Noting its adequate risk-adjusted capitalization, A.M. Best has affirmed the ratings of Bridgewater, N.J.-based Allstate New Jersey Insurance Group and its members.

The ratings agency affirmed the insurer’s financial strength rating of A- (Excellent) and issuer credit ratings of “a- ” for Allstate New Jersey, Allstate New Jersey Insurance Co., New Jersey Property and Casualty Insurance Co.,  Encompass Insurance Company of New Jersey, and Encompass Property and Casualty Insurance Company of New Jersey.

The rating affirmation basis is inclusive of the issuance of a $150 million surplus note from the Bridgewater company to Northbrook, Ill.-based Allstate Insurance Co., expected to be completed in the second quarter, pending regulatory approval, A.M. Best said.

It also noted that Allstate New Jersey’s risk-adjusted capitalization had declined in recent years, driven by significant stockholder dividend payments to its parent, NJ Holdings LLC, and capital losses on its investment portfolio due to recent unfavorable market conditions.

While Allstate New Jersey’s operating performance has been solid for five years, underwriting results have recently deteriorated, the ratings service said. This trend, it noted, is primarily caused by an increase in the private passenger automobile loss ratio.

That increase was a result of bodily injury and personal injury protection loss severity increases, a decline in premium volume and the impact of prior year reserve adjustments, A.M. Best said.

Consequently, management has taken strategic actions to improve personal automobile profitability, which include BI and PIP base rates and increased limits factor adjustments, as well as an increased focus on claims process execution, management of medical costs and fraud intervention, according to the ratings service.

A.M. Best’s ratings also acknowledge efficiencies as a member of Allstate Insurance Group, a market leader in the U.S. insurance industry, and management’s local market knowledge enables it to react quickly to changing market conditions.

Negative rating factors for Allstate New Jersey include its geographic concentration of risk that exposes its capitalization and earnings to regulatory mandates, weather-related losses and competitive pressures, according to A.M. Best, which noted that management has taken steps to mitigate homeowners’ catastrophic risk exposure, including the use of percentage hurricane deductibles and a moratorium on new business writing.