Allmerica Financial P/C Upgraded

A.M. Best Co. announced that it upgraded the financial strength ratings of Massachusetts-based Allmerica Financial Corp.’s P/C companies (AFC) to “A-” (excellent) from “B++” (very good). AFC’s debt ratings were upgraded to “bb+” from “bb” for senior debt, “bb-” from “b+” for capital securities and AMB-3 from AMB-4 for commercial paper. Best assigned all the ratings a stable outlook.

According to Best, the upgrade of the financial strength rating of AFC’s property/casualty companies reflects improved capitalization driven by the elimination of dividends to support the life/health affiliates, while maintaining satisfactory historical operating results and a strong regional market presence. Additionally, the rating recognizes the group’s well-balanced business composition and geographic diversification; it benefits from having two well-established regional organizations with long-standing agency relationships.

Best noted that the group’s high underwriting leverage, primarily attributable to $650 million in dividends paid to the parent between 1999 and 2002, which significantly reduced surplus, is a partially offsetting factor. It also indicated that the group has reported adverse loss reserve development in recent years and increased weather-related losses in 2003.

The rating agency expects the group will produce solid operating earnings reflective of continued firm market conditions and management’s corrective actions. These actions include agency management programs, pursuing rate adequacy in all territories, improving work processes and shifting the business mix to more attractive markets. Given management’s operating plan for 2004 and concurrent with the expectation that no dividends will be paid from the P/C companies, Best believes the group’s underwriting leverage and capitalization will improve.

Topics Property Casualty