintains A- (Excellent) Rating from …^[5].

The updated BCRM also classifies insurance groups into regulatory frameworks such as Collective Capital Management Groups (CCMGs) and Entity Prioritized Structures (EPS), which influence how capital is allocated and assessedAM Best Releases Revised Best’s Credit Rating Methodology and …^[4]. These classifications address complexities in multinational operations, ensuring consistency in evaluating downstreamed debt, hybrid capital instruments, and service-oriented activities. For AFG, its existing ratings remain unchanged, indicating that its capital structure aligns with AM Best's expectations for resilienceAM Best Assigns Issue Credit Rating to American Financial Group, Inc.’s New Senior Unsecured Notes^[1].

Benchmarks and Thresholds: A Glimpse into Industry Standards

While AM Best does not explicitly disclose 2025 BCAR thresholds for specialty insurers, industry examples provide indirect benchmarks. CapSpecialty Insurance Group, for instance, maintains “strongest” risk-adjusted capitalization through strategic reinsurance agreements that reduce net premium and reserve leverage ratiosAM Best Revises Outlooks to Positive for Members of …^[6]. Similarly, AFG's interest coverage ratio exceeding 10 times suggests that thresholds for “Excellent” ratings likely require coverage ratios above 8–10 times, with leverage ratios capped below 35%AM Best Assigns Issue Credit Rating to American Financial Group, Inc.’s New Senior Unsecured Notes^[1].

Conclusion: Implications for Investors

AFG's “a-” rating reaffirms its position as a creditworthy player in the specialty insurance sector, even amid moderate leverage increases. For investors, this case underscores the importance of monitoring both leverage and coverage metrics, as well as adherence to AM Best's BCAR-driven capital adequacy standards. As specialty insurers navigate evolving regulatory and market conditions, companies that align with AM Best's 2025 criteria—through disciplined underwriting, robust liquidity, and risk-adjusted capital management—will likely retain favorable credit profiles.