OLDWICK, N.J.--(BUSINESS WIRE)--A.M. Best has affirmed the Financial Strength Rating (FSR) of A+ (Superior) and the Long-Term Issuer Credit Ratings (Long-Term ICR) of “aa-” of the members of Allstate Insurance Group (Allstate). Concurrently, A.M. Best has affirmed the FSR of A+ (Superior) and the Long-Term ICRs of “aa-” of the key life/health members of the Allstate Financial Companies (Allstate Financial).
Concurrently, A.M. Best has upgraded the FSR to A (Excellent) from A- (Excellent) and the Long-Term ICRs to “a” from “a-” of the members of Allstate New Jersey Insurance Group (collectively referred to as Allstate New Jersey) (headquartered in Bridgewater, NJ).
Additionally, A.M. Best has affirmed the FSR of A (Excellent) and the Long-Term ICRs of “a” of First Colonial Insurance Company (First Colonial) (headquartered in Jacksonville, FL).
Lastly, A.M. Best has affirmed the Long-Term ICR of “a-” and all Long- and Short-Term Issue Credit Ratings (Long-Term IR; Short-Term IR) of the ultimate parent, The Allstate Corporation (Allcorp).
The outlook of all these Credit Ratings (ratings) is stable. All the above named companies are headquartered in Northbrook, IL, except where specified. (See link below for a detailed listing of the companies and ratings.)
Allstate’s strong capital position reflects its favorable earnings, which have contributed to organic surplus growth in each of the past five years on a pre-dividend basis. Allstate’s operating results continue to be favorable due to enhanced pricing sophistication and improved loss cost and expense management while maintaining underwriting discipline. Additionally, Allstate has a significant market presence and strong overall business profile as one of the largest personal lines writers in the United States. Allstate also benefits from the additional liquidity provided by Allcorp and its subsidiary, Kennett Capital, Inc., and through access to capital markets, lines of credit and its commercial paper program. The group’s favorable margins are attributable to enhanced pricing accuracy and risk optimization, along with its solid core underwriting capabilities, prudent capital management and sizable investment income. Lastly, underwriting results also reflect the favorable impact of Allstate’s ongoing risk management actions, various expense management initiatives and its significant investment in technology.
Partially offsetting these positive rating attributes is Allstate’s inherent exposure to natural disasters due to its expansive market presence throughout the United States. In addition, A.M. Best’s expectation is that losses from Hurricanes Harvey and Irma will be within risk tolerances, as well as within A.M. Best expectations, as A.M. Best looks across the losses relative to the broader peer group. A.M. Best will continue to monitor the developments associated with these events and their impact on Allstate. Should ultimate losses materially deviate from expectations, A.M. Best will update the market with regards to its rating opinion on Allstate. However, Allstate over the past several years has maintained an extensive catastrophe risk exposure management program, including a significantly enhanced property catastrophe reinsurance program, stricter underwriting guidelines, increased deductibles and discontinuance of selected lines of coverage, including earthquake. The group’s underwriting results in recent years have benefited from these risk-management actions. While the group maintains above-average underwriting and investment leverage, relative to industry norms, it has been able to maintain capital levels supportive of its business risks.
Key rating drivers that could produce a revision in the outlooks or lead to rating downgrades include risk-adjusted capitalization levels that do not meet A.M. Best’s standards for the present rating level, or consolidated financial leverage that exceeds stated guidelines for the current rating level. Conversely, positive rating action could occur if underwriting and operating performance is sustained at recent levels and risk-adjusted capital remains strong.
The ratings of Allstate Financial reflect its positive and diversified GAAP operating performance, which has benefited from the organization’s strategy to focus on growing its core protection and workplace supplemental health products while continuing to de-emphasize its exposure to spread-based products, and its adequate consolidated stand-alone risk-adjusted capitalization. The affirmations also recognize the financial strength and continued support of Allstate Insurance Company, as well as Allcorp. The rating affirmations also reflect benefits received from the Allstate brand name, as well as the competitive advantages derived from Allstate’s exclusive agencies and insurance specialists that provide cross-selling opportunities.
These strengths are partially offset by Allstate Financial’s increasing allocation to alternative assets, primarily limited partnerships and private equities. A.M. Best notes that the increase in alternative assets reflects Allstate Financial’s current investment strategy that calls for longer-term bonds supporting its immediate payout annuities to be reinvested in shorter duration bonds backing nearer term cash flows and Schedule BA assets and equities backing longer duration cash flows. The ratings also reflect the challenges Allstate Financial faces to improve operating performance given the prolonged low interest rate environment. Managing its large, albeit declining, interest-sensitive liabilities that remain exposed to interest rate, credit, reinvestment and disintermediation risks add to the challenge.
The rating affirmations of First Colonial reflect its solid risk-adjusted capitalization and strong underwriting performance prior to 2015. The ratings also benefit from the explicit and implicit support provided by Allcorp, its ultimate parent. As a subsidiary of Allcorp, First Colonial benefits from its expansive market presence and brand-name recognition.
These positive rating factors are partially offset by the company’s varying underwriting performance over the past three years, which is highly influenced by a host of economic factors, including auto sales. Recently, First Colonial has experienced an upward trend in its loss ratio due to elevated losses associated with its Guaranteed Auto Protection (GAP) product. In an effort to improve the GAP loss experience, management has implemented a host of mitigation initiatives, which include rate increases, enhancements to its pricing segmentation and various other risk management actions.
Negative rating action could occur if underwriting or operating results deteriorate further, which results in a material decline in overall risk-adjusted capitalization. In addition, negative rating action could occur if there is a lessening of parental support provided to First Colonial.
The upgrade of the ratings of the members of Allstate New Jersey reflects favorable risk-adjusted capitalization, consistently profitable operating performance and management’s local market knowledge. These positive rating attributes are partially offset by the group’s business concentration within one state, resulting in potential operating variability due to local market disruptions and localized catastrophic weather events. The ratings further recognize the consistent profitable trend in underwriting profitability in recent years, along with the expectation that trends in capitalization and operating performance will continue in the near to midterm.
Additional positive rating action may result if underwriting and operating results continue to generate organic surplus growth that results in continued strong levels of risk-adjusted capitalization. Negative rating action could occur if underwriting or operating results deteriorate significantly and causes a material decline in overall risk-adjusted capitalization, or if there is a lessening of parental support.
For a complete listing of The Allstate Corporation and its property/casualty and life/health subsidiaries' FSRs, Long-Term ICRs and Long- and Short-Term IRs, please visit The Allstate Corporation.
This press release relates to Credit Ratings 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 see A.M. Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Understanding Best’s Credit Ratings. For information on the proper media use of Best’s Credit Ratings and A.M. Best press releases, please view Guide for Media - Proper Use of Best’s Credit Ratings and A.M. Best Rating Action Press Releases.
A.M. Best is the world’s oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.
Copyright © 2017 by A.M. Best Rating Services, Inc. and/or its subsidiaries. ALL RIGHTS RESERVED.