Allstate Affirmed

A.M. Best Co. affirmed the financial strength ratings of the property/casualty and life/health affiliates of The Allstate Corporation. In addition, A.M. Best assigned an “a+” senior debt rating to The Allstate Corporation’s $550 million, 5.375 percent five-year notes in line with the previously assigned indicative debt ratings as part of the corporation’s $2 billion June 2000 shelf registration. Proceeds from the recent debt offering were used to redeem all 22 million shares of the 7.95 percent Cumulative Quarterly Income Preferred Securities issued in 1996 by Allstate Financing I.

The ratings reflect Allstate’s superior financial strength, favorable operating performance and significant market franchise. The strong capital position, stable balance sheet and excellent liquidity reflect management’s conservative operating and financial philosophies. This commitment to capital discipline is evident in the relatively low financial leverage maintained at The Allstate Corporation, which is less than 20 percent (including trust preferreds). In addition, the corporation’s ability to service its annual interest expense is strong. Allstate Corp. maintains additional assets at the holding company level of more than $1.1 billion available for corporate purposes such as additional subsidiary capital, stock repurchase or acquisitions.

Allstate continues to generate favorable returns, but has experienced declines driven by increased auto loss costs, intense pricing competition in the automobile sector and increased frequency and severity trends in its homeowners’ book of business. By implementing its Strategic Risk Management approach to pricing, marketing and underwriting processes, Allstate should generate improved automobile results.

The group has taken aggressive actions with regards to the homeowners’ book of business, including rate increases, revised underwriting guidelines and product enhancements. However, improved homeowner results will take longer to correct due in part to its 12-month policy as compared with six-month auto policies.

Allstate has implemented various strategic initiatives to enhance its operating performance, accelerate organic growth and more fully benefit from its significant name recognition. These initiatives include the creation of multiple distribution channels, a comprehensive risk management platform, expanded penetration into the independent agent market and a shift to target market-specific advertising.

Allstate faces execution risk in implementing its plan. Despite these risks as well as the modest decline in results, A.M. Best believes that over the long-term, these initiatives—along with the group’s efficient capital management—will allow Allstate to strengthen its position.

Topics Allstate