A.M. Best Upgrades Ratings of Allmerica's Life Companies; Affirms Rating of Property/Casualty Subsidiaries.Business Editors OLDWICK, N.J.--(BUSINESS WIRE)--April 15, 2003 A.M. Best Co. has upgraded the financial strength ratings to B- (Fair) from C++ (Marginal) of Allmerica Financial Corporation's (NYSE NYSE See: New York Stock Exchange :AFC (1) (Application Foundation Classes) A class library from Microsoft that provides an application framework and graphics, graphical user interface (GUI) and multimedia routines for Java programmers. ) (Worcester, MA) life insurance companies and affirmed the financial strength rating of B++ (Very Good) of its property/casualty companies. Additionally, Allmerica's senior debt ratings were downgraded to "bb" from "bb+", the capital securities rating to "b+" from "bb-", while the commercial paper rating was affirmed at AMB-4. All of Allmerica's financial strength and long-term debt Long-Term Debt Loans and financial obligations lasting over one year. Notes: For example debts obligations such as bonds and notes which have maturities greater than one year would be considered long-term debt. ratings were removed from under review with negative implications and assigned stable outlooks. These rating actions reflect the stabilization in the statutory capitalization of the life insurance operations and a reduction in the risk based capital requirement agreement with the Massachusetts Department of Insurance that has significantly diminished the risk of regulatory action. Over the past several months, Allmerica has completed several strategic initiatives that have stabilized the life companies' capital position including: the sale of its universal life insurance block, the reinsurance The contract made between an insurance company and a third party to protect the insurance company from losses. The contract provides for the third party to pay for the loss sustained by the insurance company when the company makes a payment on the original contract. of the mortality risk in its variable annuity Variable Annuity An insurance contract in which, at the end of the accumulation stage, the insurance company guarantees a minimum payment. The remaining income payments can vary depending on the performance of the managed portfolio. block, earnings derived from surrender charges Surrender Charge A fee levied on a life insurance policyholder upon cancellation of his or her life insurance policy. The fee is used to cover the costs of keeping the insurance policy on the insurance provider's books. associated with the variable annuity book, the retirement of funding agreements Funding Agreement Illiquid insurance contracts that provide guaranteed principal repayment and interest payments for a predetermined period of time. Notes: Funding agreements are marketed to mutual fund companies and municipal reinvestments. at a discount and a modest capital contribution from Allmerica. While the capitalization of the life group has stabilized, concern still remains relative to the orderly run-off of the remaining variable products and the ongoing exposure to general account credit risk through its large, albeit declining, investment in below-investment grade bonds relative to capital. A.M. Best will continue to monitor the run-off of the life operations to evaluate surrender activity and its impact on reducing the life companies' net amount at risk. The property/casualty companies' rating was affirmed, in part, because the capital and regulatory concerns at the life operations have abated Abated, an ancient technical term applied in masonry and metal work to those portions which are sunk beneath the surface, as in inscriptions where the ground is sunk round the letters so as to leave the letters or ornament in relief. From 1911 Encyclopædia Britannica . However, A.M. Best continues to have concerns regarding the property/casualty companies' weakened, albeit secure, capitalization levels and the dependence of the holding company on the property/casualty operations for liquidity. In 2002, the property/casualty companies' underwriting Underwriting 1. The process by which investment bankers raise investment capital from investors on behalf of corporations and governments that are issuing securities (both equity and debt). 2. The process of issuing insurance policies. and operating performance significantly improved relative to 2001. However, in 2002, operating results were offset by a $74 million pension liability charge. In addition to the pension charge, the property/casualty companies paid $92 million of dividends to the parent in July 2002, resulting in a 10% decline in statutory surplus in 2002 and continued escalation es·ca·late v. es·ca·lat·ed, es·ca·lat·ing, es·ca·lates v.tr. To increase, enlarge, or intensify: escalated the hostilities in the Persian Gulf. v.intr. of its underwriting leverage measures. Substantial dividend payments to support the life companies and the holding company's obligations have reduced the group's capitalization over the past several years. In 2003, A.M. Best anticipates the property/casualty companies will have generally good underwriting and operating performance, although profitability may be adversely affected by higher, more normalized catastrophe experience and the potential for continued unfavorable loss reserve development, particularly in personal auto lines relating to relating to relate prep → concernant relating to relate prep → bezüglich +gen, mit Bezug auf +acc higher loss costs associated with Michigan personal injury protection business. Given management's operating plan for 2003 and concurrent with the expectation that no dividends will be paid to the parent in 2003 and that pension charges will be more moderate, A.M. Best is guardedly optimistic op·ti·mist n. 1. One who usually expects a favorable outcome. 2. A believer in philosophical optimism. op that the property/casualty group's underwriting leverage measures and capitalization will improve in 2003. Allmerica's financial leverage of 19% is moderate. However, of greater importance is the financial flexibility and liquidity at the parent, which is limited. Allmerica has sufficient cash and short-term securities to cover its fixed obligations in 2003. However, in May 2003, the company's bank credit facility expires and is not being renewed, reducing their sources of short-term liquidity. Therefore, Allmerica is more dependent on the property/casualty companies for cash. The property/casualty companies cannot upstream dividends without regulatory approval prior to July 2003. However, the holding company has sufficient cash to meet its 2003 obligations. Allmerica's cash needs in 2004 will likely be sourced from the property/casualty companies, limiting capital accumulation Most generally, the accumulation of capital refers simply to the gathering or amassment of objects of value; the increase in wealth; or the creation of wealth. Capital can be generally defined as assets invested for profit. . Given these issues, the long-term debt ratings were downgraded. For a complete list of Allmerica Financial Corporation's debt and financial strength ratings, please visit http://www.ambest.com/press/041502allmerica.pdf . A.M. Best Co., established in 1899, is the world's oldest and most authoritative insurance rating and information source. For more information, visit A.M. Best's Web site at www.ambest.com . |
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