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%.
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.