ALL Allstate Corporation

The credit rating agency, A.M. Best Co. upgraded the Financial Strength Rating (FSR) and Issuer Credit Rating (ICR) of Allstate Corp.’s (ALL) recently acquired subsidiary Esurance Insurance Company. The rating agency upgraded the FSR to “A+” from “A-” and ICR to “aa-” from “a-” with a stable outlook.

Concurrently, A.M. Best upgraded the FSR of Esurance’s subsidiary Esurance Property and Casualty Insurance Company (EPC) to “A+” from “A-”  and ICR to “aa-” from “a-”. The rating agency also affirmed the FSR of A- (Excellent) and ICR of “a-” of Esurance Insurance Company of New Jersey (EICNJ), another subsidiary of Esurance. All these ratings of the subsidiaries also carry a stable outlook.

The ratings upgrades come on the back of low operational risk of the companies due to the support provided by Allstate Insurance Company to EIC and EPC and Allstate New Jersey Insurance Company to EICNJ through full reinsurance. The ratings also reflect A.M Best’s expectation that the acquisition will be accretive to Allstate’s earnings by significantly expanding its distribution channel.

However, the ratings of the old umbrella company, Esurance Insurance Group, have been withdrawn after the acquisition. Allstate completed the acquisition of Esurance and Answer Financial (which was acquired by Esurance in 2008) from White Mountains Insurance Group Ltd. (WTM) in October 2011.

The impact of the acquisition on earnings is expected to break even till the second full year of ownership and accretive thereafter. Currently, the Zacks Consensus Estimate for Allstate’s fourth quarter earnings stand at 90 cents per share, showing a jump of 79% from the year-ago quarter. 1 out of 20 firms revised its estimate downward, while no upward revisions have been witnessed in the past 30 days.

For 2011, earnings are estimated to be 77 cents per share, sinking about 73% from 2010. Allstate carries a Zacks #3 Rank, implying a short-term Hold rating with no clear directional pressure over the near term.

 
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