A.M. Best Affirms Allstate Ratings - Analyst Blog

Yesterday, A.M. Best Co. affirmed the credit and debt ratings of Allstate Corp. (ALL) and its subsidiaries namely, Allstate Insurance Group, Allstate Financial and Allstate Life Insurance Co.

The rating agency has affirmed issuer credit ratings (ICR) of “a-” and debt ratings for Allstate Corp. Alongside, the financial strength rating (FSR) of “A+” (Superior) and ICR of “aa-” has been asserted on Allstate Insurance Group, Allstate Financial and its associates.  These ratings reflect a stable outlook.

However, the rating agency continued to cast a negative outlook by affirming its debt ratings of “aa-” on the outstanding notes issued under various funding agreement-backed securities (FABS) programs of Allstate Life Insurance Co.

A.M. Best cited solid risk-adjusted capitalization reasons that contributed to surplus growth over the past five-year period. Further, favorable non-catastrophe operating results and comparably solid underwriting capabilities and investment leverage bode well for future growth.

These factors have also helped Allstate gain the second-largest personal lines writer position in the US, which also reflects its competitive strength against arch rivals such as Berkshire Hathaway (BRK.A) and The Travelers Companies (TRV).

A.M. Best rates the financial strength of insurance companies and the security of holding companies' debt and preferred stock, thereby indicating its strong future performance. Although the rating actions principally reflect a favorable operating performance for the company and an extensive market presence, A.M. Best remains concerned about Allstate's exposure to recurrent weather-related events, significant dividend payments to its parent company, capital losses and volatility in pricing and loss costs.

Nevertheless, Allstate's intense catastrophe risk exposure reduction program has aided the company in improving its catastrophe losses from $3.3 billion in 2008 to $2.1 billion in 2009. However, catastrophe losses have already mounted to $1.7 billion until September 2010, and are expected to be close to or rise above 2009 levels, thereby adversely impacting the combined ratio.

The company is taking strategic actions to reduce losses on Allstate's business from catastrophes through enhanced property catastrophe reinsurance program, non-renewals, stricter underwriting guidelines, increased deductibles and discontinuance of selected lines of coverage, including earthquake.

With an operational strategy that enables acclimatizing to changing market regulations, Allstate is well positioned to benefit from an improving economy. While Allstate's capital and liquidity levels are impressive and we anticipate continued benefits from its industry-leading position, diversification and pricing discipline, we apprehend that the uncertain economic environment will continue to affect its premium writings and investment risk in the upcoming quarters.

 
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