A.M. Best Affirms Ratings of the Members of Allstate Financial Companies; Revises Outlook to Stable
January 26 2012 - 10:38AM
Business Wire
A.M. Best Co. has revised the outlook to stable from
negative and affirmed the financial strength rating (FSR) of A+
(Superior) and the issuer credit ratings (ICRs) of “aa-” of the
primary life/health insurance member companies of the Allstate
Financial Companies (Allstate Financial). The Allstate
Financial segment is the provider of life insurance, retirement and
investment products, and voluntary accident and health insurance
products for the enterprise’s ultimate parent, The Allstate
Corporation (Allcorp) [NYSE: ALL].
Concurrently, A.M. Best has revised the outlook to stable from
negative and affirmed the debt ratings of “aa-” of the remaining
outstanding notes issued under various funding agreement-backed
securities programs of the group’s lead life company, Allstate
Life Insurance Company (ALIC). Allcorp and ALIC are
headquartered in Northbrook, IL. (See link below for a detailed
listing of the companies and ratings.)
Allstate Financial’s revised outlook recognizes the improvement
in the performance of its fixed-income investment portfolio, which
has experienced declining levels of realized investment losses in
the recent year and is currently in a large net unrealized gain
position. The revised outlook also acknowledges the improvement in
Allstate Financial’s GAAP operating performance—although statutory
earnings remain a challenge—as well as the progress achieved as the
group continues to voluntarily de-emphasize its interest-sensitive
products while focusing on growing its core protection and
workplace supplemental health products.
In affirming the ratings of the primary life/health insurance
members of Allstate Financial, A.M. Best notes that the ratings
significantly benefit from the financial strength and support of
their immediate parent, Allstate Insurance Company
(Allstate), as well as the ultimate parent, Allcorp. Allstate
Financial’s ratings also benefit from the strong Allstate brand
name recognition as well as the competitive advantages derived from
Allstate’s exclusive agencies and insurance specialists that
provide Allstate Financial with significant cross-selling
opportunities within Allstate’s vast customer base. Moreover, the
ratings reflect Allstate Financial’s competitive market position,
its broad portfolios of protection and voluntary health products
and its adequate level of stand-alone risk-adjusted
capitalization.
Offsetting these positive factors are the challenges to sustain
and improve Allstate Financial’s operating performance. While the
life/health entities’ operating performance generally has been both
profitable and diversified, enhanced by active spread management
and good expense controls, overall results have fluctuated and
remain modest relative to A.M. Best’s expectations. A.M. Best notes
that Allstate Financial’s results have been dampened in recent
years by significant investment losses, the challenges of the
persistent low interest rate environment and several one-time
charges. Although the scale of Allstate Financial’s
interest-sensitive businesses continues to decline, the group may
be challenged to manage its existing interest-sensitive liabilities
that remain exposed to interest rate, credit, reinvestment and
disintermediation risks.
While A.M. Best acknowledges the improvement in Allstate
Financial’s fixed-income investment portfolio, several structured
asset classes remain with large pockets of gross unrealized losses
that could expose Allstate Financial to potential asset impairments
should the fragile U.S. economic recovery stall or deteriorate.
Additionally, Allstate Financial has elevated its exposure to
alternative assets. While these assets generally enhance Allstate
Financial’s spread management strategies, liquidity is reduced and
operating performance and financial strength also could be
adversely affected by adverse economic conditions.
A.M. Best believes Allstate Financial is well-positioned at the
current rating level for the foreseeable future. Factors that could
result in negative rating actions for Allstate Financial include a
significant and sustained decline in consolidated risk-adjusted
capitalization as measured by Best’s Capital Adequacy Ratio (BCAR)
model, net operating performance that does not meet A.M. Best’s
expectations, or negative rating actions taken on Allcorp.
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/012602allstatelh.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 Life/Health
Insurers”; “A.M. Best’s Perspective on Operating Leverage”; “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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