Best Affirms Allstate New Jersey ‘A-‘ Ratings; Outlook Stable

A.M. Best Co. has affirmed the financial strength rating (FSR) of ‘A-‘ (Excellent) and issuer credit ratings (ICR) of “a-” of Allstate New Jersey Insurance Group and its members. The outlook for all ratings is stable. Allstate New Jersey’s ultimate parent is The Allstate Corporation.

The rating affirmations are based on Allstate New Jersey’s “solid risk-adjusted capitalization, inclusive of the issuance of a $150 million surplus note from Allstate New Jersey Insurance Company” to Allstate Insurance Company in exchange for cash, which was completed April 17, 2009,” said Best.

The rating agency also noted that “Allstate New Jersey’s risk-adjusted capitalization had declined in recent years, driven by significant stockholder dividend payments to its parent, Allstate Insurance Company, and capital losses on its investment portfolio due to recent unfavorable market conditions.

“In addition, although Allstate New Jersey’s operating performance was favorable over the previous five-year period, underwriting results have recently deteriorated. This trend is primarily due to an increase in the private passenger automobile loss ratio. This increase was driven by bodily injury (BI) and personal injury protection (PIP) loss severity increases, a decline in premium volume and the impact of prior year reserve adjustments.

“Consequently, management has taken strategic actions to improve personal automobile profitability, which include BI and PIP base rate and increased limits factor adjustments, stricter underwriting guidelines and other operational initiatives. The ratings also acknowledge the efficiencies obtained as a member of Allstate Insurance Group, which is a market leader in the U.S. insurance industry. In addition, management’s local market knowledge enables it to react quickly to changing market conditions.”

As negative rating factors, Best cited the Company’s “geographic concentration of risk that exposes its capitalization and earnings to regulatory mandates, weather-related losses and competitive pressures. Management has taken steps to mitigate its homeowners’ catastrophe risk exposure, which includes the use of percentage hurricane deductibles, a moratorium on new business writings, rate increases, strict monitoring of coastal exposures and the purchase of catastrophe excess of loss reinsurance coverage.”

Best summarized the ratings as follows – The FSR of ‘A-‘ (Excellent) and ICRs of “a-” have been affirmed for Allstate New Jersey Insurance Group and its following members:
–Allstate New Jersey Insurance Company
–Allstate New Jersey Property and Casualty Insurance Company
–Encompass Insurance Company of New Jersey
–Encompass Property and Casualty Insurance Company of New Jersey
Source: A.M. Best – www.ambest.com