A.M. Best Affirms Ratings on Allstate - Analyst Blog


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Last week, the ratings agency, A.M. Best Co. affirmed the issuer credit ratings (ICR) and debt ratings of Allstate Corporation ( ALL ) and its subsidiaries. Accordingly, the ratings agency affirmed the ICR of "a-" of the holding company.

Additionally, A.M. Best affirmed the ICR of "aa-" and financial strength rating ( FSR ) of "A+" of Allstate's subsidiary - Allstate Insurance Group and all of its units except North Light Specialty Insurance Company and First Colonial Insurance Company.

Meanwhile, North Light's FSR was upgraded to "A+" from "A" and ICR to "aa-" from "a". Besides, First Colonial was affirmed with an FSR of "A-" and ICR of "a-". The ratings agency also assigned a debt rating of "a-" to the new 30-year senior unsecured notes worth $500 million, issued by Allstate Insurance, which carries an interest rate of 5.2%, along with a stable outlook for all the ratings.

Additionally, A.M. Best affirmed the FSR of "A+" and ICR of "aa-" of another Allstate subsidiary - Allstate Financial Companies and its units. Moreover, it affirmed the debt rating of "aa-" of the outstanding notes of Allstate Life Insurance Company and revised the outlook for the ratings of Allstate Financial and Allstate Life Insurance to stable from negative.

Allstate's ratings were affirmed on the basis of the company's strong underwriting and investment incomes that have helped it to generate high operating earnings over the years. The company's ample liquidity and restrained financial leverage were other positives. Moreover, the company's new debt will increase its fixed charges but is not expected to have any significant impact on its financial leverage.

Further, Allstate Insurance's operating efficiency, strong capitalization and widespread market penetration helped the company in retaining A.M. Best's confidence and led to the affirmation of the ratings. Although the company is substantially exposed to natural calamities and suffers from high catastrophe losses, its non-catastrophe earnings are strong. Additionally, Allstate Insurance has taken several measures in the recent years to reduce its catastrophe risk. However, the company maintains a high underwriting and investment leverage, although strong underwriting performance and investment income substantially offset potential risk.

Besides, North Light's rating upgrade was based on the company's strong capitalization and low operating risk spurred by Allstate Insurance's contributions from reinsurance contracts.

Meanwhile, the improved results of Allstate Financial's fixed-income portfolio, strong market position, wide product portfolio and ample risk-adjusted capitalization have inspired A.M. Best's confidence in the company and have led to an outlook revision to stable. Additionally, a strong brand name of the group company and its widespread clientele played a role in the outlook upgrade of Allstate Financial.

However, A.M. Best is concerned about Allstate Financial's fluctuation in operating earnings, high investment losses, substantial non-recurring changes as well as the impact of the ongoing low interest rate scenario. Going ahead, a severe economic downturn could lead to substantial asset impairments.

Overall, the strong ratings and stable outlook of Allstate and its subsidiaries are expected to boost investors' confidence in the company, which competes with Progressive Corp . ( PGR ).

Currently, Allstate carries a Zacks #3 Rank (short-term Hold rating) supported by a long-term Underperform recommendation.

ALLSTATE CORP ( ALL ): Free Stock Analysis Report
PROGRESSIVE COR ( PGR ): Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Stocks
More Headlines for: ALL , FSR , PGR

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