Ratings: North Country, Liberty Mutual (notes), Allstate (shelf), Am. Freedom

May 9, 2012

A.M. Best Co. has upgraded the financial strength rating to ‘A-‘ (Excellent) from ‘B++’ (Good) and issuer credit rating to “a-” from “bbb+” of Watertown, New York-based North Country Insurance Company, and has revised its outlook for both ratings to stable from positive. The rating upgrades “reflect North Country’s continued favorable operating performance, improved underwriting leverage and long-standing local market presence,” Best explained. “North Country’s solid capital position has been derived from surplus growth in each of the past five years. Over the most recent five-year period, North Country has recorded double-digit pre-tax returns on revenues primarily driven by profitable underwriting results supplemented by generally consistent levels of net investments and other income. Contributing to the company’s profitability has been management’s re-underwriting efforts in earlier years, strict adherence to underwriting principles and pricing discipline.” As partial offsetting factors Best cited “North Country’s geographic risk concentration in New York, which exposes its operating performance to weather-related events, as well as changes in regulatory and competitive market conditions. Also, the company’s underwriting expense ratio is above the personal property composite average, primarily driven by an elevated commission structure and loss adjustment expenses. However, this ratio has been reduced in the most recent years.”

A.M. Best Co. has assigned a debt rating of “bbb” to the newly issued $500 million 4.95 percent senior unsecured notes due 2022 and $500 million 6.5 percent senior unsecured notes due 2042 issued by Liberty Mutual Group Inc. and has assigned a stable outlook to both ratings. The existing ratings of LMGI and its subsidiaries are unchanged. Best said it “anticipates that the majority of the proceeds from these issuances will be used to fund LMGI’s previously announced tender offers for portions of its 10.75 percent series C junior subordinated notes due 2088, 7.3 percent senior notes due 2014 and 5.75 percent senior notes due 2014, and Liberty Mutual Insurance Company’s 7.697 percent surplus notes due 2097.” Following the completion of the tender offers and issuances of new debt, Best said it “expects LMGI’s debt-to-capital ratio to be only modestly higher than its ratio of 23.2 percent at year-end 2011. The company’s financial leverage and coverage ratios are both within Best’s guidelines for the company’s current ratings and are expected to remain so over the near term.”

A.M. Best Co. has assigned indicative ratings of “a-” to senior debt, “bbb+” to subordinated debt, “bbb” to junior subordinated debt and “bbb” to preferred stock of the recently filed shelf registration of The Allstate Corporation (Allcorp). In addition Best has assigned indicative ratings of “bbb” to the preferred securities of Allstate Financing VII, VIII, IX and X, which may be issued under Allcorp’s shelf registration statement. The outlook assigned to all of the ratings is stable. The new shelf registration replaces Allcorp’s previous shelf registration, which is expiring on May 8. Consequently, the indicative ratings for the previous shelf registration have been withdrawn. The assigned ratings recognize Allstate Insurance Group’s “solid risk-adjusted capitalization, generally favorable operating performance and significant market presence.,” said Best The ratings also are indicative of Best’s view of the “group’s near-term earnings prospects when considering Allstate’s strong overall business profile as the second-largest personal lines writer in the United States. As of first quarter 2012, Allcorp’s debt-to-capital and debt-to-tangible capital ratios were 24.5 percent and 25.8 percent, respectively, and the company continues to maintain a fixed interest coverage ratio that is supportive of its ratings.”

A.M. Best Co. has commented that the financial strength rating of ‘A-‘ (Excellent) and issuer credit rating of “a-” of Chicago-based American Freedom Insurance Company (AFIC) are unchanged following the sale of the company to Western National Mutual Insurance Company (WNMIC) of Edina, Minn., the lead company of the Western National Insurance Group. Best noted that “AFIC is a non-standard personal automobile writer in the metropolitan Chicago area that will continue to operate as a separate stand-alone entity with its current executive management and staff. As such, there will be no integration of AFIC’s accounting, claims or policy issuance systems since the company will operate autonomously outside of the Western National Insurance Group.”

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