It's debatable if the fiduciary standard is 'higher' than suitability. But the better question might be, who's holding the bar?
A.M. Best Co. has affirmed the financial strength rating (FSR) of A+ (Superior) and issuer credit ratings (ICR) of "aa-" of all members of Allstate Insurance Group (Allstate).
Concurrently, A.M. Best has affirmed the FSR of A+ (Superior) and ICR of "aa-" of the key life/health insurance members of the Allstate Financial Companies (Allstate Financial). In addition, A.M. Best has affirmed the debt ratings of "aa-" of the remaining outstanding notes issued under the funding agreement-backed securities programs of Allstate Financial's lead life company Allstate Life Insurance Company. The outlook for all the above ratings is stable.
A.M. Best also has revised the outlook to positive from stable and affirmed the FSR of A- (Excellent) and ICR of "a-" of First Colonial Insurance Company (First Colonial) (Jacksonville, FL). Additionally, A.M. Best has affirmed the ICR of "a-" and debt ratings of the organization's ultimate parent, The Allstate Corp. (Allcorp) (Northbrook, IL) [NYSE: ALL]. The outlook for these ratings is stable. (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 strong business profile with a significant market presence. The group's capital position reflects its profitable 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 significant market presence and 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 in both Allcorp and its subsidiary, Kennett Capital, Inc., and through access to capital markets, lines of credit and its commercial paper program. The group's improved automobile and homeowners' margins are attributable to rate adequacy along with its solid core underwriting capabilities, prudent capital management and sizeable investment income. Furthermore, Allstate's underwriting results also reflect the favorable impact of its ongoing risk management actions, various expense management initiatives and 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. This exposure has been evident as significant net catastrophe losses have been reported in two of the past three years. However, during this time, Allstate has executed an extensive catastrophe risk exposure reduction program, including a significantly enhanced property catastrophe reinsurance program, non-renewals, stricter underwriting guidelines, increased deductibles and discontinuance of selected lines of coverage, including earthquakes. The group's underwriting results in 2012 benefited from these risk reduction actions and lower catastrophe losses.
Key rating drivers that could produce a revision in the outlook or a downgrading of the ratings include capitalization that does not meet A.M. Best's "Superior" FSR 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 percent.
In affirming Allstate Financial's ratings, A.M. Best notes these ratings significantly benefit from the financial strength and support of its immediate parent, Allstate Insurance Company (AIC), as well as its ultimate parent, Allcorp. The rating affirmations also recognize the benefits 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 the enterprise.
The current rating actions also reflect Allstate Financial's adequate levels of consolidated stand-alone risk-adjusted capitalization, as well as the improving performance of its fixed- income investment portfolio, which continues to experience declining levels of realized investment losses and is currently in a large net unrealized gain position. Additionally, the affirmation of the ratings recognizes Allstate Financial's positive and diversified GAAP operating performance and improving levels of statutory earnings that have benefited from the group's strategy to focus on growing its core protection and workplace supplemental health products while continuing to de-emphasize its spread-based products.
Offsetting these positive rating factors are the challenges Allstate Financial faces to sustain and improve its overall operating performance, which remains modest relative to A.M. Best's expectations. Managing its large, but declining, interest sensitive liabilities that remain exposed to interest rate, credit, reinvestment and disintermediation risks add to the challenge. While A.M. Best recognizes the currently favorable performance of Allstate Financial's investment portfolio, there remain several asset classes that could be exposed to potentially large asset impairments should the fragile U.S. economic recovery stall or deteriorate. However, A.M. Best notes that Allstate Financial has been actively reducing its exposure to these asset classes.
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 include negative rating actions taken by A.M. Best on AIC, a material change in A.M. Best's view of Allstate Financial's importance to the enterprise or a significant and sustained decline in its consolidated risk-adjusted capitalization.
The ratings of First Colonial are based on its solid risk- adjusted capitalization and explicit and implicit support provided by Allstate. As a subsidiary, First Colonial benefits from Allstate's expansive market presence and brand-name recognition. The company's capital position reflects its conservative investment risk profile and historical record of financial support from Allcorp. In addition, First Colonial maintains modest underwriting leverage and an improved risk-adjusted capital position following AIC's assumption of a large book of auto roadside business. Furthermore, First Colonial's steady stream of investment income has complemented underwriting earnings in most years. The outlooks reflect A.M. Best's expectation that First Colonial will maintain solid risk- adjusted capitalization as its operating results continue to improve.
Positive rating actions could occur if there is a sustainable long-term improvement in First Colonial's operating performance and loss reserve development trends. However, any material negative deviation in terms of earnings, capitalization or risk profile could result in downward pressure on the ratings and/or a revised outlook.
For a complete listing of The Allstate Corp. and its property/ casualty and life/health subsidiaries' FSRs, ICRs and debt ratings:
The methodology used in determining these ratings is Best's Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best's rating process and contains the different rating criteria employed in the rating process. Key criteria utilized include: "Understanding BCAR for Property/Casualty Insurers"; "Understanding BCAR for Life/Health Insurers"; "Insurance Holding Company and Debt Ratings"; "Catastrophe Analysis in A.M. Best Ratings"; "Rating Members of Insurance Groups"; "Equity Credit for Hybrid Securities"; and "Risk Management and the Rating Process for Insurance Companies." Best's Credit Rating Methodology: ambest.com/ratings/methodology.
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