A.M. Best Affirms Ratings of The Allstate Corporation and Its Subsidiaries
January 26 2012 - 10:34AM
Business Wire
A.M. Best Co. has affirmed the financial strength rating
(FSR) of A+ (Superior) and issuer credit ratings (ICR) of “aa-” of
Allstate Insurance Group (Allstate) and its members.
Additionally, A.M. Best has assigned a debt rating of “a-” to the
newly issued $500 million 5.2% 30-year senior unsecured notes,
while affirming the ICR of “a-” and existing debt ratings of
Allstate’s parent, The Allstate Corporation (Allcorp) [NYSE:
ALL].Concurrently, A.M. Best has upgraded the FSR to A+ (Superior)
from A (Excellent) and the ICR to “aa-” from “a” of North Light
Specialty Insurance Company (North Light). In addition, A.M.
Best has affirmed the FSR of A- (Excellent) and ICR of “a-” of
First Colonial Insurance Company (First Colonial)
(Jacksonville, FL). The outlook for these ratings is stable. All
companies are domiciled in Northbrook, IL, unless otherwise
specified. (See link below for a detailed listing of the companies
and ratings.)
The ratings reflect Allstate’s solid risk-adjusted
capitalization, generally favorable operating performance and
significant market presence. The group’s capital position reflects
its generally favorable earnings, which have contributed to surplus
growth in most of the past five-year period, excluding parental
dividends. Allstate’s non-catastrophe operating results continue to
be favorable, as a result of enhanced pricing sophistication and
improved loss cost management while maintaining underwriting
discipline. Additionally, Allstate has a strong overall business
profile as the second-largest personal lines writer in the United
States. Furthermore, Allstate maintains moderate financial leverage
as well as additional liquidity at the holding company level at
both Allcorp and Kennett Capital, Inc., and through access to
capital markets, lines of credit and its commercial paper program.
The group’s five-year average operating returns are favorable
compared to its industry composite peers due to its solid core
underwriting capabilities and investment income.
Partially offsetting these positive rating attributes is
Allstate’s inherent exposure to natural disasters due to its
expansive market presence throughout the United States. This
exposure has been evident in recent years as net catastrophe losses
for the first nine months of 2011 were higher than any of the
previous 10 years’ annual catastrophe losses with the exception of
2005, the year of Hurricane Katrina. Catastrophe losses for the
first nine months of 2011 had a combined ratio impact of 19.4
points. However, over the past few years, Allstate has executed an
extensive catastrophe risk exposure reduction program, which
includes a significantly enhanced property catastrophe reinsurance
program, non-renewals, stricter underwriting guidelines, increased
deductibles and discontinuance of selected lines of coverage,
including earthquake.
Moreover, Allstate has made large dividend payments to Allcorp
in most of the past five years, which has contributed to volatility
in its risk-adjusted capitalization at times of heightened losses.
In addition, relative to industry norms, the group maintains
above-average underwriting and investment leverage, further
exposing its surplus position to potential volatility, as
demonstrated in recent years. However, due to solid investment
income and favorable underlying underwriting performance, Allstate
has been able to maintain capital levels supportive of its business
risks.
Key rating drivers that could produce a revision in Allstate’s
outlook or lead to a downgrading of its ratings include
capitalization that does not meet A.M. Best’s “Superior” standards;
a sustained period of net losses or catastrophe losses out of
proportion with market share; and consolidated financial leverage,
including short-term debt of greater than 30%.
The proceeds from the new debt issuance are expected to be used
for general corporate purposes, including facilitating the
repayment of $350 million senior notes maturing on February 15,
2012 and contributing to the repurchase of Allstate’s common stock
through open market purchases from time to time or through an
accelerated repurchase program. This issuance is expected to have a
minor impact on Allcorp’s financial leverage, which is within A.M.
Best’s guidelines for its current ratings. A.M. Best notes that the
leverage impact will slightly dampen fixed charge coverage;
however, Allcorp currently maintains above-average levels of cash
resources.
The upgrading of the ratings for North Light reflects its solid
risk-adjusted capitalization and the operating support provided by
Allstate. This operating support is demonstrated by a 100% quota
share reinsurance contract with Allstate Insurance Company
(AIC) for its countrywide business, excluding Florida, although
North Light does not currently write business in Florida. North
Light offers personal lines property coverage on a non-admitted
basis for unique, underserved customer segments or those residing
in high risk markets such as hurricane, wildfire or earthquake
prone regions. The company’s gross catastrophe exposure is reduced
to a nominal level on a net basis through its quota share
reinsurance arrangement with AIC.
For a complete listing of The Allstate Corporation and its
property/casualty and life/health subsidiaries’ FSRs, ICRs and debt
ratings, please visit
www.ambest.com/press/012601allstatepc.pdf.
The principal methodology used in determining these ratings is
Best’s Credit Rating Methodology -- Global Life and Non-Life
Insurance Edition, which provides a
comprehensive explanation of A.M. Best’s rating process and
highlights the different rating criteria employed. Additional key
criteria utilized include: “Risk Management and the Rating Process
for Insurance Companies”; “Understanding BCAR for Property/Casualty
Insurers”; “Catastrophe Analysis in A.M. Best Ratings”; “A.M.
Best’s Ratings & the Treatment of Debt”; “A.M. Best’s
Perspective on Operating Leverage”; “Equity Credit for Hybrid
Securities”; “Rating Funding Agreement-Backed Securities”; and
“Rating Members of Insurance Groups.” Methodologies can be found at
www.ambest.com/ratings/methodology.
Founded in 1899, A.M. Best Company is the world’s oldest and
most authoritative insurance rating and information source. For
more information, visit www.ambest.com.
Copyright © 2012 by A.M. Best Company,
Inc. ALL RIGHTS RESERVED.
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