Best Reacts to Allstate Floridian’s Capital Management Efforts Following Hurricanes

A.M. Best Co. reported this week that it acknowledges Allstate Floridian Insurance Group’s (Allstate Floridian) (Northbrook, Ill.) capital management efforts following Hurricanes Charley, Frances, Ivan and Jeanne.

These hurricanes resulted in an estimated $811 million in after-tax incurred losses, net of recoveries from the Florida Hurricane Catastrophe Fund (FHCF). The capital management efforts included the contribution of $311 million by Allstate Insurance Company, consisting of $175 million through the purchase of a surplus note, $100 million in cash and $36 million through the contribution of the common stock of Allstate Floridian Indemnity Company.

Although A.M. Best is encouraged by the demonstrated parental support following these hurricanes, the financial strength rating of B+ (Very Good) of Allstate Floridian remains under review with negative implications as its current risk-adjusted capitalization is not supportive of the rating. However, A.M. Best anticipates Allstate Insurance Company will provide additional financial support for Allstate Floridian in the case of any subsequent Florida hurricane events for the remainder of the 2004 hurricane season. Allstate Floridian’s management has expressed its belief that the events of this hurricane season will likely result in an examination of the Florida insurance marketplace.

Accordingly, Allstate Floridian is in the process of developing operational and capital management strategies in anticipation of possible changes in the Florida market subsequent to a December 2004 Florida special legislative session.

A.M. Best expects that Allstate Floridian will make appropriate changes to its business model and capitalization to support a secure rating. If Allstate Floridian does not take such actions, the rating will be downgraded.