A.M. Best Places Ratings of Continental General Insurance Company and United Teacher Associates Insurance Company Under Review With Negative Implications

A.M. Best has placed under review with negative implications the financial strength ratings of B++ (Good) and the issuer credit ratings of “bbb” of Continental General Insurance Company (Continental) and United Teacher Associates Insurance Company (UTA). Both companies are headquartered in Austin, TX.

The rating actions follow the announcement by parent company, American Financial Group, Inc. (AFG) [NYSE/Nasdaq: AFG], that it has reached a definitive agreement to sell Continental and UTA, which contain all of AFG’s run-off long-term care insurance business, to HC2 Holdings, Inc. (HCHC) for an initial payment of $7 million in cash and HCHC securities, subject to adjustment based on certain items, including operating results through the closing date. In addition, AFG may also receive up to $13 million of additional proceeds in the future based on the release of certain statutory liabilities. Continental and UTA contain all of AFG’s $800 million in net GAAP long-term care insurance reserves, as well as nearly $300 million of net GAAP annuity and life insurance reserves. The transaction had no ratings impact on AFG’s other life and annuity companies.

The ratings of Continental and UTA reflect A.M. Best’s current view of each company’s current credit profile, while the under review status with negative implications reflects the uncertainty over the future financial and strategic direction of the companies under its prospective new ownership, as well as the relatively weak credit profile of HCHC based upon its current leverage position and debt ratings issued by other Nationally Recognized Statistical Rating Organizations (NRSROs).

The transaction is expected to close in the third quarter of 2015, subject to customary conditions, including receipt of required regulatory approvals. The ratings will be removed from under review following the close of the transaction and A.M. Best’s discussions with the management of HCHC. Negative rating actions could occur if there is a deterioration of A.M. Best’s view of the stand alone credit profiles of the companies between now and the time the transaction closes, or if A.M. Best believes that the credit profile of HCHC is weak enough to warrant rating drag.

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.

Key insurance criteria reports utilized:

• Rating Members of Insurance Groups
• Evaluating Non-Insurance Ultimate Parents

This press release relates to rating(s) that have been published on A.M. Best's website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please visit A.M. Best’s Ratings & Criteria Center.

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