Fitch Ratings has revised the Rating Outlook of US primary insurer Allstate from stable to negative.
Fitch states that the outlook revision to Negative primarily reflects sharp deterioration in 9M22 underwriting results, compared to rating sensitivities, declines in statutory capital and adverse revisions to prior reserves outside of expectations.
The ratings agency also affirmed The Allstate Corporation’s core property/casualty insurance subsidiaries’ Insurer Financial Strength ratings at ‘A+’, its holding company ratings, including the Issuer Default Rating, at ‘A-‘ and senior debt ratings at ‘BBB+’.
Allstate’s pre-announcement of 3Q22 results indicated expectations for sharp underwriting result deterioration, says Fitch, with an estimated property/liability calendar-year combined ratio of 111.6%, primarily related to an auto combined ratio of 117.4%.
Fitch notes that the deterioration in results is driven by heightened severity for auto business related to inflationary increases to loss costs, including material prior period reserve development.
P/C operating subsidiary capitalisation declined in 1H22, with statutory surplus dropping as a result of statutory dividends to the parent of nearly $4 billion along with a net loss reported during the period.
Fitch expects that Allstate will maintain strong overall capital levels and flexibility to contribute capital to operating subsidiaries from the holding company when prudent. Fitch’s Prism capital model for the P/C group was ‘Very Strong’ in 2021. Prism results and traditional statutory leverage metrics are expected to be pressured by statutory surplus declines.
Another key rating driver was reserve development, says Fitch, it writes, “Allstate’s historical reserve experience is generally favourable, with modest volatility in its generally short-tailed reserves. However, the company reported $875 million of adverse development in 3Q22.
“Personal auto made up $643 million of the reserve additions, reflecting updated assumptions related to medical inflation, increased accident severity, more complex medical treatment and greater attorney representation. Allstate previously added $604 million of reserves during 1H22, increasing the calendar-year combined ratio by 2.9 points.”
Meanwhile, for the third quarter of 2022, gross catastrophe losses due to Hurricane Ian for Allstate totalled $671 million pre-tax, but the firm says this total will be reduced by $305 million, or 45%, in anticipated reinsurance recoveries, for a net estimated loss of $366 million.