Allstate losses stack up too high: S&P cuts ratings

Global ratings agency S&P cut ratings of US P&C insurer  Allstate Corporation citing “continued weak underwriting performance” and heavy capital consumption as exposures rise.

Financial strength ratings and issuer credit ratings were cut on the full swathe of core operating subsidiaries to ‘A+’ from ‘AA-.’ The long-term credit rating of the parent holding was cut to ‘BBB+’ from ‘A-.’

“The downgrade reflects Allstate's continued weak underwriting performance given elevated catastrophe losses, persistently high loss costs for the personal auto business, and the increased exposure - measured by premiums - consuming higher levels of capital,” S&P said in its statement.

Allstate is on track for a notable loss in full-year 2023, with a combined ratio in the 108-110% range. That could run high if natural catastrophes continue to push the pace of losses.

And nat cats are clearly embedded in the picture. H1 nat cat losses added 18.6 points to the loss ratio but brought “minimal recoveries” from reinsurance given their origin in a higher frequency of events below attachment points. Protection from severity is in place, analysts said.

“We believe the company continues to face catastrophe risks in its homeowners business line in the third and fourth quarters of 2023 mainly from wind and fire disasters that could further erode earnings, and ultimately, capitalization,” analysts warned.

A full-year loss would follow a rise in S&P's own combined ratio calculation to 115.6% in H1 from 105.4% in the year prior period, including an eye-opening 132.3% in homeowners and 106.4% in automotive.

Improvements might be expected from attempts to increase insurance rates in automotive, cut ties on loss-making policies in property and cut costs towards operational efficiency, S&P said.

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